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Choppy Trade
The Market Bull 2018

 
 
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The Market Bull – December 11, 2018

Choppy trade sent the major averages into the close about even on little real news.

The wholesale price measuring Producer Price Index or PPI was surprisingly slightly positive in November with a .1% gain despite a dramatic fall in oil costs for the month. Service prices advanced .3% overcoming a 5% drop in energy costs.

On a year ago basis the PPI advanced 2.6%. Once again, the largely energy driven surge in prices over the summer gives way to the reality that credit busts are inherently deflationary. Absent continued prodigious Fed largesse in the way of debt funded stimulus the economy struggles, asset prices wobble and inflation retreats.

With interest rates increasing and the stock market taking it on the chin the corporate strategy of squandering free cash flow and more on debt funded share buybacks gets shown to be the short-term nearsighted folly that it truly is. Patently illegal prior to 1980’s, and for good reason because it is blatant share price manipulation when push comes to shove. C-suite executives love it as it gooses their frequently stock heavy compensation short term, covers up a falling earnings per share number by reducing the number of shares outstanding, whilst the long-term negative effects are unlikely to be their problem due to a relatively short average tenure. The long-term negative effects are of course significantly destructive to shareholder value due to a combination of ever rising corporate debt levels on average, which when combined with higher interest rates means higher debt service costs, and of course lower profits, or earnings per share as a result. When the stocks start declining in price as well you get growing capital losses. How this isn’t a violation of the fiduciary responsibilities of C-suite executives is beyond me. Just another example of the perversion of price discovery that has become a hallmark of modern financial markets.

Standard and Poors 500 Index closed at: 2,636.78 down .94
NASDAQ finished at: 7,031.83 up 11.31
Gold ended trading at: $1,248.40 up 1.20

This is Caleb Lawrence Registered Investment Adviser I can be reached directly 831-334-5318 or stop by my office 5321 Scotts Valley Drive in the Scotts Valley Plaza, Suite 202, Scotts Valley, Ca, 95066.

Additional writings, and other entries are also available on my Blog at www.clinvestments.com

Advisory services offered through Caleb Lawrence Registered Investment Adviser Inc.

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