Share the Wealth – June 23, 2017

Registered Investment Adviser Caleb Lawrence

Despite generally disappointing data the major averages enter the final hour mixed. Since Monday the Standard and Poors 500 Index is essentially unchanged while the NASDAQ has gained 70 points or just over 1%.

New home sales missed expectations in May despite a 2.9% gain to 610,000 units annualized sales rate. Month’s supply was unchanged at 5.3 while the median price surged 13.7% to $349,400. On a regional basis sales fell notably in the Northeast and Midwest. Sales increased in the South and particularly so in the West with a 13.3% gain.

Debt levels in the USA began to increase dramatically in the late 70’s and early 80’s partially in response to falling wages but mostly because of changing social mores with respect to debt itself. While allowing many to live far beyond their means excessive debt leads to bankruptcy and foreclosure as was seen following the 2007-2009 financial crisis. A recent piece in Bloomberg noted that Americans are dying with an average debt balance of $61,500 with some 73% going to the grave owing money as per Experian, most of that related to mortgages. Looking at existing debt levels average debt was $132,529 per household. Broken down by category and the average household has $172,806 in mortgage debt, $49,042 in outstanding student loans, another $28,535 in auto loans and last but not least $16,601 in credit card debt. Not all households have all categories of debt which is why the math does not add up. The results of substituting debt for income and reckless speculation brought on by the Fed’s easy money bubble policies. Let’s hope it really is different this time

Share the Wealth – June 22, 2017

Registered Investment Adviser Caleb Lawrence

Another day of volatile trade despite little news sends the major averages into the final hour with small gains following early losses. The Kansas City Fed regional index increased 3 points to 11 in June on gains in production and employment, most all other sub-components fell.

Despite the endless narrative about the recovery and how strong the economy is finding data points that cast significant doubt on the official story isn’t difficult. A recent piece on The Hill and using tax receipt data from the National Association of State Budget Officers found that for fiscal 2017 thirty-three states will miss revenue projections, the highest level since 2010 as revenues come up short by a combined 12 billion with more than half due to falling sales tax receipts considered one of the more stable state revenue sources. Personal and corporate income tax collections are also lower than last year. 23 states, made mid-year budget cuts in Fiscal Year 2017, a number that has grown steadily since 2014 when just 8 states made budget cuts.

Share the Wealth – June 21, 2017

Registered Investment Adviser Caleb Lawrence

Despite generally positive economic data the major averages enter the final hour mixed seemingly weighed down by high and rising geo-political tensions.

After a string of disappointing reports related to real estate and construction, Existing Home Sales beat expectations in May with a 1.1% gain to 5.62 million units annualized on strength in all regions except the Midwest which declined. Month’s supply increased to a still very low 4.2 while the median priced advanced $7,800 to $252,800, a 4th consecutive gain putting prices up 5.8% from a year ago.

The Mortgage Bankers Association or MBA reports that mortgage activity increased .6% last week as refis advanced 2.1% while purchase apps slipped 1%. The 30-year contract rate for a conforming loan was unchanged at 4.13%.

One of the more recent examples of financial engineering with respect to the equites markets was the use of debt and most available free cash to buy up company shares and maintain the illusion of profitability on a per share basis while also holding down valuations. Bingeing on debt only goes so far hence the drop off in not only share buy backs but also Mergers and Acquisitions or M&A activity as noted by CitiGroup who pointed out that M&A’s fell by a 1/3 since the 2016 peak while the value of deals year to date is tracking a 4-year low.

Share the Wealth – June 20, 2017

Registered Investment Adviser Caleb Lawrence

The major averages struggled in early trade entering the final hour with small losses on little real news.

Barclays Bank and its executives find themselves in hot water once again after the UK's Serious Fraud Office filed criminal charges against Barclays Bank and four former executives, including former CEO John Varley, Roger Jenkins, Richard Boath, and Thomas Kalaris for conspiracy to commit fraud regarding the bank’s 2008 capital raising from Qatar. This isn’t the first-time criminal charges have been brought against the bank and its executives as once again the British demonstrate that they seem to be one of the very few capable of criminally prosecuting bank executives in the modern era.

Taking another look at market valuations provides additional examples showing the markets to be somewhere between tremendously and enormously overvalued. First up is the price-to-earnings or P/E of the S&P 500 in relation to its historical average. The average stock today is trading at 73% above its historical average valuation. Current valuations were exceeded only twice before, just before the Great Depression in 1929, the second time occurred right before the Dot-Com collapse at the beginning of 2000. The Buffett Indicator which measures the relationship between equities value and Gross Domestic Product or GDP is currently at 125% and change, second only to the Dot-Com period. Last but not least we have Tobin’s Q or the relationship between equity value and corporate replacement cost. At 1.05 it more or less matches levels seen just before the Great Depression and is second only to the Dot-Com period.

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.

Advisory services offered through Caleb Lawrence Registered Investment Adviser Inc.