Before Focusing on Shorter-Term Reactions - Weekly Blog # 950

 

 

 

Mike Lipper’s Monday Morning Musings

 

Before Focusing on Shorter-Term Reactions

 

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

 

          

 

 

We should recognize that several topics that arose this week will have longer-term implications and impact results for many years, if not future decades. None of these contributions to our thinking will influence things directly, but some or all may influence our future.

 

Smoke from the Canadian wildfires has blanketed much of the US. Sports activities were delayed in Philadelphia, and the World Cup game in Miami was also influenced. The important message is that the US is not an isolated country, activities in both Canada and Mexico have measurable impacts on us.

 

The World Cup competition introduced real America to many sports fans from all over the world. Prior to traveling to the games many people looked at the US as Manhattan below 60th street, a few government buildings in D.C., and some sound stages in California. Costco, Brooklyn, and our national parks have awakened them to the country’s beauty, its friendly people, and a large population of many talents. It also showed athletes playing their game better than those representing America. I suspect by the next World Cup we will produce better results too. The biggest change is likely to be in women’s soccer.

 

Our media and our President comment on “the stock market” as if it were singular. Furthermore, the direction of the market is aligned with the economy. Increasingly, “the market” is made up of several smaller markets moving differently from each other. For most of this year, important sections of the market have been pointing down compared to a limited number of tech companies going up. The stocks of some of the nation’s leading healthcare companies are selling at 1990 or 2000 prices. These companies are rarely mentioned by pundits or politicians. In future it would be wise for investors to participate in the growth of Asia, and later Africa and the Middle East.

 

The final US input may be a collection of groups in Congress having only titular relations with the two main parties. The main battle will be in the Senate, which takes 60 votes for most legislation to pass. However, neither party will be able to count on all its members due to some issue specific deserters. This could lead to the only functioning group being a conflicted White House ruling through executive orders in all agencies except the Fed.    

 

Clues To the Future

The Three Jobs

Security Analysts essentially have three jobs. The first job is to avoid being tagged with losing money, or worse, having a negative relationship with a paying client. The second, and most common function, is to be associated with winning positions or clusters of winners. The third job is to successfully support the sales effort of the organization.

 

What is our Role?

First and foremost, our first loyalty is to our investment management clients. If we are reasonably successful, we then earn the privilege of sharing our views with others through this blog.

 

We Use this Blog to Shape our Thinking

The price action of common stocks did not give us much help last week. In general, the daily moves were equally balanced between gains and losses. However, the latest sample survey of the American Association of Individual Investors (AAII) had their six-month expectations swinging a bit positive. (The AAII survey does not cover the end of the week, and many market analysts treat it as a contrary indicator at “turning points”.)

 

Our Biases

We think we do a good job over an extended period for long-term investors. In our longest multi-generational account of sixteen positions, five holdings represent over 50% of the gains. This demonstrates that most of the time we prefer both a small list of holdings and the ability to let winners exceed the SEC’s definition of diversified. Our accounts consist of both common stocks and mutual funds, or the manager’s portfolio. We also own securities that invest overseas, which are appropriate positions for this account, but may not be for others.

 

Some Hints for Long-Term Buyers

Two very popular stocks, IBM and Space X, which we do not own, declined this week. Both have lessons we believe are important for long-term investors. The fall in IBM was caused by the company’s disclosure that their software, consulting, infrastructure, and main frame computer customers are switching to buying “chips”. While pundits focused on what they were not buying from IBM, the item that struck me as even more important was the decline of items tied to main frame computers. IBM was responsible for selling some 60% or more of these expensive devices. In future there will be some consulting and infrastructure sales, plus an ever-decreasing number of mainframes. Furthermore, they no-longer have the advantage of being the first computer company with “sales engineers”. IBM is not the company that my grandfather loved. The lesson for all of us is that even one-time great companies can have economic difficulties. There is not a single company remaining from the original Dow Jones Industrial Average (DJIA), with the majority of them no longer in business.

 

At the other extreme, Space X is a business with exciting future products and services which also declined this week, selling below its original public issue price. In our role as portfolio manager we do not invest in highly sought after IPOs.

 

Despite the problems associated with these two leaders, the number of advancing prices on the NASDAQ exchange were higher than the number of decliners this week. However, on the older New York Stock Exchange (NYSE) the reverse was true 46% vs 59%.

