Data May Be Signaling Change - Weekly Blog # 922
Mike Lipper’s Monday Morning Musings
Data May Be Signaling Change
Editors: Frank Harrison 1997-2018, Hylton Phillips-Page 2018
Preface
I came to my desk Saturday morning and was prepared to begin
writing this week’s blog. My thought pattern suggested we were quite possibly in
a pivot period, with market leadership shifting to foreign priced securities
priced substantially below “AI” securities. Then I paid attention to Bloomberg
television, which is on 24 hours a day. I was mesmerized by the news on the
raid on Caracas, the capital of Venezuela. The daring and skills involved were impressive
and the growing implications are disturbing.
Normally, I try to view everything from a global perspective,
as I believe almost all we do has roots in the global world. However, for this
week’s blog I am not going to deal with the longer-term implications of the
successful raid and capture of indicted criminals. It is too early to tell. I
expect these events will create global shadows which I will address in future
blogs. The world listens but does not necessarily follow the U.S
Pivoting to the Data
Last Two Weeks of 2025
Each of the last two trading weeks, including January 2nd,
have had only four trading days of relatively light trading volume. A disproportionate
number of trades were either tax motivated, or position statement driven.
Nevertheless, they share traits with many earlier days of December’s trading,
with more stocks sold on minus ticks than rising prices. It is worth noting
that the popular stock market indices generally rose a small amount. This
highlights the dichotomy in the market between what many believe are retail
driven indices and a broader, slower-moving institutional market. I am guessing
many retirement and other long-term institutions were relatively quiet in the
last part of 2025.
This institutional hesitation mirrors the large
corporations’ labor practices, where many companies spend considerable amounts training
new employees, which they consider assets. They are therefore reluctant to fire
many employees and are slow to hire new workers. Some believe in the “promise
of “AI”, where in the not-too-distant future companies will need less employees
to produce the same or more sales. Consequently, many employers are not hiring
new employees, other than critical replacements.
Typically, corporations begin investing new capital into
their retirement plans in January, be it pension or 401-k accounts. The
institutional advisory community has counted on this flow in the past. My
guess, it may be smaller this year. We will see.
Prices and Inflation
There were two lessons on prices in the Weekend Edition of
The Wall Street Journal, which measures 72 traded items each week. Only 24 prices
or one-third were up, and 48 prices were down. Are we peaking? The second lesson
from these data is that markets deal with both extreme momentary shortages and slower
moving prices, which are more common. One analytical technique I use to
differentiate them is to examine the top and bottom two prices. On the upside
is Comex Silver +142.34% and Platinum +127.57%. On the downside are Orange
Juice -58.75% and Cocoa -48.05%. I believe these four are special imbalances, as
the third extreme prices are the KOSPI composite +75.63% and the Argentine Peso
-28.96%. The gaps between the extremes and third ranking are large. Much smaller
but concerning nevertheless is the one-week industrial prices gain of +1.28% in
the ECRI weekly index, suggesting inflation is not under control.
The Key Link
If there were a single suggestion of a world view of the US
economy, it would be the value of the US dollar. The Financial Times headline “Dollar Is Wild Card in 2026”. This UK publication, now
owned by the Japanese newspaper/wire service giant, is a traditional critic of
the US. The value of the dollar is dependent on two factors, the value of the
other major currencies and the price of the dollar. In 2025, numerous foreign
markets have for the first time in many years appreciated more than the US.
Currencies, like securities, are priced at their perceived future value. Not
only is the US government spending more than it is earning through taxes and tariffs, but it’s also expected by many to continue to do so in the future. (Even if tariffs
bring in a lot of money, part of the receipts are expected to be paid to citizens
instead of being used to pay our debts.) In addition, both President Trump and
Chairman Yi have stated they would both like their currencies to decline. Some weakness
in the dollar may have been caused by individual and institutional investors selling
dollars to buy foreign securities.
What to Do?
Examine whether it is prudent to have 100% of your long-term
investment money in securities that are traded primarily in dollars? Is it time
to pivot?
Share your thoughts, please.
