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Registered Investment Adviser Caleb Lawrence

The major averages fell hard in early trade on little news. The British announced that they would file under Article 50 starting the 2-year formal separation clock with the European Union on the 29th. Considerable ink has been spilled on Brexit to date and in the last few months the statements of the status quo have bordered on the bizarre almost opposite logical reality at times as the divorce process looks to be both messy and hotly contested. The real danger is whether or not Brexit leads to a rush for the exits as other Eurozone countries decide they are better off buy themselves. Investors have already started moving towards the exits becoming net sellers of Euro denominated issues of late.

Another example of misguided engineering appears in the strategy of the Standard and Poors 500 companies that spent 1.7 trillion on debt funded share buybacks over the last 3-years that saw the index gain some 33% even as earnings growth stayed stagnant with adjusted earnings per share back at January 2014 levels. 1.7 trillion Dollars blown on financial engineering that amounts to putting lipstick on a pig. Money that could have been spent on innovation or other productive purposes. The fact that management choose an unproductive path instead of investing in their respective companies speaks volumes about its shortsightedness, lack of suitable investment opportunities or plain old fashioned greed. Either way it points to a very sick economy reaching the limits of financial engineering, aka financialization as another lesson in bubble economics failure seems all but certain at this point with market valuations pushed to extremes not seen since 1999 just before the Dot-Com debacle.


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