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Registered Investment Adviser Caleb Lawrence

The major averages begin the week with modest losses on generally disappointing data. The Trumpeter sparks another controversy, this time with the NFL, while North Korea threatens war over the last presidential tweetstorm. The Texas regional index has so far shrugged of the recent hurricane advancing 4.3 points in September to 21.3 on strength in new orders and employment.

The Chicago Fed National Activity Index fell sharply in August dropping .32 to -.31 on weakness in production, consumption and housing. A volatile series the 3-month moving average slipped to -.04, its first negative reading in 5-months. This index covers about 85% of total economic activity and like the Fed’s Beige book continues to indicate tepid economic growth.

As markets climb and valuations become extreme the long trade becomes increasingly crowded as everybody and their dog piles in fearful of missing out on what is increasingly viewed as a sure thing by the investing public. Case in point the participation level of households in the stock market has reached near record levels based on data from the Federal Reserve’s 2nd quarter 2017 Z.1 release, aka the Flow Of Funds, showing that household and nonprofit’s stock holdings amounted to 35.7% of their total financial assets. The all-time high for this series set in 2000, just before the Dot-Com crash was 42%. This series joins valuation and margin debt at near record highs helped along by the Fed’s zero interest rate policies and quantitative easing, the latter was formerly retired last week, while the former or interest rates have been tentatively pushed higher for the last couple of years because the Fed knows that it has painted itself into an unviable corner, ala Japan.

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