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Mike
Lipper's Blog: Investment Time Horizon Should Pick How You Measure the Results
- Weekly Blog # 921
Mike
Lipper's Blog: Tis the Season of Joy & Reflection - Weekly Blog # 920
Mike
Lipper's Blog: Are Investors Seeing a Change? Politicos Are Not - Weekly Blog #
919
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Investment Time Horizon Should Pick How You Measure the Results - Weekly Blog # 921
Mike Lipper’s Monday Morning Musings
Investment Time Horizon Should Pick
How You Measure the Results
Editors: Frank
Harrison 1997-2018, Hylton Phillips-Page 2018
Current Situation
Billions of people invest directly or indirectly in US
securities markets, with each having somewhat different motivations and
thoughts about what they are doing. Since we don’t know these people and the
way they think, we simply group them into buckets. I have found the intended
investment period often defines how they invest and for what period.
My outlook is of someone who has served families and
institutions, and I tend to think long-term for them. As most money invested in
mutual funds is largely for retirement and most institutions are designed to
pay out their assets over an extended period of many years, they too have a long-term
time horizon. (Unfortunately, this focus on the long term does not come with a
knowledge of what the future will bring in terms of risks and rewards.)
The media concentrates on “news” and fills space with the current
chatter about the present and the next expected announcement of note. Most
security salespeople and money managers believe potential investors are
primarily interested in the present and that is the focus of their sales
pitches.
These two different focuses have led to two very different
market structures. The hyper action-oriented players dwell on any market
development that leads to a move in stock prices. They celebrate the percentage
gains of interim results and prognostications. Those who use securities to meet
future payments are concerned about anything that might reduce these payments
in terms of future purchasing power. A possible tell-tale signal of a threat is
the sale of securities by supposedly knowledgeable investors.
This is the tug of war between those seeking near-terms
rewards and those worrying about the loss of worth of some future payment. To
satisfy both camps the stock exchanges publish the volume of shares sold at
higher and lower prices and the number of issues which rose and fell each
trading day.
In the latest week there were only four trading days and one
of those was half a day. On the last day the volume of shares traded on the NYSE
was down by approximately 2/3rds and by approximately one half on the NASDAQ*.
(In the current market environment, I pay more attention to the NASDAQ, as it
has risen the most this year due to having more “Tech” companies, whose stock
prices are more volatile than those on “The Big Board”. On Monday the 4
indicators were larger for the NASDAQ and on Tuesday the NYSE saw better
results. This see-saw pattern has occurred frequently throughout the year.) For
the week, 65 % of NASDAQ stocks rose in price vs 61% for the NYSE.
*Client and personal accounts own shares in NASDAQ.
In terms of looking at the future there were two interesting
notices. The Conference Board Consumer Sentiment Survey was 89.1% vs 92.9% the prior
month. The American Association of Individual Investors (AAII) saw a drop in bullish
sentiment for the next six months in their sample survey, dropping to 37.4%
from 44.1% the prior week.
Understanding the Measure
Most of the chatter about this change focused on the
percentage change from the period immediately prior. However, there is another
way to look at the results, the way an actuary would in determining the chance of
a certain event happening. This is done by reviewing the entire history of the statistical
sample, including any possible period where that event could reappear and at what
frequency. For example, one chance out of fifty years, or every 84 months, or
something similar. History traced through geological discoveries has recorded
cycles of expansions and contractions with some regularity. It is much easier
with regular barter or the development of money.
Said simply, when there is a shortage of supply over the
level of demand, prices go up. When there is more supply than demand, prices
drop. Climate also impacts agriculture, as does the effort of humans. The
supply of money was a recent concern, which has more recently shifted to concerns
about the supply of credit and certain natural resources. In all cases, it is
the imbalance of critical items which moves prices to a point of excess, which
causes a reversal.
Small reversals happen more frequently than large ones, often
occurring within a single presidential term. However, small reversals periodically
stretch over two or conceivably three terms. In trying to avoid or stop small
declines, the application of well-meaning changes can trigger bigger declines, which
we label depressions.
Addressing the economic hardships caused by the cost of fighting
WWI led to an extended period of debt expansion, which initially hurt the
farming communities. This led to the application of tariffs to protect small
banks which extended loans to over expanded farmers and farm equipment dealers
in critically important mid-western senate seats. Simultaneously, the public
became enamored with the use of credit in an already highly priced stock market.
