2 Presidential Lessons to be Learned/NASDAQ Clue - Weekly Blog # 673

 

Mike Lipper’s Monday Morning Musings

2 Presidential Lessons to be Learned/NASDAQ Clue

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

 

For Want of a Nail

For want of a nail the shoe was lost.

For want of a shoe the horse was lost.

For want of a horse the rider was lost.

For want of a rider the message was lost.

For want of a message the battle was lost.

For want of a battle the kingdom was lost.

And all for want of a horseshoe nail.

A similar proverb has been coming to us for many centuries, in many languages, showing the critical importance of micro elements on macro events. As a bottom-up analyst I have learned to build macro views from the micro, distinct from many top-down thinkers who believe a macro view is appropriate for investment decision making.

Learning from Past Presidential Mistakes 

Before the current administration attempts to dictate its top-down views it would be wise to review the consequences of prior Presidents’ actions, which had the opposite effect of their intensions and led to severe repercussions for the world, country, and investors. In two cases, the party affiliation of the president did not save him from important mistakes.

FDR

The current administration is described as the most “progressive” since FDR, whose effort to redeploy the population and redistribute their wealth, took a bad recession caused by unsound debt policies and turned it into a long Depression lasting to the needed World War II. (Note, depression is a psychological term and is not designed for an economic period.) The lesson coming from this 12-year period was the central government being as much a part of the problem as the solution. In the eyes of potential aggressors, the US was weakened and would be slow to respond due to a lack of demonstrated political will. (Including, shifting government spending from buying to producing, a weak and outdated military, raising taxes on productive portions of society, and making it illegal for Americans to own gold.)

Richard Nixon

Became an advocate for Keynesian contracyclical spending and closed “The Gold Window”, which prevented  the US from buying gold from foreign nations for dollars and ignited the sharpest rise in inflation in modern times. While he did open the door to China, he saw it in military terms and did not contemplate the commercial plusses and minuses. 

Influences on the Stock Market

There are three mega market concerns: 

1. Economic/political concerns
2. Corporate views and earnings
3. Market structure changes

I am delighted most investors view the market impact in the order listed. As a contrarian, I take the reverse order as more important. Looking for “The Nail…”. A basic rule of investigation is to not believe the owners of the “printing presses”, demonstrated by the Federal Reserve’s terrible record on predicting economic turning points. One of the reasons that their record is so bad is that the Fed and the government use tax data for individual income. (I am sure everyone reading this blog attempts to show the maximum amount of possible income on their tax forms.) 

Corporate earnings releases have become very “plastic”. “Adjusted” financials now take prominence over audited statements in letters from the CEO. In the era of ESG and Diversity, commentary is about wishes and intentions, not current conditions. Thus, I put much more credence in securities transaction reports, even though I am conscious of trades occurring “off the market”. In addition, for historical reasons I have a lot of confidence in mutual fund data. It is from these vantage points the following views are offered.

Current Briefs

1. In the current week ended Thursday, mutual funds gaining more than 10% for the week included: 5 Value funds, 4 each in small and mid-cap funds, and 2 each in Core Commodities and Global funds. While smaller and mid-cap value funds were generally favored, individual stock selection was critical.
2. Six of the top 25 for the week invested in Japan and 8 of the bottom-10 were invested in natural resources.
3. Net fund flows for the week focused on portfolio attributes as well as immediate performance.
4. The JOC-ECRI Industrial Price Index year-over-year is +75%

New York Stock Exchange vs. NASDAQ

1. Volume year-to-date through Friday:  NYSE -25.57% vs. NASDAQ +25.14%                                                                                                                           
2. New Highs, New Lows, Number of Securities Traded

                 NYSE     NASDAQ

New Highs    820        784

New Lows      95        231

# Traded    3419       4322

NYSE is more bullish, but NASDAQ is Savvier, as shown on Thursday with the 400 plus point drop.

What Do You Think? Did I find a nail? If not, what would be?

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

https://mikelipper.blogspot.com/2021/03/mike-lippers-monday-morning-musings.html

https://mikelipper.blogspot.com/2021/03/next-race-winner-weekly-blog-671.html

https://mikelipper.blogspot.com/2021/02/did-something-happen-last-week-weekly.html

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A. Michael Lipper, CFA

All rights reserved.

