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Caleb Lawrence – KPIG-KPYG Radio – Share the Wealth – February 14, 2017

After a volatile opening stocks rose again as per the post election pattern despite increasing signs of instability in the Trump administration following the resignation of his scandal tainted National Security Advisor Michael Flynn. I won’t be surprised if the Chief of Staff Reince Priebus follows soon as he seems to be unable to get the job done. Other items of note the probability of Trumps grand tax package seems to be slipping this year as a matter of practicality. Worse the president’s actions increasingly alienate his electoral base as campaign promises are forgotten or found to be unworkable, adding to the climate of uncertainty. How long until it morphs into fear?

The Producer Price Index or PPI gained .6% in January, double expectations, with the year ago rate reaching 1.7% a more than 5-year high, but still below the Fed’s desired 2% target. Price gains were seen in energy and goods, food prices were unchanged.

Fed Chairwomen Janet Yellen’s morning statements included increasing interest rates in March based on political and policy uncertainty amongst other items. It used to be that the Fed killed bull markets by raising interest rates, another time tested pattern to add to the scrap heap of history as in the modern era stocks go up no matter what. Famine, pestilence, plague, floods all are apparently good for new record highs.

Oddly enough the current market environment is similar to that seen in 2007, back and forth sector rotation, a lack of breadth, forward earnings and valuation assumptions based on pie in the sky growth rates. Without the leveraged share buyback game to goose earnings per share, weak fundamentals, painfully high valuations, political and policy uncertainty and a Fed seemingly determined to raise interest rates, never mind the record levels of debt you have to wonder just how long this can last, frankly I’m amazed we have gotten this far.

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