The market crash of 1929 caused many people to lose money in
margin accounts, along with many of their brokers. The market reached a bottom
in 1931, but people were scared by what had happened. In 1932 they elected FDR
as President as a protector of the banks, and he closed all the banks in 1933 in
an attempt to restructure society. Even though FDR lost most of his battles
with the Constitution and the Courts, he initiated various government agencies
that mismanaged the economy until we entered WWII, which he helped start in
both the Pacific and Atlantic. The US recovered slowly after the war and subsequent
Korean Conflict, although some stocks listed on the NYSE did not reach their
1929 highs until the mid-1960s with the discounted dollar.
Semi Parallels Today
There has been an expansion of debt both at the federal and
individual level, with bankruptcies currently rising. At the same time, prudent
constraints on the financial community have been reduced or eliminated. Additionally,
we have an underequipped military, including Navy, Air, Space, and Coast Guard not
ready for a multi-front war.
Conclusion:
We don’t know when the next decline will happen, or if the depth
of the decline will morph into a depression. However, we should resist being fully
exposed to rising gains in the non-public market while we experience a stagnant
private economy. It is possible gains achieved in 2026 may be expensive in the
long run, so be careful.
Did you miss my blog last week? Click here to read.
Mike
Lipper's Blog: Tis the Season of Joy & Reflection - Weekly Blog # 920
Mike
Lipper's Blog: Are Investors Seeing a Change? Politicos Are Not - Weekly Blog #
919
Mike
Lipper's Blog: On The Way To Casualties & Eventually Riches - Weekly Blog #
918
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Contact author for limited redistribution permission.
Tis the Season of Joy & Reflection - Weekly Blog # 920
Mike
Lipper’s Monday Morning Musings
Tis
the Season of Joy & Reflection
Editors: Frank Harrison 1997-2018,
Hylton Phillips-Page 2018
The Season
Around the world families and friends gather to exchange holiday
wishes with those who are close to us, either in person or through electronic
devices. We express feelings of goodwill, with the hope that all are happy and
in good health. We often harken back to times of shared thoughts as we communicate
with one another.
As we get older, we reflect on the progress that we and
those close to us have made over time. It is remarkable how much success we
have had and do not dwell on less happy
periods we have passed through. Those of us who carry the investment and
political bug lapse into thoughts about the unknown future, which will likely bring
periods of happiness and sadness. As an addict of history, I know we will live
through both types of times. My wish for all of our families and friends is that
we continue to enjoy more good than bad periods, and most importantly learn
from both.
Last Week was not of much help, or was it?
The first three trading days showed more losses than gains.
The last two days generated advances that more than made up for the earlier losses.
For the week there was a slight gain, leaving the three main stock market
indices less than 3% from record levels. (For most of 2025 the S&P 500
traded in a relatively narrow band. Market analysts often believe this type of
banded performance is the storing up of energy to either break up or down by a
significant amount.) However, looking at the week as a whole, 50.8% fell on the
NYSE and 60.1% fell on the NASDAQ. On the “Big Board” there were 233 new highs
vs. 198 new lows, while on NASDAQ new lows were the majority, 554 new lows vs.
352 new highs. (Since the NASDAQ has risen more for the year, I believe it is a
better guide to professional thinking, at least at the moment.)
What is more important?
All market analysis is about picking the expected period of
ownership. Warren Buffet would like to never sell a stock he’d bought for
Berkshire Hathaway, which is owned by us in client and personal accounts. (This
may change a bit under the new CEO of Berkshire.) His approach is followed by
other publicly traded family holding companies, who additionally own shares of Belgium,
Canadian, French, Italian, and Swedish companies. (For the most part, all of
these companies invest for the foreseeable long-term, which we try to copy.)
In looking at the long-term, we expect that stock prices to be
cyclical, with some down periods. Most of these holding companies are buyers of
stocks below their perceived long-term investment value. (We try to do the
same.)
Applying this thinking to 2026
Having learned analysis at the New York race tracks I look
for a wide gap in the odds posted, which measures the amount of money invested
in each horse and the self-determined probability of each opportunity. When the
gap is large it is worth a bet. Recognizing that in order to win I must overcome
track fees, individual expenses, taxes, and racing luck. There is also a near
certainty that on average I will be wrong (premature) on some individual bets,
but right on monies bet and earned. When this logic is applied to investing in
stocks and funds, I am very selective and very conscious of the investment
environment. When the bulk of the crowd is betting considerable amounts of
money in one direction, I don’t bet or at least bet very differently than the
crowd.
