UBS Commentary of Art Cashin

       UBS Financial Services has an excellent daily market commentary for clients with the views and outlook of long time New York Stock Exchange veteran Art Cashin. Last week Art included the opinions of Dr. Lacy Hunt and Brian Reynolds. We agree totally with every point they make.

Art’s comments as follows:

” While not quite as incredible as the separate but simultaneous conception of Calculus by Isaac Newton and Gottfried Leibniz in the 17th century, I was amazed to see two parallel, virtually identical concepts of the basis for this 8 year rally from the Great Recession bottom in March of 2009.  These concepts come from Dr. Lacy Hunt and Brian Reynolds at New Albion Partners.  Dr. Hunt spoke at John Mauldin’s Strategic Investment Conference.

 Luckily for us, the brilliant Steve Blumenthal participated in the conference and took copious notes of most of the presentations.  Here are Steve’s notes on Dr. Hunt’s segment on the stock rally. 

• Lacy believes that the leveraging of the corporate balance sheet has been basically to support the stock market and not for long-term business purposes.
• Corporations are borrowing money to buy their own stock.
• They are engaged in financial engineering by issuing debt and buying back their own shares.
• But it does not increase the growth potential of the U.S. economy.
• The Fed is largely responsible for this for when they undertook QE, it was designed to give the stock market a boost. Idea was to create a wealth effect that would then trigger spending and faster economic growth.
• The notion of a wealth effect is no more than a hypothetical theory. If this occurred, we would not see the severe deterioration in secular growth that’s taking place.
• The net result is that the Fed signaled to corporate managers that your financial interests are protected by us.
• The Fed has encouraged the mal-use of our debt. And the numbers since 2015 show this.
• From 2015-2016, debt rose $717 billion. Investments in plant, equipment and inventories fell by $21.2 billion.
• No benefit to the standard of living….. None whatsoever.“