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Registered Investment Adviser Caleb Lawrence 

The major averages begin the week with large gains on little real news as irrational exuberance soars to new heights ala very late 1999, early 2000.

Despite more than a few questions surrounding high cost states mortgage interest deductions the December National Association of Homebuilders Index jumped 4 points to 74, the highest it has been since July 1999 incidentally. With the exception of the Northeast all regions advanced, the West surged 8 points to 85.

The BIS or Bank of International Settlements is again making the rounds warning of frothy financial markets, ala 2006, 2007 when investors went all in with borrowed funds placing bets with little if any consideration for valuation or fundamentals. As before risk spreads narrow and yield curves flatten indicating that not all is as rosy as it seems, again shades of 2000. While the Fed’s monetary and interest rate tightening has led paradoxically to looser financial conditions. While nothing matters continues just like early 2000 as asset prices reached dizzying heights. One day it will matter, and this day will surprise just about everyone just like it did in 2000 and 2007 when the mood swings from euphoria to panic seemingly without reason. Some have fingered the Fed’s and other Central Banks repeated messages to the markets regarding gradualism, predictability, measured pace etc., etc. as reassuring investors, and muting volatility while encouraging more risk taking in a feedback loop, as everyone figures the Fed has their back.


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