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Registered Investment Adviser Caleb Lawrence

The major averages recover their early week losses and then some. Trade deficit advances for a 6th consecutive month, hits 57.6 billion.

Early market gains managed to erase all of the substantial losses seen at the beginning of the week and then some as the major averages enter the final hour with modest gains on little news.

With all the talk of trade war these days it’s interesting to note that the trade deficit has advanced for 6-straight month’s hitting 57.6 billion in February. Imports increased to 262 billion while exports advanced to 204.4 billion. Rising trade volumes are generally considered a sign of economic strength, but the dramatic increase in imports will drag on GDP or Gross Domestic Product.

One of the hallmarks of the Great Financial Crisis was the various forms of exotic financing used to keep the bubbles going. With Carrington Mortgage Services launching a mortgage lending program that looks an awful lot like pre-crisis subprime lending, I can’t help but have a sense of Deja-Vu.

On the subject of credit and inflation. It was always understood that too many Dollars chasing too few goods leads to inflation, or price gains. Too few Dollars chasing too many goods leads to deflation or price declines. In fact, the link between boom and bust cycles over the last 20-years is quite striking and has produced 3 consecutive bubbles each grander than the last. With the Fed currently trying to normalize its balance sheet and reduce its debt holdings it’s worth noting that Bank Credit peaked in November. Fed normalization and a reduction in commercial bank reserves has seen 102.5 billion removed in the 4-months since November. The problem with asset bubbles is that after a point, and we are well past it, they must be fed with ever increasing amounts of credit, or new money. If they don’t get the capital they need to keep inflating, painful collapse is inevitable. This is a function of basic math and is very well documented.


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