 

Question: What if anything I have said do you agree with? 

 

 

 

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Unclear Data Mostly Bearish, but Bullish Later - Weekly Blog # 870

 

Mike Lipper’s Monday Morning Musings

 

Unclear Data Mostly Bearish, but Bullish Later

 

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

 

 

 

First Half

Marcus Ashworth is one of the best market analysts who writes daily for Bloomberg.  In a recent piece he focused on volatility, with the following introduction:

The election of Donald Trump introduces an 

unwelcome capriciousness to US policy making,

with everything from trade to regulation to crypto-

currencies looking decidedly less predictable. And 

while the US consumer continues to defy expectation

by keeping the world’s largest economy rolling

along just fine, the rest of the world is a lot less

robust. Our key message for 2025: Buckle up, it’s

“gonna” be a roller coaster.

 

It is my own view that even Mr. Trump does not have a complete view of what is going to happen. As shown in the recent election of the House Speaker, members of both the Senate and House act differently than the majority of their party and will be paid off in some known or unknown way. Furthermore, going back to early American history, foreign powers will express their will and influence on our results and actions.

 

Chartists’ Views

We have heard many times that history does not repeat itself but often rhymes. One of the easiest ways to record the rhymes is through charts, which are often right as to future price moves. They have learned that future reversals can frequently be successfully predicted. The standard pattern for trend reversals is a “head and shoulders silhouette”. The three or more peaks with the center one being the highest shows each of the peaks declining to a common neckline. Currently, the two shoulders have hit their necklines and bounced up a bit. Most important to me, this describes the S&P 500 price action. If it breaks the neckline that indicates the likely chance of a significant decline.

 

Historically, significant declines often follow substantial increases, like those we have experienced. Declines often occur after valuations have been stretched like a rubber band. The measure I find helpful is the ratio of market value to book value. Currently, the S&P 500 ratio is 5.37x vs 4.58x a year ago. This seems like quite a stretch.

 

AAII

Many professional analysts look down on the retail market despite a reasonably good long-term track record. Like many others, it tends to be wrong at turning points. The AAII sample survey asks their participants if they are bullish or bearish for the next 6 months. I find the percentage difference between the bulls and bears of interest. The spread for last week was only 1.9% vs. 3.7% the week before. In each case the bulls were on top. My reading is that these investors are usually very intense in their views. The view they share with many professionals is that they are waiting, but don’t know what they are waiting for!

 

Other Straws in the Wind

Many of these relationships could change significantly:

• The bottom third of credit card holders are tapped out.
• The five best-selling car brands in the US are foreign.
• Only 44% of weekly prices tracked by the WSJ were up in the latest week.        

 

Most Funds Don’t Perform

There are 103 peer groups that I look at to see if they on average beat the S&P 500 Index fund. Below are the results showing the number of Equity and Equity Related Fund Groups that beat the average S&P 500 Index Fund for 1, 5, and 10 years.

 1-Year     5-Years      10-Years

   8            4               3

   

Just like following Professional Golfers, the ordinary weekend player can learn useful techniques, avoid many injuries, and enjoy investing.

 

Beware of Simplistic Data

It is popular to compare mutual fund gross sales to ETF sales, taking the difference as an indication of popularity. The problem is fund redemptions are built-in the day a fund is purchased. Redemptions for many holders is the completion of a planned period or condition, regardless of performance. The average age of a mutual fund owner is senior to when they initially purchased the fund. Many redemptions are also mandated by retirement vehicles, such as required mandated distributions.

 

ETFs are like buying individual securities. The buyer is often considerably younger and considers it a form of trading. To net these actions is like purchasing a car for dating when you need a car to get to work or to transport your family.

 

Question: Are there any topics you would like me to explore, or correct?    

 

 

 

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This Was the Week That Was, But Not What Was Expected - Weekly Blog # 861

 

Mike Lipper’s Monday Morning Musings

 

This Was The Week That Was,

But Not What Was Expected

 

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

 

 

 

 “Trump Trade”, An Artifact of History

No one really knows which of the new administration’s critical rules and regulations will become law. Both presidential candidates have announced and unannounced wishes, but both are unlikely to get another term. They will have little ability to help various members of Congress win the ’26 or ’28 elections.