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Top Down Dictums Measured Digitally Are Not Designed to Win - Weekly Blog # 601

Mike Lipper’s Monday Morning Musings

Top Down Dictums Measured Digitally Are Not Designed to Win

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

Author's note
After producing our 600th blog I was prepared for more of the same numbers-oriented thought processes. However, life is full of surprises and mine included spending the last five days as a patient in the Overlook Medical Center in Summit, New Jersey. I was a victim of the Adenovirus F 41/42, which is somewhat like Pneumonia, but different. During my many sleepless nights I thought about the life lessons from my experience in the US Marine Corps and as a junior analyst at a trust bank. Those experiences helped prepare me to recognize the mistakes made through top-down decision making using digital analysis.

There is hardly an organized force today that does not mandate total compliance with the words and power delivered from those at the top to those  on the bottom. Usually, this means segregating people and strategies into narrow boxes through identified digital differences. We see this in Religion, political parties, non-profits, corporations and sports. In each of these human activities we assign labels like believer, progressive, conservative, socially responsible, gender, left-handed hitter, or growth stock manager.

Organizations marshal their people and resources to deploy them in the chessboard of life using these differences. Notice, we tend to play down whether a person is particularly competent or nice, or has a good set of morals. Sometimes this leads to extreme or unwise behavior. For example, as a young father of little league children I watched some fathers urging their children to hit left handed in baseball, because it was mathematically accurate that left handed hitters had a shorter run to first base than the more numerous right handed hitters. Not much attention was paid to the young player's skill, either at bat or in the field. Getting on base however more than satisfied the father, regardless of what it did to the young person.

I saw an analogous event while I was a communication platoon commander in the USMC. I commanded forty-two mostly young Marines. These marines fit into the Table of Organization of the Corps, which in theory enables every such unit to have the same capability as every other. Each Marine is also considered equivalent to any other, any place in the world. As was often the case, my young marines and their slightly older non-commissioned officers quickly showed me the different skill sets of the troops. If we were laying down a wire network, some Marines were quick to use the paths and roads in the area. Others took more time and strung their lines in hiding, preventing them from being disrupted by their own or enemy movements. We had a few Marines that were champion tinkerers and could make old equipment better than new.

As a junior analyst at a trust bank in a bull pen of other analysts, we produced multi-page reports for the trust officers so that they could pick out a few lines for their customers. When I looked at my fellows, I noticed a few who were quite plugged into the brokerage community and were quite good at finding promising new issues. Others recommended unexciting stocks that rarely went down more than the market. Some analysts found companies that had prior problems and had solved them, or at least largely addressed the issues.

Clearly, each of us were different and could have been used differently. Recently, I have been involved with a few non-profits and corporations who wish to appeal to clients through various ESG actions. For the most part these groups don't have in-house investment experience, so they follow a “check the box” strategy in terms of age, gender, or ethnicity. In a discussion with a consultant pushing for more women on boards, she never once mentioned an applicable skill set. I pointed out that women have risen to responsible positions for some time and provided an example. In the 1990s, before I sold the data bank to Reuters Group, three out of our five offices were managed by women with responsibility for the bulk of the employees. They were not in these positions because they were women, but just happened to be the most qualified people for the job.

Selecting Mutual Funds 
Our principal job is to select and manage a portfolio of mutual funds for clients. When we got started there were relatively few funds and competitive leagues. We developed a large number, probably more were needed, and used those peer groups to help with investment selection. During short time periods, those portfolios with a good portion of their money in similar securities tended to lead or lag more diversified portfolios. For conservative longer-term holders this approach may be preferable. There are times when how a fund handles significant sales or redemptions can make them attractive or unattractive. For example, if a fund that is growing needs to add new names to the roster, picking new names that are not as good as others in the portfolio may end up diluting the portfolio. On the other hand, a fund that is in net redemption can improve its long-term outlook by selling their less attractive names, increasing ownership in their better bets.

Conclusion 
The value of particular people is more important that the labels that many put on them. People make the difference, not the labels.



Did you miss my past few blogs? Click one of the links below to read.
https://mikelipper.blogspot.com/2019/10/two-questions-length-of-recession-near.html

https://mikelipper.blogspot.com/2019/10/things-are-seldom-what-they-seem-weekly.html

https://mikelipper.blogspot.com/2019/10/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 - 2019
A. Michael Lipper, CFA

All rights reserved
Contact author for limited redistribution permission.