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Registered Investment Adviser Caleb Lawrence

 

After opening lower, the major averages managed to recover much of their early losses to enter the final hour about even. Since Monday the Standard and Poors 500 Index has gained 39 points or 1.7% while the NASDAQ picked up 146 points or 2.5%.

Personal income gained .4% in February and a respectable 4.6% from a year ago on strength in earned and rental income. This pushed the savings rate to a 4-month high of 5.6%. Spending disappointed as a result increasing just .1% for the month, the year ago rate slipped to 4.8%. This report led to the Atlanta Fed cutting its GDPNow model below 1% again for the 1st quarter as it hit just .9%.

With, margin debt at a record high, corporate profits peaked in 2014 helping to push market valuations higher, they have now reached a level second only to the Dot-Com period in 1999. Worse as the markets have moved ever higher in the last few years profits have gone essentially nowhere since 2012. These profit trends preceded the 2000 and 2008 market crashes. Where it not for accounting sleight of hand gimmicks and debt funded corporate share buy backs over the last few years that dramatically reduced the number of shares outstanding and prevented valuations from blowing out even further masking the profit decline in the process. It should be obvious that the markets are indeed an accident waiting to happen. Were it not for the share buyback programs valuations would be god knows where, certainly far higher than they are today. The real question is what will keep the party going from here? A question that has no good answer, unless of course you believe in “animal spirits” and “pixie dust”.

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