 

Unless there is a one-sided sweep of both Houses for the same party, the odds favor majorities in the single digits. While the rest of the world might think Congressional leaders will be able to command political discipline, both parties are split into multiple groups depending on the particular issue. Furthermore, in the Senate there are members who see themselves sitting in the White House after the ’28 elections.  Looking beyond the intramural games of the next four years, there are two elements of news that should be of importance to those of us selecting assets to meet the needs of longer-term investors.

 

The Declining Dollar

The CFA Institute Research & Policy Center conducted a global survey of 4000 CFAs concerning the future value of the US Dollar. The survey was conducted from 15 to 31 of July 2024. They published their findings in a white paper titled “The Dollar’s Exorbitant Privilege” (This is what the French President called the dollar years ago.)

 

A supermajority of respondents believe that US government spending is not sustainable. Only 59% of US Treasury investors believe the US can continue to borrow using Treasuries. (I remember there was a time when we created a special class of Treasuries for the Saudi Arabia, with an undisclosed interest rate). Neither of the two Presidential Candidates have announced any plans to reduce the deficit and both are unannounced pro-inflation. The respondents expect the dollar to be replaced by a multipolar currency system no later than fifteen years from now.

 

Some investors already recognize the risk in the dollar. Bank of America’s brokerage firm noted this week that 31% of their volume was in gold and 24% in crypto, as a way to reduce total dependence on the dollar. One long-term investor diversifying his currency risk is Warren Buffett. After doubling his money in five Japanese Trading companies, he is now borrowing money in Yen.

 

Berkshire Hathaway’s 10Q

As a young analyst I became enamored by their financial statements, long before I could afford to buy shares in Berkshire. In the 1960s I felt a smart business school could devote a whole semester to reading and understanding the financial reports of Berkshire. It would teach students about equity investments, bonds, insurance, commodities, management analysis, and how politics impacts investment decisions. (It might even help the professors learn about the real world)

 

On Saturday Berkshire published its third quarter results with a relatively concise press release, which was top-line oriented. As is required by the SEC it also published its 10Q document, which was over fifty pages long. Ten of those pages were full of brief comments on each of the larger investments. This is what hooked me, although I could not purchase most of their investments because they are not publicly traded. Their comments were in some detail, covering sales, earnings, taxes paid, expense trends, and management issues. The comments gave me an understanding of how the real economy is working. (Along the way I was able to become comfortable enough to buy some shares in Berkshire, and it is now my biggest investment.)

 

The latest “Q” showed that in nine months they had raised their cash levels to $288 billion, compared to $130 billion at year-end.  At the same time, they added $50 billion to investments. Perhaps most significant was that they did not repurchase any of their own publicly traded stock. A couple of years ago at a private dinner with the late and great Charley Munger, I asked him if I should value their private companies at twice their carrying value (purchase price + dividends received). Charley counseled me that everything they owned currently was not a good investment. As usual he was correct. In this quarter’s “Q” there were a significant number of investments that declining earnings or lost money. (I still believe they own enough large winners on average where doubling their holdings value would be reasonable.) If one looks at the operations of a number of industrial and consumer product entities, they themselves conduct substantial financial activities in terms of loans and insurance.

 

Is Warren Buffett’s Caution Warranted?

Some stocks have risen so high that they may have brought some gains forward, potentially reducing future gains. One way to evaluate this is to look at the gains achieved by the leading mutual fund sectors: Total Return Performance for the latest 52 weeks are shown below:

 

Equity Leverage       61.16%

Financial Services    46.38%

Science & Tech        44.13%

Mid-Cap Growth        41.28%

Large-Cap Growth      40.30%

 

I don’t expect all to be leaders in the next 52 weeks, as the three main indices (DJIA, SPX, and the Nasdaq Composite) have “Head & Shoulders” chart patterns, which often leads to a reversal.

 

Question: What Do You Think?

 

 

 

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Our Wishes & Perspectives - Weekly Blog # 817

 

Mike Lipper’s Monday Morning Musings

 

Our Wishes & Perspectives

 

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

  

 

 

Wishes

Our wishes are the most basic of all, that you and yours will be happy and safe in the new year. The safety we wish for includes your physical, emotional, and financial safety.

 

Current and future safety are linked as we transition through the number of future periods. The number of future periods depends on the number of futures you are concerned about. As we manage money for people and institutions, we look both at the near and longer-term impacts.

 

In reading the rest of this blog, don’t focus on whether or not you agree with our conclusions. Focus instead on the logic that makes it possible for the conclusions to materialize.  

