Vorisek Financial Weekly Market Update for May 23, 2018

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Good morning!

For all the belt tightening that Americans implemented 10 years ago when the global real estate market crashed, today’s consumer is not letting a lack of cash flow get in the way of buying what he/she wants.  Total American household debt reached $13.21 trillion as of 3/31/18, the highest level ever recorded.  Mortgage debt makes up 68% of that total ($8.94 trillion) as home buyers who previously were shut out of the housing market when banks tightened their underwriting requirements are now competing over a diminishing inventory of existing homes.  Student loan debt is also at a record high ($1.41 trillion), having increased +9.2% annually over the last decade.  Remarkably, student loan debt exceeds auto loans ($1.23 trillion) as of the end of the first quarter 2018 (source: Federal Reserve Bank of New York).      

Venezuela is a country in chaos, as reports of food shortages, lack of basic medical care and hyperinflation have become the norm since 2013.  Ironically, the country is sitting on the largest deposit of unextracted proven oil reserves in the world (301 billion barrels), worth $21 trillion at Friday’s closing price of $71.34 a barrel (source: WorldAtlas.com).        

The Senate rejected a budget plan last week from Senator Rand Paul (R-KY) that proposed to balance the USA’s budget in 5 years.  In our nation’s last 60 fiscal years (1958-2017), Washington has operated in the “black” just 6 times, i.e., 1960, 1969, 1998, 1999, 2000 and 2001.  With the mid-term Congressional elections now just 5 ½ months away, 5 out of 6 Americans surveyed (83%) in early May 2018 disapprove of “the way Congress is handling its job” (source: Gallup).      

Notable Numbers for the Week:

  1. HUGE PROFITS - The operating earnings per share of the companies in the S&P 500 in the 1st quarter 2018 were up +26.4% on a year-over-year basis (source: S&P).  

  2. ROBBING PETER TO PAY PAUL - New Jersey passed a 2017 law (“Lottery Enterprise Contribution Act”) that redirects the proceeds from the state’s lottery to the state’s pension system for 30 years.  The lottery funds, about $1 billion annually, was supporting K-12 education in New Jersey (source: Manhattan Institute).      

  3. OIL - From the end of 2016 to Friday 5/11/18, the number of operating oil rigs nationally is up +59% to 1,045 rigs and the field production of crude oil is up +22% to 10.723 million barrels a day (source: Department of Energy).

  4. CHEAPER DRUGS - The US government’s Food and Drug Administration approved 763 generic drugs in 2017, a record number of approvals (source: FDA).

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