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Registered Investment Adviser Caleb Lawrence

The major averages begin the week with small gains on generally positive data. The Chicago Fed National Activity Index increased .41 in April to .49 suggesting more muddle along economic growth. The 3-month moving average improved to .23 helped along by a big jump in production, consumer spending dragged.

Credit trends over the last 6-months or so paint an increasingly disturbing picture as record levels of outstanding debt combined with falling demand particularly with the Commercial and Industrial or C&I sector along with tightening credit standards, themselves a by-product of rising defaults paints a picture eerily reminiscent of 2007. The implication being that the consumer is under increasing financial stress leading to businesses scaling back capital expenditures and expansion plans due to slackening demand. Changing perceptions related to real estate purchases and deep cracks appearing in markets like south Florida add to the sense of Deja-Vu. If credit creation fails to pick up materially before the end of the quarter and consumer data remains weak even the 2% and change economic growth estimates look doubtful, never mind the official high frequency model that currently predicts 4.3% growth in the second quarter. It’s going to take a lot more than a record Saudi arms deal to bring that figure to the table.

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