 

Each of us is perceptively different, as we have diverse elements of responsibilities, net assets, and personalities. Consequently, each investor should make his/her own personal decision. I am interested in learning how you reached your decision, as I contemplate new topics to write about. 

 

Guides to the Future

Every analyst is in some respect a historian. Since we don’t know what the future will bring, we search the past for clues about what the future holds. I find the following three quotes useful when thinking about the future.

 

“History doesn’t repeat itself, but it often rhymes.”

 Mark Twain

 

“Those that fail to learn from history are doomed to repeat it.”                           

Winston Churchill

 

“Too often we enjoy the comfort of opinion without the discomfort of thought.”

John F. Kennedy

 

Two Thoughts on the meaning of 2023

It was a discordant year, with the equity markets rising on a weighted basis (measured by market indices). The economy was flat when inflation is taken into consideration (GDP through November +3.03% and CPI +3.16%. The number of units sold was flat, with higher prices and margins). Large and smart employers are laying people off while sales are still satisfactory.

 

Split Political Structure in 2024

The current Senate and House are run nominally by different political parties, with a larger than usual number of members announcing their retirements. This suggests it will be difficult to see many controversial laws passed. The Supreme Court will likely continue to question the authority of the administrative government. It will also be difficult to get an expanded spending package passed. (Even if something gets passed, the US will join most other governments trying to tap the bond market at reasonable rates, likely crowding out commercial and municipal needs.)

 

There is an invasion on the southern border of the US. Is this an economic “fifth column”? (During the Spanish Civil War, the winning Loyalist General referred to his group of saboteurs in Madrid as his fifth column.) They were more important in capturing the capital than the four military columns he had surrounding it. (The importance of this war should be important to the US, as the Spanish War supplied new tactics used by the German Army and Airforce in WWII.) Millions of illegal immigrants have crossed the US border.  My guess is that one military division of 20,000 could be persuaded to follow the commands of a known enemy.

 

The bulls believe the market has begun a new bull market phase, or at least a continuation with new leadership. Their bet is on a rotation away from mega-caps to small-caps. Selected small caps stand a better chance than others, particularly services companies who can help corporations and consumers lower their costs through the application of technology and selected imports. Some of these small companies could be attractive acquisition candidates, providing leadership to tiring large corporations. The math could be described as 5 (large) + 1 (small) = 6+4 or a combined 6 that becomes 10. The risk to an institutional sized buyer in the small-cap market is that these stocks are much less liquid than their normal large-cap investments. Consequently, they must take a much larger portion of the available stock.

 

2025-26 Opportunities

To score the winning shot, one must follow Wayne Gretzky’s dictum of not skating to where the puck is, but to where it will be. I’m suggesting this is how you should build a portfolio today, as the present occupant of the White House will either not be there, or a second Mrs. Wilson will be managing a lame-duck Presidency.

 

The biggest change will be in Defense spending, a shift from the faulty diplomacy of sending unimpressive Cabinet members to negotiate unsuccessfully. We must reverse the quiet disrespect of our outmoded military, symbolized by the lack of other nations joining our Red Sea patrol efforts. The declining value of the US dollar is another indication of the perceived lack of respect for our current leadership. The money for new defense spending will come from curtailing spending on social tasks and redirecting it to prepare for a fight in a two-front war. Thus, I suggest selecting investments to accomplish the goal of protecting the US and our interests.

 

Let me hear your thoughts. 

 

 

 

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The Course to Explain Last Week - Weekly Blog # 787

 

Mike Lipper’s Monday Morning Musings

The Course to Explain Last Week

 

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

  

 

 

Understanding Your Location

Almost all the news events of the last week are better understood if you appreciate the critical functions created by geography. At one time a whole course on geography was part of an early primary education, followed by a course on economic geography in middle school. These courses were pushed out to make room for social topics better fitting the educational establishment’s political views. No wonder so many of the current population were misled by the actions last week.

 

Where the Cities Are?

As populations grew, many benefitted from the values offered by schooling, medical services, education, entertainment, and political practices in towns and cities. Early cities were mostly found around strategic waterways, oceans, seas, lakes, and rivers. It’s no coincidence downtown locations attracted merchants and others. For hundreds of years financial and merchandise centers grew up around seaports such as New York, Boston, London, and Tokyo. To this day, the largest city in most countries and states remain these centers. Not surprisingly, to counterbalance the political powers of these cities, some political forces established state and national government sites away from the commercial centers e.g., Albany, Annapolis, Brasilia, Canberra, Sacramento, and Washington D.C.

