Bull Depends on Hopes for Stimulus

Investor’s first read Daily edge before the open
S&P 500: 2,357
Nasdaq  Comp.:6.011
Russell 2000: 1,355
Thursday, May 18, 2017    9:08 a.m.

        Until yesterday the Street had been a buyer of stocks since November 9 in expectation of President Trump’s promise of a big stimulus, including massive tax cuts for corporations and some individuals, deregulation, and a big spend on the military and our aging infrastructure.
        For months, I have told readers that the Street continue to be buyers, as long as the promise of this massive stimulus was expected to happen.
        After countless blunders and unthinkable behavior by President Trump, including the firing of FBI director James Comey, a smoking gun in the form of Trump’s alleged attempt to obstruct justice by trying to coerce Comey to drop the Russia investigation, the Street began to have doubts that all the goodies Trump promised may be delayed or not happen at all. The appointment of a Special counselor compounded its angst.
        The key to the bull market is whether  SOMETHING HAPPEN TO REVIVE THE STREET’S HOPE FOR THE BIG STIMULUS ?
         Since November 8, nearly all the Street’s algos have been programmed to buy on dips, which prevented meaningful corrections on eight occasions.  
        If the algos still say “buy,” we will get a sharp rebound.  If  human brains take over the decision process, fully aware President Trump may beon his way out along with a lot of his promises, the market is heading south.
        The risk here is if all that programmed “think alike” money heads for the exit at the same time, it will be straight down, triggering one NYSE circuit breaker after another.
     As I emphasized yesterday, the Street’s computer algos couldn’t have been programmed to anticipate Trump’s  bizarre and outright scary behavior, and events that beg answers.
      The DJIA and S&P 500 should try to hold above April’s lows of DJIA 20,379 (S&P 500: 2,322). A spike down at the open to DJIA 20,487 (S&P 500: 2,343) should be followed by a rally which will run into resistance (see below).

SUPPORT “today”:DJIA:20,487;S&P 500:2,343; Nasdaq Comp.:5,959
RESISTANCE “today” DJIA:20,679 ;S&P 500:2,367;Nasdaq Comp.:6,036

(updated  May 15, 2017)
      Q1 earnings are projected to increase 13.6%. Q2 growth  is projected at +6.8%, Q3 at +7.5%, and Q4 at +12.4%. For 2017 as a whole growth is projected at a plus 9.9%.  Currently, the P/E on forward  earnings is 17.5 x. That compares with a 10-year average P/E of 14.0.
Note: These numbers change frequently.
:  (UPDATED 5/15/17)
      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  April 25, 2017,  a reasonable risk is 20,856 a more extreme risk is 20,703.Near-term upside potential is 21,333

      “Special counsel” is the formal name for “special prosecutor,” one in the same. Its mission is to gather all information relevant  and determine if a crime was committed. There is no guarantee its findings would be made public.*
         Special counselor, Robert Mueller is authorized to examine and prosecute any matters that arise or may arise directly from its investigation. the words, :any: and “all” are key in that they give Mueller very broad authority to take his investigation wherever he deems necessary. This would include collusion with  Russian operatives, as well as any attempt to cover it up.**

