Investors, Politicians, & Other Children - Weekly Blog # 745

 

 

 

Mike Lipper’s Monday Morning Musings

 

Investors, Politicians, & Other Children

 

 Editors: Frank Harrison 1997-2018, Hylton Phillips-Page 2018 –

    

 

 

Most investors, politicians, and other children act as if they are the only people that have had to deal with behavioral challenges. However, there is very little in life that is totally new, only the packaging has changed.

 

For example, how should one measure progress, and should it cause action? Most of us have some level of confidence in reported numbers, although numbers are an abstraction of a reality, not reality itself.

 

We are all counters from an early age, and since tradeable money was created have tended to count many of our successes and occasional failures in monetary terms.

 

The problem is the value of money is in the eyes of the beholder. One hundred million Confederate dollars has very little, if any value today.

 

Those dollar bills were on the losing side of a painful war, but we have been on the losing side of an age-old battle since birth. That depreciating value is called inflation.

 

The crux of the problem is the creator of this vehicle of exchange is also one of its largest users. Furthermore, the ruler of the mint or printing press is in a position of strength due to support from the right people. The easiest way to keep their loyalty is to pay them. In imperial Rome it was called “bread and circuses”.

 

In many Roman cities and towns, the amphitheater was larger than the nearby fortress. These were the entertainment centers for the populace who had enough food to eat due to an efficient agricultural system with well-engineered aqueducts.

 

I find it revealing that today’s name for giving money indirectly to the population is derived from a Latin word for stimulus. In earlier days it was called a bribe.

 

When a long-distant trader, Marco Polo, worked along the long Silk Road (1271-1295), the most advanced society was the Chinese empire. It developed gun powder and later developed paper money. Not surprisingly the empire had a large government, with examinations for jobs.

 

From my standpoint, smuggling silkworms back to Europe created a market-based exchange with a sounder form of money, especially when compared to their traditionally weakened currency. This is the way he delt with inflation.

 

In the thirteenth century the Europeans were somewhat protected against inflation due to small indigenous silver mines whose content went into their currency. This lasted into the next century and was replaced by gold and silver produced at low wages in Latin America, starting about 200 years of inflation.

 

When the steady stream of gold dried up the overseas colonies of England and other European countries became too expensive to maintain without substantial taxes. This is the reason a political group in England was not disappointed with the result of The American Revolution.

 

Confidence in the Future is Low

There are a plethora of signs showing this lack of a defined future:

• What are yields on US Treasuries saying? 2-year Treasuries are yielding 3.25%, 10-year Treasuries 2.84%, and 30-year Treasuries 3.07%. The 2-year is inverted relative to the 10 and 30-years!!

•  All 3 of the AAII survey predictions for the next 6 months are in the 30-39 % range.

• While 53% of the DJIA companies were winners for the week, the DJIA lost value in aggregate points. By comparison, only 40% of the companies in the Transportation index were winners.

 

• The JOC-ECRI industrial price index dropped 5.15% year over year.

 

• Exchange traded equity funds continued to suffer redemptions, led by growth and value funds.

 

• Liz Ann Sonders, the highly respected chief strategist from Charles Schwab is not bullish because she has not seen the market capitulate, as would normally be the case near the end of a bear market.

 

My Views

I have been searching for reasons to be optimistic for our long-term investment accounts, as after every bear market there is a bull market.

 

I agree with Richard Bernstein that bull markets don’t start with narrow leadership.

 

I believe economic and market cycles are not just number exercises, which you might be led to believe after reading columns from the various pundits.

 

I believe cycles are critically needed to address severe imbalances, not just trading opportunities. In previous blogs I have listed troubling demographics quality of schooling, healthcare, military strength, and leadership.

 

As I do not see these imbalances being addressed, I am afraid we will experience one or more recessions. There is a popular hope we will avoid a recognized recession, or only suffer a mild one.

 

If that were to happen, it would not likely sufficiently address our problems. I have no doubt our politicians can continue to produce a smoke screen to hide the issues. The current proposed legislation is an example of this, almost guaranteeing a major recession in a couple of years.

 

If that were to happen, much like during Paul Volcker’s tenure where he had two recessions, there would be substantial risk of a needed recession with very high interest rates.

 

I look forward to a new bull market with some answers to our problems, even after that experience. Our families will need one.

 

Please comment.

 

 

 

Did you miss my blog last week? Click here to read.

https://mikelipper.blogspot.com/2022/07/weather-market-economic-and-political.html

 

https://mikelipper.blogspot.com/2022/07/beware-of-cheap-seek-fair-slowly-weekly.html

 

https://mikelipper.blogspot.com/2022/07/time-to-be-contrary-weekly-blog-741.html

 

 

Did someone forward you this blog? 

