Rarely Found Different Thoughts - Blog # 757

 

Mike Lipper’s Monday Morning Musings

 

Rarely Found Different Thoughts

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

            

 

 

Unexamined thoughts can contain time-bombs antithetical to generally accepted views. Good professional scouts (analysts/portfolio managers) should review as many unexamined thoughts as possible to find comfort in their present views, or look for possible reasons to change them.

The closer you focus on media designed for mass audiences the smaller the focus on detail. This results in more emotional and decisive views. The conclusions might end up being correct, but the historical odds of being right are substantially below half.

A good example is the reported percentage gain from the June lows for the 3 popular stock market averages. Most of the media, with their limited space and time, tend to focus on the results of the 30 stock Dow Jones Industrial Average (DJIA). You get a distinct happy view that this senior index is up +14.40% from its low point, which is in the mid-range for rallies after a sizable decline.

A much larger sample found in the S&P 500 index, weighted not by price but by market capitalization, has gained +9.05%. This is a more normal sized bounce, not the large gain seen in the DJIA. Considering this index is experiencing a period of increased volatility and is only up 353.44 points, it seems more like a rally in a traditional “bear market”.

Tech-oriented stocks led global markets both in the last expansion and during the most recent decline. There were some notable near-term declines in earnings and or future guidance, yet their prices increased +6.58% as measured by the NASDAQ Composite. The sectors that go down most in a short-term market rally often lead on the upside too. No so now!!

The problem facing the world in terms of chatter by politicians and pundits is inflation. People don’t understand that inflation is a price adjustment mechanism to equate the value of goods and services to the currency at hand. Inflation is a measure, not the cause. It is created by perceived shortages, not excess demand. The shortages are partially caused by the declining productivity of human and financial capital.

The collective failure to address these causes suggests one should take a bearish attitude in anticipation of a probable recession. The real fear is that without addressing the real problems we will experience future deeper recessions, stagnation, or worse for capital owners, stagflation.

How do you see it?

 

 

 

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

Mike Lipper's Blog: Current and Future Views are Confusing - Weekly blog # 756

Mike Lipper's Blog: Fundamental Changes Occurring - Weekly Blog # 755

Mike Lipper's Blog: Are We There Yet - Weekly Blog # 754

 

 

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A. Michael Lipper, CFA

All rights reserved.

 

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Questions Without Answers Indicate Uncertainty - Weekly Blog # 712

 

Mike Lipper’s Monday Morning Musings

Questions Without Answers Indicate Uncertainty

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

Searching for Direction

Investors gain confidence when they have a clear sense of direction, particularly regarding short-term market moves. They ask a lot of questions in the hope of finding concrete answers. This is increasingly true as markets move closer to the top of a major phase. Thus, extreme confidence, while generally reassuring, is a warning sign of a nearby top. 

Each week I examine lots of data and articles in the media looking for concrete answers, or at least a guide as to direction. This week I came up with some interesting questions, without any good answers. As many subscribers are professional or insightful individual investors, I will serve up the questions with elements of my indecisive views. I am hopeful some will provide answers as a Christmas present and communicate them to me, either for my personal use or to share.

Are Smarter Investors Calling a Turn?

For some time, I have suggested large investors in the NASDAQ stock market are on average brighter than those invested exclusively or mostly on the New York Stock Exchange (NYSE). This is based on the performance of various small-company mutual fund portfolios trading on the NASDAQ since the March 23, 2020 trough. On average this has been the best performing group based on market capitalization (The other groups are large-caps, multi-caps, and mid-caps.) However, year-to-date smaller caps are running in fourth place. There was possibly a change on Friday with its high volume? The NYSE volume was 5 million shares, split roughly 2 million on the upside and 3 million on the downside. On the NASDAQ, total volume was close to 8 million shares, split 4.6 million shares on the upside and 3.2 million on the downside. The NASDAQ Composite has declined 5.53% from its 2021 peak, the most of the three popular indices and roughly halfway through a classic 10% correction.

Does Friday's market action suggest savvy players picking up bargains at low prices?

Commodity Funds Rising Earlier than Expected

Numerous individual commodities are rising due to shortages. The median commodity fund is up +28.79%, while the weighted average fund is only up +3.92%. The reason for this difference is the extreme performance of Energy funds +71.98% and Precious Metals funds -10.41%. Commodity price cycles typically extend to one or more decades, for example from 1996 to 2016. Professional commodity investors did not expect a general commodity rise for at least another five years, after several new mines became operational. The switch to electric vehicles from internal combustion engine vehicles has accelerated demand for some metals, while the interest in currency coins has simultaneously impacted the demand for numerous commodities.

Are these speculative trends going to continue and cause actual mine and mill openings to accelerate? 

Investors Are Finding Other Markets Attractive 

While the US equity market has gained about 25% year-to-date, three other markets are also up over 20%:  India +22.3%, Taiwan +22.0%, and Canada +21.5%. Many investors now see international diversification as prudent, with political turmoil making US investing difficult for at least the next three years. As the economy recovers from various pandemics and tax/trade uncertainties, declining percentage gains in rising earnings will hurt. 

The Fed is Not Helping 

The Fed is basically defining its role as affirming the current situation by looking forward from its present position.

Critical Question: Do you think you will change your investment strategy materially before the next top?

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

https://mikelipper.blogspot.com/2021/12/two-contrarian-questions-next-recession.html

https://mikelipper.blogspot.com/2021/12/selections-weekly-blog-710.html

https://mikelipper.blogspot.com/2021/11/investors-be-alert-to-novembers-risk.html Mike Lipper's Blog: 

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Copyright © 2008 - 2020

A. Michael Lipper, CFA

All rights reserved.

Contact author for limited redistribution permission.