 

We are all aware The President of the United States compromised and signed legislation into law on Saturday. He temporarily raised the debt limit and modified the growth and make up of appropriations. The result was only possible because DC has a different power currency than the dollar-based currency driving the rest of the country.

 

The power currency as exercised on Capitol Hill represents votes in the Senate and House, with the occasional interaction of the Presidency and Supreme Court. If their currency was in the commercial world, it would have been fairly easy to measure the dollars to be spent or not to be spent. This weekend both the Democrats and Republicans are claiming great victories. The problem is that the math is questionable, as are the policing impacts on the agreements. Regardless of the academic debate, the value of the concessions were too small.

 

There will possibly be a longer lasting victory benefiting society in the future, as these bills were passed by votes from “centralists” on both sides who resisted the impassioned pleas from the extreme members of their parties. We can build on the small progress made this week to make larger changes in the future, as long as those in the center learn to trust and respect the centrist members of the other party. While I have not done the analysis, my guess is that most who voted to pass these bills came from commercial backgrounds and are used to working to get compromises.

 

A Much Bigger Issue Was Not Discussed

Whether we like it or not, we are all globalists. Most of the threads in our clothes and some of our favorite foods come from overseas. The producers of these goods, as well as the militaries of our allies are paid in US dollars to protect us. We also sell a lot of our products and services to them. The US represents roughly ¼ of world trade. Problem is, the US dollar is the medium of exchange for ½ to 90% of currency exchanges depending on how you measure it. The US dollar is currently the most trusted currency. This translates into the lowest cost to buy products and services relative to other currencies who must pay a premium for the same purchases. This is an extraordinary privilege.

 

The privilege is not granted by an authority, but by the perceived purchasing power of the dollar through a collection of transactions each minute of each day. In general, it is assumed the relative purchasing power is stable compared to other currencies.

 

Perceptions are normally slow to change, but they can move at the speed of communication through transactors in a 24-hour marketplace. In a microcosm of how the market can work, examine the run on the SVB. Most of the loans and deposits were from the “silicon-valley” venture-oriented community. Many of these companies had critical shareholders who were active participants in the community, something the bank and regulators did not fully appreciate. I suspect the run on that bank was started by a few comments within this high-pressure group. The daily foreign-exchange community is much, much larger than SVB’s critical players, although it could follow the same communication, concentration, and contagion pattern. (There is no single Federal Reserve Bank for currencies.)

 

Possible Causes

Most powerful trends initially move at glacial speeds, until they take-off in hypersonic movements. The slow deterioration essentially reflects a slow growing decline in confidence and is often a collection of small actions. Some examples are listed below:

• A poorly executed withdrawal from Afghanistan by more isolationist new leadership.
• A shared belief that China permitted COVID to escape.
• Domestic pump priming and an unwise explosion of cash generation, unleashing inflation on the world.
• A weak response to a border war, with the inability to rapidly supply US Tanks and F-16 planes for coming offensive in Ukraine.
• In addition to government management problems, US industry leaders like JP Morgan, Goldman Sachs, Apple, and even the SEC, have had management issues that led to public errors. These are not confidence builders.

 

Barron’s Suggest Another Concern

In a four-page article in this week’s Barron’s they suggest loosely regulated non-bank financial organizations could have surprising credit issues. If you add up all the credit and equity extended to individuals, businesses, and organizations, it is about equal in size to the assets/liabilities of the regulated banks. Insurance companies, retirement plans, private capital providers, family offices, investment advisers, and brokerage firms have some narrow regulatory oversight. However, there is no single body reviewing the impact of bailout capital on the broader global economy.

 

I am not sure I want to see a super-agency overseeing the non-bank financial sector. However, it might be useful to have coordinated data collection and similar transaction management principles.

 

Conclusion:

I am unclear as to what the intermediate future will look like and appreciate any thoughts.

 

 

 

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Approaching Multiple Turning Points - Weekly Blog # 656

 

Mike Lipper’s Monday Morning Musings

Approaching Multiple Turning Points

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

Don’t Be Sure as to Impacts

The world, including investors, are searching for clarity regarding  future direction, but there are too many turning points that will be reached in the weeks and months ahead. There is also no guaranty as to how the initial readings of a turning point will be interpreted or whether they will impact future turning points.

