Caleb Lawrence – KPIG-KPYG Radio – Share the Wealth – March 3, 2017
Stocks fell in morning trade but recovered late to enter the final hour about even on generally positive data. Since Monday the Standard and Poors 500 Index has gained a little over .5% while the NASDAQ is up nearly .5% as well.
With the soft economic data supposedly spurred on by Trumps election win exemplified by various sentiment surveys showing an economy taking off yet proven over time to be of little real forecasting use. Hard data continues to show the economy muddling along at best dependent upon emergency level interest rates and considerable stimulus for anemic growth it seems that “animal spirits” continue to drive the markets higher. As it has been said on the street, “the trend is your friend, until it isn’t”.
The February Institute for Supply Management non-manufacturing or services index gained 1.1 points to 57.6 on strength in new orders, employment and activity. Prices paid remained high but slipped for the month to 57.7.
One of the side effects of zero interest rates is that savers and pensioners get screwed as it becomes nigh on impossible to earn an assumed rate of return of 7% when the 10-year Treasury pays just 2.5%. Exemplified by CalPERS meager return in its last year of just .6%. Also seen in municipal bankruptcies such as Stockton, Detroit and others the recent rush for the exits in Dallas also comes to mind on the public side. With the PBGC or Pension Benefit Guarantee Corporation on the ropes financially and nearly insolvent on the private side, the slew of pension funds in the North East now knocking on the door will push it closer to the edge. These stories will become increasingly common place as time goes by compliments of zero interest rates, 7% annual return assumptions and promises that mathematically could not be kept leading to sharp reductions in Pension payouts amongst other items. Which brings me to the Fed’s dilemma, raise rates and give pensioners a chance killing the cheap money bubble economy and debtors in the process. Or keep rates at the zero bound and throw pensioners and savers under the bus as we have done for the last 10-or so years in the name of boom and bust economics.