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The implication for corporate profits is both clear and appearing in the 4th quarter results as falling revenues plus higher labor costs equals reduced profits. This in turn is driving market valuations higher. Not a positive trend if you’re a stock investor. Also of note is that rising unit labor costs aren’t showing up in rising inflation or price pressures as they remain muted.

Factory orders fell 2.9% in December, a 14th consecutive decline, while Novembers negative figure was revised from -.2% to -.7% adding to the growing pile of decidedly negative industrial and manufacturing data of late. Notable data related to the report durable goods orders dropped 5%, core capital goods fell 4.3%, and shipments declined 1.4% while inventories gained .2%, not a pretty picture.

One of the real hallmarks of the 2008-2009 financial crisis was the devastating effects of the reckless assumption of debt and its consequences. Namely economic implosion and at a more personal level for far too many folk’s bankruptcy and foreclosure. That said the Central Bank response to the crisis was yet more debt. Now I’m admittedly not that smart and don’t have the benefit of a degree in economics. Yet it seems to me that trying to solve a problem with more of what caused the problem in the first place is a bad idea. As an example Japan recently tried Abenomics or print money and buy stuff on steroids, aka Quantitative Easing. When this failed to stimulate consumption and rising prices they recently switched to negative interest rates. Meaning borrowers have to pay for the privilege of lending Japan money, no surprise that they cancelled a recent bond auction. Closer to home the Chicago School board, in debt up to its eyeballs and sinking fast much like the entire state of Illinois. Was forced to offer a tax-exempt yield of 8.5%, if that doesn’t scream looming insolvency I don’t know what does particularly after a close examination of the details. This is a story that will be repeated again and again nationwide and in fact most places that have pursued the debt based growth model as it reaches its inevitable conclusion.

This is Caleb Lawrence Registered Investment Advisor Scotts Valley Drive and Willis Road in the Scotts Valley Plaza, Suite 202 or call me toll free at 888-RICH PIG / 888-742-4744.

You can catch me on the radio at noon each business day as well on California’s central coast.  KPIG 107.5 FM in the Monterey Bay or KPYG 94.9 FM in San Luis Obispo.

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

Investment advisor services offered through Caleb Lawrence Registered Investment Adviser Inc.

 

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