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Share the Wealth – May 17, 2018

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Registered Investment Adviser Caleb Lawrence 

Volatile early trade sends the major averages into the final hour with small losses on little real news. Wells Fargo gets caught altering client data without permission, another month, another scandal, how they manage to remain in business is beyond me.

The Philadelphia Fed Regional Index surged 11.2 points in May to 34.4 on strength in new orders and employment. Price data remains high but was mixed for the month.

One of the hallmarks of the period just before the busts in 2000 and 2008 was the utterly irrational expectations and assumptions investors made with respect to valuations, assumed rates of return and what something was actually worth. WeWork, a privately held company that provides office space on a temporary sub-lease basis is a case in point. Fresh off a very oversubscribed junk bond offering, the company valued itself at an impressive 20 billion Dollars. In addition the company noted that it lost nearly a billion dollars last year. Holding some 14 million square feet of leased office space the company declared that a 60% occupancy rate represented break even. Which begs the question, how did we get to a 20 billion-dollar valuation. If the company owned all this space free and clear valuation would be about 7 billion. Yet the space is leased, and the company holds some 18 billion in debt. Just another example that leaves you scratching your head, while wondering how it’s supposed to work. Just like Uber, Tesla and a few other wildly popular Sillycon Valley Magic Unicorns, shades of 2000 all over again.


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