Mike Lipper's Blog - 5 new articles

Where Are US Stock Prices Going? - Weekly Blog # 911

Mike Lipper’s Monday Morning Musings

Where Are US Stock Prices Going?

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

Time to Achieve

The old rule for publishers regarding future projections is to never state both a target number and a date certain. However, the result of that warning is a relatively useless projection for planning current actions. Unfortunately, I have views on both the target number and approximate timing, although neither are precise nor tied together. In this blog I share my thoughts with the hope that some are of value, and our trusted readers will share what they think are reasonable answers.

As a racetrack trained analyst, I believe the odds favor the US stock market reaching a multi-year peak in the foreseeable future. Consequently, my grandchildren and great-grandchildren will likely see nominal gains in their assets long-term. Careful readers will quickly surmise that I must have mixed views regarding my children’s market wealth prospects. Their results will be heavily influenced by their controlled spending and financial diligence, and what they want to leave to their heirs.

Current Market Dilemma

Most of the time a single investment attitude drives market prices. Today, there are two dominant thought patterns. The first is enthusiastic buyers who largely believe the President is in the process of restructuring the economy and therefore society. However, he is at a disadvantage of having only loyalists support him. (Loyalists generally do not pursue details of potential execution problems or even try to identify them to reduce political, functional, and court issues.) They think things are going well.

The second group is reluctant to make decisive decisions in the market. The $8 trillion in money market funds is one measure of their non-acceptance of things going well. Cash or similar investments are both a repository for normal operating reserves and future buying pools.

Incomplete Evidence

Tariff impact: Consumers 55%, importers 22%, foreign producers 18%, and 5% evaded. (I suspect until tariffs are removed consumers will pay at least 90% of them, either in aggregate prices and/or in quality/quantitative shrinkage.)
While the media and uninformed public focus on the Dow Jones Industrial Average (DJIA) and New York Stock Exchange (NYSE) volume and prices, they are missing a critical change in stock market structure. The year-over-year share volume has increased 40.88% for the NYSE and 80.55% for the NASDAQ, effectively double. (To some degree the NASDAQ volume includes inter-dealer trades to restore trading inventory positions.) Sometimes the two markets act differently. For example, on Friday the NYSE volume of advancing prices rose, as did total volume from Thursday. However, NASDAQ activity was the opposite, with lower volume and more decliners than gainers. A larger measure of the market is the Standard & Poor’s 500 (S&P 500), which is very near an all-time high.
In the weekly survey sample of the American Association of Individual Investors (AAII), the percentage of respondents predicting a bullish market for the next six months dropped to 33.7%, while those predicting a bearish market rose to 46.1%. Just three weeks ago the ratios were 42.9% vs 39.2% in favor of the bulls.
The current market and political situation resemble those of the late 1920s, which led to both the recession and depression. Both started with an overall increase in debt at the individual and business level. This was particularly true in the politically sensitive farm community, which was suffering from a change in foreign demand for its crops. (This time it’s a Chinese decline in demand for soybeans.) Small and medium-sized banks were having loan payment problems, which then led to imposing tariffs on foreign products and services. The current Federal Reserve Board is very conscious of this history.
Another parallel is certain foreign governments recognizing the relative weakness of America and taking advantage of the situation by threatening further actions. This week Ruth and I spent time with the leaders of the US Marine Corps University who are preparing for a future different than the past. Similar efforts occurred before WWI and WWII, suggesting investors should think about structural changes to their investment policies.

Building a larger cash opportunity reserve may make sense. What do you think?

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

Mike Lipper's Blog: A Good Time to Sell? - Weekly Blog # 910

Mike Lipper's Blog: Risks: Recession/Cyclical, Depression/Structural - Weekly Blog # 909

Mike Lipper's Blog: Tactical Headlines Show Strategic Clues - Weekly Blog # 908

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

A. Michael Lipper, CFA

Contact author for limited redistribution permission.

Comments

Comments

A Good Time to Sell? - Weekly Blog # 910

Mike Lipper’s Monday Morning Musings

A Good Time to Sell?

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

Selling is More Important

When an investor, distinct from a trader, asks me if they should sell some portion or all of their holdings, I first try to determine the critical time period in judging the results of the action. If one is persuaded by media voices the answer will usually be tomorrow or at the end of the calendar year. For me, it is when the money is expected to be needed. For example, for my newborn great grandchildren's retirement or the replacement of the new university dorm, it could be a 100-years. Another matrix could be the future low price point needed to protect future funding of a desired goal.

