Caleb Lawrence – KPIG-KPYG Radio – Share the Wealth – March 8, 2017
Disappointing data sent the major averages into the final hour mixed. Consumer Credit came out after the close yesterday missing expectations significantly with an 8.8 billion Dollar increase in January. Revolving or credit card use fell 3.8 billion or 4.5% while non-revolving essentially student and auto loans increased 12.6 billion or 5.6%.
4th quarter 2016 productivity and unit labor costs finished the year on a disappointing note as productivity gained just 1.3% while unit labor costs advanced 1.7% continuing the trend of costs exceeding productivity gains that has been going on since about the beginning of 2014. A trend that will maintain pressure on corporate profits and multiples.
Another day and another reduction in Gross Domestic Product estimates as the Atlanta Fed GDPNow 1st quarter estimate dips to 1.2%, while this failed to produce to new record market highs it did push the odds of a Fed rate hike next week to 100%, go figure.
As stocks surge in the absence of robust profit growth, there has been little change since 2011, lacking decent fundamentals valuation multiples climb steadily. With the Standard and Poors 500 Index Price/Earnings or P/E Ratio reaching nosebleed levels at the beginning of March hitting 26.75. Its been said that Bull Markets don’t end, the Fed kills them. Apparently bent on raising rates despite weak economic data and poor fundamentals the Fed seems to be following this well worn path. The real question of course is what then? Credit where credit is due the Fed reinflated the various asset bubbles quite successfully in the post bust period since 2009 much to my surprise. As zero interest rates and an average of 1.25 trillion in deficit spending per year and a surging balance sheet will fix many a deflated asset bubble as it turns out. Mathematically interest rates are effectively at zero so slashing them will not be an option next time round. This leaves 10’s of trillions in additional deficit spending and the now infamous helicopter Ben, as in former Fed chair Ben Bernanke, with the printing press on full blast tossing bails of money far and wide.