2017 ? Wild, Disruptive, Divisive

2017 ? Wild, Disruptive, Divisive
Investor’s first read – Daily edge before the open
DJIA: 19,885
S&P 500: 2,274
Nasdaq Comp.:5,574
Russell 2000:1,372
Tuesday, January 17, 2017 9:04 a.m.
The inauguration of Donald Trump on Friday presents the Street and American citizens with a full plate of considerations, including:
– the prospect of big corporate tax cuts, deregulation, a big spend on the military and the infrastructure and the restructuring of long-standing trade agreements.
-the uncertainties of the repeal of Obamacare
-talk of privatization of Medicare and Social Security
-possible undermining of NATO and the European Union
-a trade war of sorts.
-lifting of sanctions on Russia for its incursion in the Crimea and actions in Syria, adding to questions already breached.
-continued internal polarization of America and the possible extension of such to other countries.
Just talk of these things can be unsettling, but given a preference, the Street will focus on the prospect for a jump in corporate profits and of course another surge in stock prices.
As long as all these issues are on the front burner and the outcome uncertain, the stock market should favor the bulls. .
A very different president will take office Friday, unfortunately one who so far has been inconsistent and unpredictable.
. On top of that, an untethered Republican Congress will wield an axe to anything with President Obama’s name on it.
Is the system really broke and needs fixing, or should it be tweaked with care ?
How the market takes to that is an unknown today. The stock market is up 241%, as Trump takes office, and the economy, though stable and growing at a moderate pace, could heat up if the speculative juices begin to accelerate if a good part of the tax cuts, dereg., and “spend.” occur
The Fed’s reaction to massive corporate perks, if they come to fruition will become a factor later this year or 2018.
I doubt the Street’s computers are programmed to anticipate what to expect from Donald Trump, how could they ? They can be programmed to project the impact of tax cuts and increased spending on bottom lines and stock valuations that will result, and that is the drummer the market will march to.
This has the potential for a pig-out, a private party capped by a speculative boom before a bear market reinstates reality.
A lot of money can be made under a scenario like this so long as an investor leaves the party before last call.
What stirs my contrary instincts is the fact corporate tax cuts and huge spending programs and a booming stock market seem so certain. How can they miss ? The Republicans control everything. The light is bright green – why not load up !
But really, is it ever that easy ? Is it possible, the BIG money sees the risk in disrupting time-tested solutions to trade, international deterrence to aggression, tax cuts that will require slashes in social mechanisms that have enabled the mass of people to fuel our economy ?
The Mid-East is a mess ever since we invaded Iraq. What folly is next ? the EU ? NATO ?
These are things on the chopping block. Will that delay the party ?
Will 2017 be too disruptive, or will all the fluff about taxes and spending be just that – fluff ?
The ball is in the lap of the BIG money, money so big it doesn’t want the boat rocked so much it takes on water with a risk of sinking. This is an element I have referred to often, these are the people who have it made unless their foundation is threatened by senseless change.
They may stay for the first glass of champagne, or be a “no show.”
SUPPORT “today”: DJIA: 19,806 ;S&P:2,268; Nasdaq Comp.:5,561
RESISTANCE “today”:DJIA:19,923;S&P 500:2,283; Nasdaq Comp.:5,589
We are heading into the ugliest domestic and international era of the past 70 years, the Republican Controlled Congress’ rape and pillage of efforts during the last 8 years to define that we are a people of decency, compassion, mutual respect, and optimism. So much of the market’s stability depends on confidence, he does not breed it, he undermines it, and that can hurt investors.
There is a chance, not huge, but enough to take seriously, that our nation is coming apart at the seams, that divisiveness will trump cooperation, civility will yield to incivility, progress will yield to more gridlock, and demonstrations will cross the line to bloody violence..
Until last week, I steered clear of politics in my posts. I strongly think President-elect Trump is a major “risk” factor and that has to be addressed.
He is both predictable and unpredictable. Predictable in the fact he cannot tolerate criticism or opposition without rejection and retaliation . Unpredictable in that no one (including himself) knows what he will do under the kind of serious situations that confront a president every day.
The President-elect should busy himself with more important things than tweeting a counter attack on anyone who confronts him.
This behavior has persisted since he began his campaign and is truly scary. As President, such inability to ignore criticism suggests a skin too thin for this job.
As I have said before, I think Donald Trump is a big mistake, and when you make big mistakes, you pay a price, and that could be injurious to investors.
It’s one thing to run a company where you have employees who will do as they are told, or get fired. That is not how the office of the Presidency works.
Corporate earnings (update)
Factset now sees Q4 earnings for the S&P 500 up 3.0%. On Sept. 30, its projection was for a decline of 5.2%. Growth rates in 10 of 11 sectors have been reduced since Sept. 30. The growth rate for all of 2016 is est. at +2.2%. Earnings for 2017 are expected to increase 11.5%. Currently, the P/E based on 12 months out is 17.1x, which compares with a 10-year average P/E of 14.4 and a 5-year P/E of 15.1.
FYI: There was some missed estimates in 2016, Q3 in particular where earnings growth surprised the Street. Along with a firming economy, this was a contributor to the year year-end rally in addition to promises of tax cuts, dereg., and a big spend..
On occasion, I technically analyze each of the 30 DJIA stocks for a reasonable risk, a more extreme risk, and an upside potential over the near-term. I add the results of each, then divide by the new DJIA “divisor” (0.14602) to get the DJIA for those levels. This gives me an internal check on the DJIA itself, especially if certain higher priced stocks are distorting the averages.
As of January 6, 2017, a reasonable risk is 19,926 a more extreme risk is 19,879 Near-term upside potential is 20,288.
I wrote the following in 2007 as I became increasingly aware of “risk.” I was not aware of how disastrous the subprime mortgage/housing bubble situation had gotten, just appalled how extreme the use of derivatives had become. As most of you know the bear market/recession that followed took us to the brink of a total meltdown. I am again concerned for the market, not so much about derivatives but the Trump presidency.
Perfect Storm Looms
The perfect storm in our financial markets is looming.
….It will take a heroic international effort to avert a meltdown of huge magnitude…
….Trading in everything may have to be stopped until some sort of sanity is restored
….This can get real ugly. No one has a handle on the leverage amassed in derivatives
….No one has a true handle on how precarious the situation out there is, and that uncertainty feeds on itself, prompting increased selling…With few buyers, stocks tank.
…Only when a cauldron of fear begins to boil, do you have a market that is reasonably safe to invest in.

George Brooks – August 19, 2007
 OPPORTUNITY: RISK: Selective opportunity ! Risk is reality at some point
 CASH RESERVE: 25% – 35%.
 KEY FACTORS: Speculative fever driven by expectations of tax cuts, lifting of regs., and lots of money dumped on economy.
Note: Source of weekly economic calendar and good recap of indicators: mam.econoday.com.
George Brooks
Investor’s first read
A Game-On Analysis, LLC publication
Investor’s first read, is a Game-On Analysis, LLC publication for which George Brooks is sole owner, manager and writer. Neither Game-On Analysis, LLC, nor George Brooks is registered as an investment advisor. Ideas expressed herein are the opinions of the writer, are for informational purposes, and are not to serve as the sole basis for any investment decision. References to specific securities should not be construed as particularized or as investment advice as recommendations that you or any investors purchase or sell these securities on their own account. Readers are expected to assume full responsibility for conducting their own research pursuant to investment in keeping with their tolerance for risk.

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