Regarding a future low price point, it is important to recognize that prices move in cycles. The important cycles can be labeled as seasonal, cyclical, secular, and structural. It is how I think of the latter part of last week’s drop in prices, where what I follow fell -15% to gains of +7%. To conserve your time and the blog's space I will comment on the year-to-date period for those impressed with media voices and include some other screens as well.

The first thing that hit me was the largest average gain of +15.94% in non-leveraged, diversified large growth mutual funds. These gains were driven by the biggest positions in technology stocks. However, they missed out by focusing on securities registered with the Securities Exchange Commission. After many years of SEC registered stocks performing very well, there were some foreign markets that generated much better performance multiples. The leading countries were Ghana +130.25%, Cyprus +94.75%, Luxembourg +74.8%, Greece +71.45%, Columbia +70.05%, Nigeria +65.1%, Korea +61.1%, South Africa +48.02%, China +32.85% and Chile +31.02%. Weekly Barron's performance charts showing 14 European and 7 Asian countries had 7 Asian and 4 European indices gaining. (As an analyst that has followed non-US stocks and invested in some, I believe this is a good time to examine these opportunities.)

Most Analysts Focus on Rising Stocks

I glanced at those stock prices not doing so well. For example, the Dow Jones Industrials (DJIA) and Dow Jones Transportation (DJTA) stocks fell -2.739 and -4.88% respectively for the week. Perhaps more importantly, their year-to-date performance results were +6.90% and -5.21% respectively. (This suggests the US goods economy is not doing well. Tariffs could be a problem. Freight movement is down for both the rail and truck business and may forecast Halloween and Christmas sales being behind earlier expectations.)

Down Prices = Opportunities

Three industry sectors are showing small declines on a year-to-date basis: Banks -4.26%, Insurance -1.64% and small companies -1.1%. Restrictions on all companies are the same, but small companies may be impacted more due to their staff size. To the extent the current administration reduces some of the regulatory overhead, it cou1d restore a competitive advantage to smaller companies. However, many restrictions on smaller financial and insurance companies appear to make it easier for new entrants.

AI, An Unrecognized National Problem

Some are beginning to comment on the absence of large profits from Artificial Intelligence companies due to lack of public discovery of relevant financial disclosure, so I will not. At a recent meeting hosted by the London Stock Exchange Group, one of their headline speakers noted that the challenge for the AI industry was to produce "more with less". It is well recognized that AI is taking over an unidentified number of job functions, reducing the need for human labor. Great! Where are these laid off people going to get jobs anywhere near similar wages? This could be a concern for future Administrations.

The 4th Activist President

Just like Andrew Jackson and the two Roosevelts, President Trump is trying to solve various national problems by changing how they are handled. Some of these attempts will survive the Courts. What I am not seeing is how the restructuring of the economy will work. Looking at the aftereffects of prior activist Presidents, I suspect it will materially change the outlook for investments, something people are not currently focusing on.

I would like to know if anyone has any thoughts on what restructuring will mean to their investment orientation.

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

Mike Lipper's Blog: Tactical Headlines Show Strategic Clues - Weekly Blog # 908

Mike Lipper's Blog: Anticipation Pays; Deliveries May Not - Weekly Blog # 907

Mike Lipper's Blog: Selected and Casual Road Notes - Weekly Blog # 906

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

A. Michael Lipper, CFA

Contact author for limited redistribution permission.

Comments

Comments

Risks: Recession/Cyclical, Depression/Structural - Weekly Blog # 909

Mike Lipper’s Monday Morning Musings

Risks: Recession/Cyclical, Depression/Structural

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

Fears

Recessions are a cyclical phenomenon, largely due to price and debt imbalances. They occur regularly within a ten-to-twenty-year period. Subsequent recoveries are usually as quick as recessions. Depressions are much rarer, leaving societies changed and altering the distribution of wealth and power.

Based on elapsed time the world is due a recession, which may have already started. Liz Ann Sonders of Charles Schwab points out that the US Government tracks the profitability of both public and private companies. In both the first and second quarters of 2025 earnings declined. She believes that when data for the third quarter comes out it will be below trend. This may be different than more publicly reported GDP results because the wholesale sector is absorbing the bulk of the costs of the tariffs which foreign exporters don’t pick up.

