Lipper on Confusion, Contrarianism, Counter-punching and China

As a competitive fencer, I have regularly fenced men who were better than me. For the most part, they had longer arms and were probably better athletes, a real advantage in fencing. I was determined to score as many touches as possible to win games.

The first thing I had to learn was to respect the skills and physical advantages of my opponents. I thus developed what boxers call counter-punching movements. These mental attitudes followed me into the investment world, where they are called contrarian.


I think it would be extremely foolish as an American who served in the United States Marine Corps not to identify China as a strong and growing adversary, whose movements must be respected. Despite investing funds in China for clients and myself, I have to admit that China currently has the most cautious central banker.

Although it apparently came out of Covid-19 first, it is stunting its growth by squeezing non-bank lenders, who are the main providers of loans to the tertiary sectors of their slowing economy. The service sector and light product manufacturers have recently grown faster than the rest of their economies, but have few collateral available to pledge. (Over the centuries, there have been many Chinese trade collapses.)

Since the Chinese economy has been a major importer of goods and services from the United States and the rest of the world, a downturn in China can create problems here and elsewhere. Unlike other countries trying to fuel their recovery, they are delaying further credit growth outside the banking system. The authoritarian power structure tries to get ahead of an issue that has caused disruption in the past.

A second application of the respect principle is to recognize the lessons of the stock market. The most consistent lesson in the market is teaching humility. Here are three historical examples of what his future progress could be:

  1. A new bull market fueled by economic expansion fueled by public spending.
  2. A third term of Obama’s lack of progress.
  3. A second coming of the extension by FDR of an economic recession into depression.

I don’t know which path or what combination of paths we’ll take, but I’m willing to be uncomfortable. Investing against the grain is uncomfortable, and human beings take comfort in conformity. Contrary investors need to be patient, but as St. Augustine said, “patience is the companion of wisdom,” hopefully we have had enough.

Current confused images

Hope positive points

  • A new generation of investors bringing rapid liquidity to the less liquid.
  • Easily available exchange traded products for directional betting.
  • Holders of mutual fund shares redeem on average at 4.2 years.
  • VIX readings drop to 17.32 from 46.8 last March.

Maybe, negative

  • JOC-ECRI evolution in one year + 88.47%
  • Current performance of the S&P 500 historically too high. Since 1926, it has averaged + 10.3%. Should annual returns drop below normal?

% Switch Years

72 1

20 2

15 5

12 10

  • Over the past year, 12 major currencies have risen against the US dollar and 2 have fallen. Below are the top 2 currencies that rose against the US dollar and the two that fell.

Australia + 24.4% Korea -2.3%

Singapore + 23.0% Hong Kong -0.3%

Interesting 12-month figures for Standard Poor’s 500

13.34% S&P 500 Medium Fund

13.61% Average of the 30 largest S&P funds

13.91% Gross performance of equities

The mid-cap large-cap core fund gained + 12.53% and probably had 1-2% cash on hand, suggesting that the superiority of passive investing comes from being fully invested, from a low turnover rate and low costs. This could be a good model for all fund investors or their own accounts.

Two autopsies

While there were a few typos in last week’s blog, it contained two observations that were found to be relevant. The first being Archegos, the family office whose total return equity swaps were liquidated to meet margin calls. We mentioned that Nomura and Credit Suisse announced expected losses on margin trades over the weekend.

What I didn’t know was that Friday, if not before, Goldman Sachs

aggressively liquidated the collateral backing the Archegos account, where market action in a number of “thin” stocks was troublesome. The first exchanges in Asia were also quite heavy. Sometimes instincts go faster than knowledge.

Goldman Sachs is a position in our private financial services fund. Focusing on instinct, my intelligent wife Ruth pointed out to me that not only were the price of food going up in the supermarket, but also the price of paper items. This was confirmed on Monday when it was announced that the price of cartons had increased. These two examples prove that investing is not only an art form, but also an active sport.A past president of the New York Society for Security Analysts, he was president of Lipper Analytical Services Inc., the home of the Lipper global line of indices, averages and performance analysis for mutual funds. His blog can be found

here .

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