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Share the Wealth – June 5, 2018

 
 
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Registered Investment Adviser Caleb Lawrence 

The major averages enter the final hour with small gains on generally positive data. The Institute for Supply Management non-manufacturing or services index increased 1.8 points in May to 58.6. The details were unremarkable, prices paid advanced again reaching 64.3. This index covers some 88% of total economic activity.

Trumps deficit funded tax cut sold to the public as a jobs creation mechanism designed to induce corporations to repatriate foreign profits leading to a domestic investment boom. Just like the last two, has also led to another round of corporate share buy backs that reached an all-time record in the 1st quarter, executive bonuses, shareholder dividends and a small increase in capital expenditures, again, just like the last two. That said one of the primary effects of this tax plan will be to drive what is already record wealth and income inequality, even higher.

One of the less well-known market indicators is the so called “Smart Money Flow Index” or SMFI which measures the buying enthusiasm of large institutional investors for stocks. Usually this index does not reveal much, except when it is at extremes as it is presently. With a current value of just over -15 it matches the lows seen just before the Dot-Com and Great Financial Crisis in 2000 and 2007 respectively. Given the also very low Volatility Index or VIX you have to wonder is it the quiet before the storm to paraphrase noted economist Hyman Minsky.

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