To receive Mike Lipper’s Blog each Monday morning, please subscribe by emailing me directly at AML@Lipperadvising.com

 

Copyright © 2008 - 2022

 

A. Michael Lipper, CFA

All rights reserved.

 

Contact author for limited redistribution permission.

  

Weather, Market, Economic, and Political Forecasts have Similar Records - Weekly Blog # 744

 

 

 

Mike Lipper’s Monday Morning Musings

 

Weather, Market, Economic, and

Political Forecasts have Similar Records

 

 

 Editors: Frank Harrison 1997-2018, Hylton Phillips-Page 2018 –

    

 

 

Caution:

“Bears are the worst people to listen to at the lows, and bulls are the worst to listen to at the highs.” Bank of America Merrill.

 

Are you Optimistic?

For a number crunching experienced analyst it is much easier to be excessively skeptical than believing things will work out well. Please suggest ways I can be more optimistic in the future, as it has been too easy to be pessimistic for more than a year.

 

Two Big Stories of the Week

Far too much has been said or written about the Federal Reserve raising interest rates by 75 basis points and the Senate’s compromise tax bill. Analytically, all I wish to add are thoughts not discussed elsewhere.

 

In all the discussion of interest rates related to both inflation and recessions, two long-term critically important areas are not explored.

 

Most of the discussion has been focused on the size of the increase and its timing. More important is the historical need for recessions (Some of which were turned into depressions due to policy mistakes.)

 

Throughout recorded economic history there have been severe economic/market disruptions caused by known and unidentified imbalances not properly addressed in normal circumstances.

 

The present imbalances I perceive as not being addressed can be characterized by the lack of sufficient efficiency to produce satisfactory results, some of which are briefly shown below:

 

·    In the US there are roughly twice as many openings as there are unemployed, with 5% fewer participants in the work force. Among other factors this is the combined result of poor schooling and home training, plus unaffordable child-care.

 

·   Prospective employers can’t find workers. This is not just the result of insufficient formal “education”, but also work attitudes.

 

·   One example is healthcare, due to regulation resulting from tort lawyers and insurance payers. Unions also don’t help. We all pay for this.

 

·   Another example is the lack of an adequate Military force to defend our interests.

 

·   The final topic not discussed in the rate discussion, particularly when mentioning Paul Volcker’s name, is that he needed two recessions to break the back of inflation.

 

Turning to the new Tax bill, which in theory “balances” expenditures with tax collections. There is a classic problem of government paid workers versus some of the best highly paid tax accountants and lawyers in the world.

 

Dynamic forecasting is one reason weather, stock, economic, and political forecasters have difficulty on being correct in their judgements twice in a row. (Track bettors know how difficult it is to follow a winning bet with another winning bet in the next race.)

 

Luckily it did happen in World War II, when General Dwight Eisenhauer was given command of the largest amphibious landing in the history of the world. At the scheduled time of the main European landing the weather was poor. The German general’s staff of highly trained logisticians believed Ike would postpone the landing to later in the month of June. However, they did not take into consideration that Ike grew up on a farm in Kansas and spent many years as General Mac Arthur’s speechwriter in the Philippines, both of which experience sudden storms. Ike made the judgment to go ahead with the June 6^th landing. Although there were some difficulties, it established the Americans, British, and other Allies on the beaches before the Germans could reinforce their defenses. This proves that making a bet against the odds can win sometimes.

 

What Else Happened?

This week the New York Stock Exchange (NYSE) volume of up price transactions was approximately the same as those on the NASDAQ market, at 13 million shares. The big difference was the number of shares changing hands at lower prices, with the NYSE having 7.1 million and the NASDAQ 9.4 million. (As mentioned in these blogs, the NASDAQ players tend to be wiser traders, due to the absence of index players and to some extent wealth managers.) This could be viewed as a cautionary note.

 

Also, 95% of the stocks in the Dow Jones Transportation Index rose, while only 80% of the stocks in the DJIA rose this week. Typically, more professionals invest in transportation securities than the more popular industrials in the DJIA. This is perhaps a contrary positive indicator.

 

Remember:

 I want to learn why you are Optimistic.

 

 

 

Did you miss my blog last week? Click here to read.

https://mikelipper.blogspot.com/2022/07/beware-of-cheap-seek-fair-slowly-weekly.html

 

https://mikelipper.blogspot.com/2022/07/time-to-be-contrary-weekly-blog-741.html

 

https://mikelipper.blogspot.com/2022/07/mike-lippers-monday-morning-musings.html

 

 

Did someone forward you this blog? 

To receive Mike Lipper’s Blog each Monday morning, please subscribe by emailing me directly at AML@Lipperadvising.com

 

Copyright © 2008 - 2022

 

A. Michael Lipper, CFA

All rights reserved.

 

Contact author for limited redistribution permission.