Multiple Turning Points

Electoral Results

There are still some House of Representatives seats not yet decided that will impact the declining legislative power of the majority party. With both the House and Senate approaching a close split in power, their supposed political leaders should be concerned about individual members following their mandates. As individuals, they may not vote the straight party line. Personalities, policies, health problems, power points within chambers and/or parties, and financial considerations could lead to rebellion. (I am doubtful the real reasons will be announced.)

Court Actions

We are at the stage in contested cases where we have graduated from single judge rulings to Appeals courts with three judges or all members of the jurisdictions’ Appeals court. The loser will likely attempt to get the US Supreme Court to hear and decide the case. There may also be simultaneous changes to state laws enacted by their legislators. (Judges, as with elected politicians, may have private views influencing their decisions, although these will not be disclosed.) 

After the Final Elections and Court Actions

The path of the economy will probably outweigh the impact of the election. Optimists see a huge expansion coming, with everybody going back to work due to pent up demand. They seem oblivious to the realities of current shortages in many industrial commodities that will prevent an immediate industrial and agricultural expansion. One measure of this is the JOC-ECRI Industrial Price Index gaining 11.68% year over year due to limited capacity expansion and some closings. 

A still bigger concern is the planned distribution of the COVID-19 vaccine. Among the last to be vaccinated will be young, “unskilled” workers, who are a major part of the labor force for the restaurant and lodging industries. A number of these establishments have already closed voluntarily or due to bankruptcy, so it will take some time to bring all these people back to work productively.

The Markets Are Voting

The US stock market is registering a meaningful change in leadership. Thirteen weeks ago the most productive investments were within the S&P 500 and especially in a handful of large-cap technology-oriented stocks. However, for the 13 weeks ended Thursday, 65 of the 104 equity-oriented fund peer group averages beat the average S&P 500 Index fund performance. Last week it was 76 out of 104. In the WSJ’s weekend edition, 55 of the 72 tracked prices rose. However, of the 17 that declined, 3 were major US stock market indices and 7 were S&P 500 sector averages. For most of this year energy focused funds were the worst performers, but in the latest week 21 out of the best performing 25 mutual funds were energy related.

Another important indicator of the world sensing a major change is the Euro instead of the US dollar being the most used currency for global payments in October. This was the first time it has happened since February 2013.

Inflation Signals

The prices of commodities are driven by present and expected future supply and demand. Looking back, it makes sense that gold is the best performing asset class (+22.8%) due to concerns over the value of the dollar. These fears are due to excessive borrowing in the credit markets and the belief that US government spending will monetized through more borrowing, likely causing a spike in inflation. Curiously, the price performance of other commodities year to date through October shows them as being the worst performing general asset class (-22.6%). Goldman Sachs believes commodities are poised for a bull market and some economists are warning of double-digit inflation. 

Market Structure Clues

Institutions have reduced cash positions to 4.1 % according to one survey. Some view this as a contrarian reading due to there being less readily available buying power. More institutions are also using ETFs as short vehicles. 

Many investors invest in China as a region, which includes the Mainland, Hong Kong, Macau, and Taiwan. Taiwan is booming due to sales into the Mainland and the US, and many investors take this as a sign that although the level of harsh words are likely to continue, a military confrontation is unlikely.

Trading Views:

Short-Term

There are many trading gaps between closing prices and the price action the following day. Traditionally, these gaps are expected to close before further material progress is expected. As there are so many, I expect a relatively low volume trading market until most gaps are filled.

Longer-Term

Going back throughout history to the ancient Greeks, before a major future trend is established a dialectic process takes place. This process was incorporated in the philosophy of the German philosopher Hegel, who identified the critical elements as thesis, antithesis, and synthesis. I believe we have identified a number of situations where this type of thinking is appropriate: Blue vs Red, “Growth” vs “Value” (even though many “value” stocks are mislabeled cyclicals), and Stocks vs Bonds. I believe we will be entering the third phase, synthesis, shortly. One major brokerage firm’s expectations have already swung from extreme bullishness to bearishness, and are now in the midrange. This currently appears to make sense. We will however pay more attention to the selectivity of specific investments rather than marching under particular labels.

What Do You Think?

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