There are lots of private indicators of economic business troubles. One that has been around a long time is the production of boxes, which declined. A new one to me is the trading multiples on the sale of trucking companies, which I have been told dropped in the first half of this year. This is important because it not only indicates a decline in the demand for goods, but it is a signal that they are having difficulty getting experienced drivers. Many drivers are on expiring or expired visas, demonstrating the impact of tightening regulations on many business activities.

Below the surface other concerns are becoming more visible. One can’t avoid a discussion of what AI (Artificial Intelligence) will do for global industry and consumption. While a lot of money and talent is being spent under this rubric, there are still no identified profits or sales from its use. In a recent study by MIT, they found a low return on AI’s use. From an overall economic viewpoint, I have not seen a study showing if AI’s replacement of the work of people benefits society.

With relatively small changes in price and debt levels there will be a recovery from the recession. However, every couple of generations those responsible for curing recessions believe the quickest solution is structural, which society rejects over an extended period.

My Fear

We have all heard that history does not repeat, but rhymes. My fear is that we are generally following a pattern like the 1920s and early 1930s, which led to the Great Depression. (You’ll recognize the term depression more from the study of psychology than economics.)

The US has suffered numerous recessions, most of which were in the one-two year range. For a recession to become a depression there needs a force trying to fix how society and the economy work. Unfortunately, previous commanded decisions didn’t work and prolonged the impact of the recession. Over our history we have had four presidents who have tried to make meaningful changes to our society/economy: Andrew Jackson, Teddy Rosevelt, FDR, and Trump. Through executive orders and legislation these Presidents tried to change how people lived and worked but ran into significant opposition from the courts and elements of the business community. Because of the US’s market and military power, we have an impact on what other nations do. They either resist or go along with the strategy but will be impacted either way.

What should Investors do?

This advice is for long-term investors looking to make returns for future generations. Traders who invest to make relatively fast returns should follow the momentum of the markets, while investors should move slowly with portions of their wealth and responsibilities.

Each will be subject to the cyclical behavior of the market, world economy, and changes in needs. While a trader may guess correctly regarding cyclical moves and early structural changes, an investor should wait for some understanding of the major implications of the change and be willing to be wrong before being right.

Whatever discussions occur today, they will likely be different a year from now. Major differences will result from views on the 2028 election.

Odds

These are my analog thoughts that lack the precision of digital work, but that is the way I feel very early on Sunday morning:

The odds of a recession before the next Presidential election appear to be 65%.
In dealing with a recession, the odds of government converting it into a depression is 50%, although it may take longer. Human nature almost guarantees future recessions and depressions due to over expansion of debt and other unsustainable commitments.

As usual, please let me know what you are thinking.

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

Mike Lipper's Blog: Tactical Headlines Show Strategic Clues - Weekly Blog # 908

Mike Lipper's Blog: Anticipation Pays; Deliveries May Not - Weekly Blog # 907

Mike Lipper's Blog: Selected and Casual Road Notes - Weekly Blog # 906

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

A. Michael Lipper, CFA

Contact author for limited redistribution permission.

Comments

Comments

Tactical Headlines Show Strategic Clues - Weekly Blog # 908

Mike Lipper’s Monday Morning Musings

Tactical Headlines Show Strategic Clues

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

The Art of Successful Investments

The primary reason prices move is a difference of opinion, otherwise they would stay frozen at a given level. There are two causes for the move, information changes and different investment timelines. Two approaches cause changes – a shift in prices and a shift in thought process. Most daily price changes are reactions to other price changes, which causes “outer directed” flows in the trading market. The so-called “smart money” is buying. Less often, prices move due to recognition that the future will be meaningfully different than the present. Using military terms for these changes, we would refer to them as tactical and strategic, or in psychological terms outer or inner directed. As a practical matter, outer directed frequently changes direction as markets ebb and flow. In effect, they are trading.

In contrast to trading, inner-directed investors move when they perceive the future to be significantly different than the present, or possibly the past. They are not primarily driven by prices, but by changes recognizing a fundamental future change. I label this approach strategic investing.

Traders can make changes intraday or at other frequencies. Their focus is the ratio of winning versus losing. They enjoy being with the crowd.

