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Deja Vu?
The Market Bull 2018

 
 
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The Market Bull – November 30, 2018

Talk of another attempt to settle the trade war with China helped send stocks into the final hour with large gains on little real news. Since Monday the Standard and Poors 500 Index has advanced 110 points or 4.2% while the NASDAQ increased 304 points or 4.3%. Increasing talk of another real estate bust fingers Dallas, Texas and the west coast as ground zero this time round. While I’m not ready to raise the alarm just yet, only a fool would be unconcerned. The data for these areas and others is softening, no doubt about it. While record levels of debt and rising interest rates are a toxic combination to be sure. So far, the deteriorating data doesn’t fall into the alarming category, at least not yet, but it’s close. Worse the bigger picture does not cast a favorable light on the macro economic or business cycle picture.

If success was measured by the accumulation of debt, we would be one of the greatest countries on the planet. Household debt reached a new all-time record high of 13.5 trillion at the end of the 3rd quarter.

Delinquencies hit a 6-year high. Per the New York Federal Reserve. Other highlights include surpassing the previous record 12.68 trillion Dollar figure for consumer debt set at the end of 2008.

Large gains in student and auto loans have helped drive the new record and it is very interesting that the automakers, particularly GM are cutting production and closing factories in the face of record debt levels.

With the next credit crisis all but certain to be caused not by sub-prime or junk mortgages but by sub-prime or junk corporate debt, aka high yield covenant lite debt. Much of it used for stock buy backs to cover up declining profitability. Some real standouts in the buyback arena include General Electric or GE, AT&T, some of the FANG crowd, Apple, Google and Microsoft, former Dot-Com darlings Cisco and Oracle. In the case of GE and to a lesser extent AT&T these firms demonstrated quite clearly how not to run a company with GE flirting with bankruptcy. The most striking aspect of share buybacks, particularly the debt funded kind. Is that the company’s management couldn’t come up with a better and more productive way to spend the money. Implying that either management is completely clueless, or that it thinks the prospects for future growth are so poor that buybacks are the best choice. One other possibility is just plain old-fashioned greed. Boost the share price at any cost to fatten executives largely stock-based compensation package, never mind the long-term significantly negative consequences, ala GE.

Standard and Poors 500 Index closed at: 2,760.17 up 22.41
NASDAQ finished the day: 7,330.54 up 54.45
Gold ended trading at: $1,227.20 down $3.20

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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