Share the Wealth – July 21, 2017

Registered Investment Adviser Caleb Lawrence

 The major averages struggled in late trade on little real news. Since Monday the Standard and Poor’s 500 Index is up 11 points or .4% while the NASDAQ has gained 58 points or .9%.

Bankruptcy filings stopped shrinking on a year ago basis in the 2nd quarter and started increasing again for the first time since 2010 with a .8% advance. Large gains in business bankruptcies and to a much lesser extent personal bankruptcy pushed the advance.

Unemployment fell in 10 states during June, increased in 2 while the rest were unchanged. North Dakota, Colorado, and Hawaii had the lowest rates of unemployment. At the other end of the scale Alaska, New Mexico and the District of Columbia had the highest levels of unemployment. California was number 12 at just under 5%.

A lot of ink has been spilled in the post bust period since 2007 regarding the Fed’s supposedly highly inflationary money printing. Balanced by the countervailing force of credit collapse brought on by the inherently deflationary aspects of the post crisis period and the various inflation measuring metrics have struggled to stay above the Fed’s desired 2% target. With four surprises to the downside in a row for the Consumer Price Index outright deflation is rearing its head once again as we continue to follow in Japan’s footsteps who have seen nearly 3-decades of deflationary bust brought on by their own credit bubble. With the credit bust largely a global phenomenon deflation is also largely a global problem as well with a record number of OECD or Organization for Economic Co-operation and Development states struggling to maintain 2% inflation or better. Leveraged debtors and the government rightly fear deflation as it often proves financially ruinous. The BIS or Bank of International Settlements did a study and found that routine deflation was beneficial as it improves the purchasing power of your average person and helps to increase output. The Fed has blown 3 huge asset bubbles in the last 20-years, 2 have blown up spectacularly resulting in millions of bankruptcies and foreclosures. With a 3rd bubble on deck another economically and socially disastrous collapse is highly likely. Yet the Fed persists with the same failed debt based strategies expecting a different outcome. Let’s hope it really is different this time.

Share the Wealth – July 20, 2017

Registered Investment Adviser Caleb Lawrence

 

The major averages enter the final hour mixed on little real news. The Philadelphia fed regional index fell 8.1 points in July to 19.5. Another victim of the post-election jump this marks the second consecutive decline and lowest reading since December. New orders and employment both fell significantly, prices paid dropped for a 4th month to 19.1.

The mainstream media does occasionally get it right with their opinion pieces. The New York Times recent piece on why “Wall Street is a Threat to the Nation”, while decidedly timid, did make a few good points. That said Wall Street certainly qualifies as a national threat, and has been evaluated as such by the intelligence services from a derivatives perspective. It’s history of nuking the economy twice in the last hundred years, first with the Great Depression in 1929 and more recently with the 2007-2009 financial crisis and great recession rounds out the picture. Were it a foreign entity it would have been bombed into the stone age. But, compliments of lobbying, a captured regulatory structure, too big to fail or jail continues its business as usual strategy of lie, cheat and steal at the expense of the citizenry and the republic. It was said to me as a child, fool me once – shame on you, fool me twice – shame on me, fool me three times – shame on both of us. With Wall Street currently working on a 3rd time compliments of out of control financialization, all I can say is watch out. Warren Buffet said it best, there are two rules of investing, 1 – Don’t lose money; 2 – Don’t forget about rule #1.

Share the Wealth – July 19, 2017

Registered Investment Adviser Caleb Lawrence

 Generally positive economic data helped the major averages to modest gains in the final hour. The May Treasury International Capital or TIC report showed 91.9 billion in net foreign investment, a 10-month high. Treasury, corporate and agency bonds were all very popular, interest in equities fell sharply remaining barely positive.

Mortgage activity jumped last week erasing almost all of the prior week’s decline. After the Mortgage Bankers Association reported a 6.3% gain led by a 13% advance in refi’s and a 1.1% improvement in purchase activity. The 30-year contract rate for a conforming loan was unchanged at 4.22%.

Housing starts and permits rebounded in June snapping a string of losses. Starts increased 8.3% on a large jump in multi-family construction to 1.215 million units annualized. Permits gained 7.4% on strength in multi-family activity to 1.254 million units annualized.

The Bureau of Labor Statistics reports that median usual weekly earnings jumped 4.2% from a year ago in the second quarter. This marks a second consecutive quarter of solid wage growth. That said I have not seen wage gains of this magnitude in other metrics, so I’m a little skeptical of the strength being reported here as other metrics show wages increasing at about half this rate, but will see.

Share the Wealth – July 18, 2017

Registered Investment Adviser Caleb Lawrence 

After opening lower on disappointing but not overly significant data the major averages recovered some of their early losses to enter the final hour mixed.

Import prices fell .2% in June pushing the year ago figure down to just 1.5%, a 4th consecutive decline primarily driven by weakness in petroleum and related product prices. Export prices slipped for a second month down .2% in June. The year ago rate fell to just .6% a 3rd consecutive decline.

Federal Reserve chairwoman Janet Yellen’s recent statements that there would be no new financial crisis in her lifetime, is all but certain to come back to haunt her. Aside from another glaring example of elite hubris it also serves to underscore the myopic nature of central bankers when it comes to preventing financial catastrophe. A recent piece by Bill Black of Savings and Loan Crisis fame took Mrs. Yellen to task on the subject noting that in 1996 as president of the San Francisco Federal Reserve she penned a piece on The New Science of Credit Risk Management, extolling the virtues of VaR or Value at Risk and the wonders of derivatives to hedge risk. Mrs. Yellen went on to note that these newfangled strategies justified allowing the banks to take greater risk and lower their capital requirements as well. Another item of note is her blindness to the Nobel Prize winning article published by her spouse George Akerlof titled “Looting” that looked at the deregulation, desupervision, and de facto decriminalization that led to the environment that spawned the 2007-2009 financial crisis, an environment that exists to this day. The rest “as they say” is history, but if ever someone was wide of the mark by a country mile it would be Janet Yellen who demonstrated a tenuous grasp of central banking then, while her most recent statement that there would no new financial crisis in her lifetime shows that she still doesn’t get it, or perhaps just plain doesn’t care.

This is Caleb Lawrence Registered Investment Adviser Scotts Valley Drive and Willis Road in the Scotts Valley Plaza, Suite 202 or call me toll free at 888-RICH PIG / 888-742-4744.

You can catch me on the radio at noon each business day as well on California’s central coast. KPIG 107.5 FM in the Monterey Bay or KPYG 94.9 FM in San Luis Obispo.

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