Strategic investors on the other hand may have years or decades between actions. A strategic investor is often lonely, in that few if any see what he/she sees. The lack of a crowd, however, reduces the size of any losses. Their loss is missing another opportunity.

The media and many pundits live on providing tactical information for trading, paying relatively little attention to strategic investments. The reaction to recent press commentary provides a strategic clue of the wider significance shown in parenthesis:

“Amazon plans to shut fresh grocery chain in United Kingdom after just four years” (Both Walmart and CVS have reached similar conclusions. In the case of Walmart, fresh groceries appear to be a critical loss leader to get customers for other products. CVS is trying to reconfigure their “drug stores” to have a smaller front, concentrating on drug and clinical services. I suspect there is an import pricing problem which will be addressed successfully somehow.)

“BMO is considering selling six branches” and “Citigroup to sell an interest in Banamex”. (Both Bank of Montreal and Citi recognize the old model of local branches being the center of a local community’s financial business. However, much of that exposure can be handled by phone or computer services, or an increase by non-bank entities. Banks are laboring under various restrictions where restraints are less likely to produce troublesome losses.)

“American biggest corporations keep talking about AI, but struggle to explain the upside” (I have yet to see a published estimate of new sales or profits generated. One clue to the problem is several AI providers taking all three CFA exams, with the best machines scoring 79.1% correct answers. Considering AI requires a previously printed available source, one wonders about the machine’s ability to think creatively in answering a question. Maybe the test creators were not as knowledgeable as they should have been. Furthermore, I know many CFAs who I would not hire to manage money for me today.)

“Poland restores China overland trade route.” (The article did not mention the rail link tying traffic from China through the mid-continent, including the now independent former Russian states. These states include Kazakhstan with possibly world’s largest deposit of Uranium and substantial amounts of oil. The rail link was closed to put pressure on Russia. When reopened, rail traffic can travel throughout central Europe and into Spain etc. We are in an era of expanding rail service in every continent. The recently announced merger of Norfolk & Western with Union Pacific creates the first transcontinental freight line. (The question on many investors’ minds is why Burlington Northern, owned by Berkshire Hathaway*, has not entered into merger negations with C&S to create a parallel transcontinental line. My thought is there might be potential difficulty with labor negations. On Burlington’s mile-long freight trains there are only two employees, an engineer and a conductor. There have been difficult contracts negotiations with the conductors. In addition, there have been similar problems with Berkshire’s airplane pilots in their private rental flight business. We were in London when their subway system went on strike for 5 days. In addition, New Jersey Transit is facing a rail strike. In both cases the employees received good wages for 38 hours or less of work.)

*Owned in managed and personal accounts.

Short-term Signals

The University of Michigan consumer confidence sentiment survey for August dropped to 55.1% vs 58.2% the month before.
In the latest trading week, the number of declining stocks was greater than the number rising.

Longer-term Worries

Readers will not be surprised to hear that I believe there is a lot of wisdom harbored within the mutual fund industry. There is a group of funds that were designed to accumulate money for retirement and to manage capital to meet needs in retirement. These portfolios were typically comprised of stocks and bonds. The stocks were meant to supply growth and the bonds some protection against periodic declines. These funds are labeled Mixed Asset Target, with a specific year indicating the probable retirement year. Interestingly, something happened on the way to retirement. None of the fund peer groups meant to meet retirement needs prior to 2050 produced average returns above 14.25% year-to-date. This suggests to me that we should consider a range of twenty-five to forty years for long-term investments. This means we should hold investments for a long time and only sell if conditions change and are unlikely to return.

International equities had 10 better peer groups, world sector funds and regional funds had 6 each, sector equity, global equity, and mixed assets had 5 peer groups each for a total of 37 peer funds groups out of over 100 tracked. Turning to local stock indices, there were 67 countries better than the US for the same period.

It may not be too late to add international exposure to your holdings. This would exclude funds investing in US registered stocks, as you would still be exposed to US dollar purchasing power risk.

As of Thursday’s close, there were 18 mutual fund peer groups in the US Diversified Equity Funds Super group. The best performer on a year-to-date basis was Equity Leveraged Funds +29.25%, with twice the gain of the second-place leader Mid-Cap Growth Funds +14.25%. Since borrowed money (margin) is not used by most mutual funds, I am excluding equity leverage funds for the following analysis. Treating 14.25% as a good performer, I wanted to see which super group categories were better.

