Registered Investment Adviser Caleb Lawrence
After opening lower, the major averages enter the final hour mixed on little news, since Monday the Standard and Poors 500 Index has slipped 7 points or .28% while the NASDAQ has given up 44 points .68%, consumer credit comes out after the close. Wholesale trade fell for a 4th month in the last 5 with sales slipping .1%. Inventories increased strongly again up .6%. Inventories increasing as sales slip is considered a negative economic trend. The inventory to sales ratio advanced to 1.3.
While the mainstream media and most pundits avoid discussing the perils of debt by and large it plays a very significant role in how we got here today and will feature even more prominently in the future. Based on income and the bottom 80% have seen their incomes fail to keep pace with rising living costs, in the last 30-odd years. Leading many to take on ever increasing debt levels as savings have dwindled to nothing in many cases as evidenced by various studies that show the average American doesn’t have $500 to cover an emergency. Consumer credit balances have now exceeded the highs set in the 1st quarter of 2008 as the last bust got underway per Federal Reserve data. Given new record debt levels and essentially stagnant incomes it’s no surprise to learn that delinquency rates have risen more or less steadily since 2011. As they have now reached levels seen just before the 2007-2009 financial crisis it’s fair to wonder just where the next tipping point is. With the data showing that the gap between disposable real income and the cost of living growing ever wider. It is now far greater than that seen in the previous crisis. Should credit expansion falter bad things will happen both from a macroeconomic perspective and to asset valuations. This is the Achilles heel of credit induced asset bubbles, sooner or later they are all but guaranteed to implode under their own weight with devastating consequences ala 2008-2010.