Currently, the crowd believes stock prices are attractive and
are expected to rise as they have for a number of years. However, each year that
stocks rise reduces the probability of them rising in subsequent years.
Considering the number of years of positive performance, the chance of a repeat
is low. Especially when you consider the US election cycle, a bullish
government reducing domestic constraints, Ukraine, Middle East tensions, an
ambitious China, and technological challenges.
The one thing wrong with my outlook is the frequency of the
number of declines over advances. There were some sellers in the late 1920s, one
of which was my grandfather, to the benefit of his clients.
This may not be the time to be 100% in or out. What do you
think?
Did you miss my blog last week? Click here to read.
Mike
Lipper's Blog: Are Investors Seeing a Change? Politicos Are Not - Weekly Blog #
919
Mike
Lipper's Blog: On The Way To Casualties & Eventually Riches - Weekly Blog #
918
Mike
Lipper's Blog: Was it the week that wasn’t? - Weekly Blog # 917
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Are Investors Seeing a Change? Politicos Are Not - Weekly Blog # 919
Mike Lipper’s Monday Morning Musings
Are Investors Seeing a Change?
Politicos Are Not
Editors: Frank Harrison 1997-2018, Hylton Phillips-Page 2018
Was the latest week instructive?
During the low volume week: the DJIA fell -0.51%, the S&P
500 fell -1.07% and the NASDAQ fell -1.69%. One does not know a trend is over
until a meaningful reversal of direction has occurred, which quite possibly was
the case this week. On the NASDAQ there were more decliners than gainers, unlike
the “Big Board” where there were more gainers. However, since the April 8th
bottom, the NASDAQ Composite Index has led the US general stock market, gaining
+51.92% compared to +37.02% for the S&P 500 and +28.72% for the DJIA.
The supporters of the political party that currently
occupies leadership in both chambers and the White House cheer these recoveries
but appear to ignore other data. For example, real private non-residential
fixed income investments, excluding data centers, have been flat since 2020 and
is far behind 2023 prices.
The Real Problem is Bad Debt Creation
For the “bulls” to be proven right, a large portion of the
public’s uninvested money must be corralled to invest in the economy, in
sufficient amounts necessary to generate the tax revenues required to support
government spending and address the growth of the deficit. Instead, they are
doing this by removing the Controller of the Currency and the leverage lending
guidelines of the Federal Deposit Insurance Corporation (FDIC), which they felt
were too restrictive. To add more fuel to risk capital they are encouraging
retail investors to put some of their retirement income savings into private debt
investments, even though there has been an increase in bankruptcies over the
last four years.
Economic Tailwinds
Optimist believe the economy should have the wind at its
back in 2026 due to the following positive events resulting from the “Big
Beautiful Bill”. However, it remains to be seen whether these events translate
into additional stock market gains or if these events are already reflected in
current market prices. Some of these events could also be negatively impacted
by Supreme Court decisions on tariffs.
- A relatively large number of taxpayers will see tax
reductions in 2026, with some seeing tax refunds early in the year.
- Reduced regulations should decrease the cost of doing
business and speed up the introduction of products to market.
- The reshoring commitment of over $18 trillion in
manufacturing capacity should boost construction and the jobs required for that
task.
- AI capacity construction should continue throughout most of
2026.
- Energy capacity construction will likely increase in 2026,
with the introduction of small-scale nuclear power and construction of a new natural
gas pipeline from Pennsylvania to New York.
- The House of Representatives passed a $900 billion military
budget, which includes pay raises and an increase in defense spending. This
bill still needs to go through the Senate before it becomes law. Some of these
funds will be used to retool the military for modern warfare, which includes
increased use of AI and unmanned vehicles.
Various underwriters are predicting that equity markets will
generate double digit rates of return. On a long-term basis this is extremely
difficult to do and can only be achieved by accepting the risk of periodic
losses. By year end the year the S&P 500 Index could see its third
consecutive year of annual gains exceeding 20%. Only once, from 1995-1998, has
the market seen a 4-year period of consecutive annual gains of 20%.