Dollar Risk

One reason people feel poorer today than a year ago, even though their stocks and homes are hopefully valued more than a year ago. You must go to the shopping center to understand the real economics. Almost all clothes, if their quality is maintained, sell at higher prices. Fancy cars, if they are sold at your mall, will also be higher. When you go to the grocery store or fresh food counter, meat and fish of the same quality are higher.

If you dig into the financial statements of many providers who raise money from overseas, their costs have risen since a year ago.

You may feel poorer now, but you will feel worse in the future. What caused this to happen? Who did this to you? Well, we all did it to ourselves. We collectively wanted too much from our government. They met our needs, but since we did not want to pay full price for what was provided, the politicians of both parties borrowed in our name, creating ever larger deficits financed with higher interest rates.

For the next ten years I expect to double the money I pay to the government for income taxes, sales taxes, use charges, tariffs, and probably transportation costs.

What are your thoughts?

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

Mike Lipper's Blog: Anticipation Pays; Deliveries May Not - Weekly Blog # 907

Mike Lipper's Blog: Selected and Casual Road Notes - Weekly Blog # 906

Mike Lipper's Blog: Bad Comparisons Can Lead To Faulty Conclusions - Weekly Blog # 905

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

A. Michael Lipper, CFA

Contact author for limited redistribution permission.

Comments

Comments

Anticipation Pays; Deliveries May Not - Weekly Blog # 907

Mike Lipper’s Monday Morning Musings

Anticipation Pays; Deliveries May Not

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

Since last December the bulls have been calling for a drop in the Fed interest rate. Some anticipated an interim pay-off near the close on Thursday when the last print on the 10-year yield failed to maintain its announcement high, fulfilling the dictum of selling on the news. The number of Friday’s declines on both the NYSE and NASDAQ were above the number of rising prices.

With the much-expected rate cut I found it interesting that the sample surveys of the American Association of Individual Investors (AAII) were bearish for the last three weeks. The six-month projections stayed in the 40% range for all three weeks (42.4%, 49.5%, and 43.4% respectively). In the latest week, which probably did not benefit from Thursday’s rate cut, the bullish estimate of 41.7% was slightly below the bearish call.

The explanation for the three main market indices rising to record levels from their April lows this week was the familiar “FOMO”, fear of missing out. I suspect traders sharing that impulse were largely housed in retail-oriented wealth management arms of brokerage firms and non-trust departments of banks.

The battle for investment survival is being waged by armies marching under the “FOMO” banner, as well as others withholding their purchase orders upon reading the economic data. There are two ammunition arsenals safeguarding the non-buyers, the declining number of job-openings and the rise of non-US traded equities benefiting from the fall of the US dollar. In April there were 158,000 jobs added, which fell to 22,000 in August. Barron’s shows the investment performance of 14 local markets in Europe and Asia each week. This week Europe had 4 risers and Asia 8. Asian and Emerging Market funds were most prominent among the better performing mutual funds this week.

On a longer-term basis there are a number of worries about investing in US markets:

The US market is becoming more speculative, with year-over-year NYSE share volume rising 16.24% and NASDAQ 68.97%.
The current administration appears to want to reduce the independence of the Federal Reserve.
The President and SEC are floating the idea of switching from quarterly reporting to semiannual. Both ideas will make foreign-traded issues more attractive than they are now.
The drive to include non-publicly traded securities in retail accounts, particularly retirement portfolios, is expected to increase the risk of losses.
The London edition of the Financial Times devoted a full page to the headline “A new era of McCarthyism?”, showing a picture of President Trump and the late Senator McCarthy. This reminds me of sibling rivalry between an older brother and a successful younger brother. With a number of listed London exchange stocks moving to the US there is risk to a portion of the London market.

With the US stock market indices but not the average shares at record levels and the economy open to question, please be careful.

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

Mike Lipper's Blog: Selected and Casual Road Notes - Weekly Blog # 906

Mike Lipper's Blog: Bad Comparisons Can Lead To Faulty Conclusions - Weekly Blog # 905

Mike Lipper's Blog: Appeals Court Rules (7vs4) Against Trump, but Life Goes On - Weekly Blog # 904

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

A. Michael Lipper, CFA

Contact author for limited redistribution permission.