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Registered Investment Adviser Caleb Lawrence

The major averages struggled into the final hour with small losses despite little news. Import prices fell .2% in March on large declines in energy costs, on a year ago basis import prices gained 4.2% a third consecutive large annualized gain. Export prices advanced .2% for the month and 3.6% from a year ago.

Lacy Hunt over at Hoisington Investment Management Company penned a piece figuring that the secular low in interest rates was actually ahead of us and not behind despite 3 Fed interest rate increases of late and another 3 planned for later this year. Mrs. Hunt went on to note that the odds of a severe recession were great brought on by new record highs for various types of debt. In particular she cited, total domestic nonfinancial debt at a record 254.8% of GDP or Gross Domestic Product in 2016, 5.6% greater than 2009. Total debt, which includes domestic nonfinancial, foreign and bank debt, was 372.5% of GDP in 2016, far more than the 251.9% of GDP seen in 2006, the final year of the previous tightening cycle. Lastly business debt surged to a record 72.6% of GDP in 2016, for the first time eclipsing the prior peak of 70.2% reached in 2009. She also went on to note that academic studies reflect that economic growth slows with over-indebtedness. So much for deficits don’t matter as in fact debt service costs crowd out productive investment and spending. Record debt, falling lending, rising interest rates and tightening credit standards usually result in recession, a financial crisis or both if history is any guide, something that will force the Fed to cut rates, hence her forecast. A bold call indeed but she has a very good track record, and based on the data I’m inclined to agree with her.

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