Registered Investment Adviser Caleb Lawrence
Volatile early trade sent the major averages into the final hour with small losses on generally disappointing data. The Producer Price Index or PPI gained .4% in October, the year ago rate moved up to 2.7% to mark a 5th consecutive month at 2% or better, the Fed’s stated target. Core and intermediate goods prices drove the advance along with services costs, so energy remains a big driver at the year ago level.
Consumer debt hits a new record high in the 3rd quarter as per the New York Fed, same thing happened in the 2nd quarter but it was promptly revised away. Driven by new record highs across the board to 12.96 Trillion dollars in total. Mortgage’s advanced 56 billion, Credit Cards increased 24 billion, Auto Loans gained 23 billion, and Student Loans jumped 13 billion. Loan origination is increasing steadily for most credit tiers while delinquencies increased .1% to 4.9%, bankruptcies slipped to 208,440, lastly foreclosures hit a new record low of just 69,580 in the 3rd quarter. As debt doesn’t matter, just ask Uncle Sam, record high consumer debt is a definitive sign of a vibrant and economically healthy consumer sector just like late 2008.
Trump’s tax plan seems to specifically target high cost coastal real estate markets by limiting the mortgage interest deduction and the ability to deduct very high state and local taxes, California has some of the highest. Another wrinkle seems to go after Silicon Valley’s high tech sector by making vested stock options taxable prior to exercise. Given the high failure rate of startups and that more than a few vested options end up worthless prior to being exercised the effects on the Venture Capital sector could be dramatic for both the startups themselves and the talent they depend on.