Bottom line: Be Careful
Did you miss my blog last week? Click here to read.
Mike Lipper's Blog: On The Way To Casualties & Eventually Riches - Weekly Blog # 918 Mike Lipper's Blog: Was it the week that wasn’t? - Weekly Blog # 917 Mike Lipper's Blog: Recession/Depression Risk Assumptions - Weekly Blog # 916
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On The Way To Casualties & Eventually Riches - Weekly Blog # 918
Mike
Lipper’s Monday Morning Musings
On
The Way To
Casualties
& Eventually Riches
Editors: Frank Harrison 1997-2018,
Hylton Phillips-Page 2018
Current Situation In the fog of the latest week there were a few possible
clues of changes and pronouncements. - In November, US manufacturing activity contracted for the 9th
month.
- After Friday’s close, an emerging market fund rose +4.99%.
- The value of the US dollar has fallen -6.16% year-to-date.
- Financial Times headline: “Wall Street expects double digit
gains next year”.
- Apollo provided a glossy wrapper to the weekend Wall Street
Journal, titled “What if the old financial playbook is costing you?”
- The Trump boom is comparable to past expansions, but not yet
as big a percentage gain of GDP as the railroad boom of the 1880s.
Each of these bullets point to possible clues for the future,
which should be examined by long-term oriented investors and their managers, as
this blog will attempt to do. The search for Investment clues - While we have become a service-oriented economy with high
dependence on the skills and attitudes of workers, politicians focus more on
the manufacturing sector which has more unions and workers paying real estate
taxes and buying lots of local supplies. Thus, manufacturing jobs are more
important in Washington than in NYC. I suspect the re-shoring of manufacturing
will probably be more automated and will have less employees. Consequently, office
holders need to worry about ’26 and ’28.
- The real purpose of announcing tariffs was to force meetings
with economic leaders to reduce non-tariff trade barriers. This has led to
numerous currencies dropping more than the US dollar. (In my view, this is the
wrong way to create more prosperity. We should be raising interest rates, so we
are able to absorb the likely increase in bad debts, particularly those held by
private capital. Higher interest rates will also raise foreign exchange rates, encouraging
foreign lands to utilize more of our exports. A richer world is safer and
better for us than a poorer one.)
- The “street” is predicting at least a 10% gain next year. This
year the median US Diversified Mutual fund produced a year-to-date gain of
+12.55% and an annualized gain of +10.12% for the five-year period, this is at
least 2-3% better than the expected net income gain. The difference is the
result of other income and stock buybacks. Currently, public polls suggest investors
are not happy with the results.
- Bankruptcies are increasing, particularly in non-listed
companies. Private capital raises money to invest in the equity of these
companies or to buy parts of public companies. Some of the private-capital is sold
to investors as an income producing asset, which often requires a periodic sale
of some of their assets. In some cases, this has proven to be difficult because
some of their holdings experience difficulties. (While there is some trading of
assets between privates, the remaining assets need to be sold to listed
companies. This may resemble the old game of musical chairs, where one or more
of the ‘safe’ chairs are removed after each round. The remaining chairs will be
purchased by the public market, so the private market is dependent on the
public market in the end. My concern with regulators encouraging retail
investors to put some of their retirement money in private vehicles is that
they will be buying into troubled situations.)
- The comparison of the “Trump Expansion” with the railroad
expansion of the 1880s could be accurate. It was a period of speculative, and
in some cases fraudulent activities. Many new issues came to market competing with
existing firms, which led to price wars and consequent bankruptcies. The era
ended when JP Morgan and others recognized that too much competition was
ruinous, resulting in rigorous rounds of mergers. Much money was lost and many communities
lost rail service.
Conclusion We have entered a globally different world. Investors need
to study carefully and invest for the long term, periodically choosing not to
invest. Thoughts? Did you miss my blog last week? Click here to read. Mike
Lipper's Blog: Was it the week that wasn’t? - Weekly Blog # 917 Mike
Lipper's Blog: Recession/Depression Risk Assumptions - Weekly Blog # 916 Mike
Lipper's Blog: Risks Are Rising Thru the Clouds - Weekly Blog # 915 Did someone forward you this blog? To receive Mike Lipper’s Blog each Monday morning, please
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