      The U.S. Constitution  enables Congress to remove a president for “treason, bribery, or other high crimes and misdemeanors.” Intitially, the House votes on one or more articles of impeachment- if a majority vote is reached, he is impeached.  BUT, impeachment only means indictment. The Senate holds a trial overseen by the chief justice and Supreme Court. A group of House members serve as prosecutors and the Senate as jurors. If two-thirds of the senators find the president guilty, he is removed from office and the vice president takes over.***
      Reportedly, President Trump asked FBI director, James Comey,  to drop the ongoing investigation
of former national security adviser Michael Flynn. According to the New York Times,  Comey wrote a two-page memo covering that conversation with Trump at the White House in February. Trump’s urging falls under “improper efforts to influence an ongoing investigation.”
      This news comes a week after Trump fired Comey, and days after Trump indiscreetly shared classified information at the White House with Russia’s Foreign Minister Sergei Lavrov and Ambassador Sergey Kislyak who were visiting at Trump’s request.  While not illegal, Trump’s action was widely criticized as potentially creating a hesitancy on the part of foreign countries to share intelligence of the United States.
Monday, May 15,  Joe Scarborough (Morning Joe –  MSNBC) said he believes President Trump fired FBI director James Comey,  because Comey was getting close to exposing whatever criminal actions Trump has been trying to hide.
       That’s a strong allegation by Joe. What is new here is the word “criminal.” We have heard the word “collusion” a zillion times, but criminal takes this to a higher level, much higher.
       The whole issue of collusion would be hard to prove unless one of Trump’s  present or former team members (Manafort, Flynn, Sessions, Page, Stone) squeals.  Lower the boom on any of them, and anything is possible, including the end of the Trump fake presidency.
       On January 24, 2017, President Trump signed an executive order withdrawing the United States from the Trans-Pacific Partnership (TPP) negotiations and opting out a  trade with countries which generated $27 trillion in trade in 2015.  On January 25, I questioned whether we were opening the door for China.
      Tuesday, May 16, thirty countries, including Russia, ended a meeting to promote Asian and European cooperation in a broad range of issues, including China’s “Belt and Road” project, designed to expand China’s global stature and trade in Asia, Africa and Europe by investing in ports, railways, and infrastructure  facilities, with the expenditure by China of $7 trillion over ten years.
       Indeed, Trump’s decision to focus on domestic issues and opt out of foreign affairs, one of which was TPP, has let China fill a huge void in trade and influence in the Pacific and Africa.
        This is the downside of having a blowhard, bumbling, narcissistic president.  Hopefully, we can survive him, as well as our extremist Congress, which is more dangerous now doing something, than it was doing nothing during President Obama’s eight years in office.  Pity !
The Trump presidency, has issued in a whole new set of psychological terms, none flattering to President Trump or the voters who put him in office.

CONFIRMATION BIAS:  the tendency to interpret, perceive, or recall information in a way that confirms one’s pre-existing  beliefs even when faced with irrefutable proof to the contrary.  Having a closed mind to one’s own peril would be another way of putting it. Is it sheer stupidity to vote against one’s best interests ?  Yes, but they do it all the time. Credit lack of information, or simply the inability to mentally and emotionally process information accurately and without bias.  
DEVIANCY DOWN:  A term originally used by the late Senator Patrick Moynihan to warn voters against accepting bad behavior, stupidity, demagoguery, lying, ignorance as the “norm.”
      Bloomberg’s Albert Hunt, wrote about it on May 14, referring to Trump critics being in awe when Trump gives a speech that is reasonably coherent or takes sensible action on something.  Suddenly  critics treat it as a momentous occasion, when in fact, it is what presidents are expected to do.
      Essentially, it is the dumbing down of a person’s behavior. This is partly responsible for Trump supporters and Republicans in Congress  accepting Trumps obnoxious behavior, uncharacteristic of past presidents.  In spite of all of Trump’s nonsensical bluster and tweets, even his critics are relieved when he has a moment of sanity, hopeful that a new Trump has emerged, one who acts presidential. Why is inferior behavior acceptable ? Don’t know, but my guess is people feel less inferior when a high level official like Trump acts inferior too.

DUNNING-KRUGER EFFECT: A cognitive bias whereby people of low mental or physical ability actually perceive themselves as excelling in those areas.  Columnist, George Will recently touched on this, concluding Trump suffers from a dangerous disability, not only because he’s ignorant, and ignorant of his ignorance, but because  he does not know what it is to know something.”  
      WOW !  You said that, George ?
  Another way to say it would be, a person who thinks they know everything but in fact don’t know what it is to know something. It’s a failure to recognize their own shortcomings, so they conclude they have none.  Unfortunately, in addition to being a narcissist, Trump falls into this category. Just because he has been successful in real estate and show business, he concludes he can be successful at anything.
      Voters in this category don’t feel they need to do any  research on qualifications or policies, they simply know how to vote, because they can’t make the wrong decision – too smart !

This is just the beginning and information is still sketchy. One excellent source is the Henry J. Kaiser Foundation (www.kff.org)
      The House narrowly passed the American Health Care Act (AHCA) last week by a vote of 217 to 213. 
      The House failed twice to pass a similar version. The bill was rushed through without pursuing standard practices – discussions and cost and consequence scoring, by the CBO.

      It now goes to the Senate where it will encounter changes and possibly rejection. Senator Susan Collins, Maine, says there is no timeline for Senate consideration, only that she expects the Senate to take its time and do it right.
      AHCA is not the law of the land yet. All this negativity and uncertainty must make it next to impossible for Insurance companies to project risk and coverage.  That in itself stands to press ACA to the edge.      

       Republicans will now move on to tax deform where it will tip the scales further in favor of corporations and upper income persons.

THE RISK !     

      If successful, this administration’s late-stage stimulus will set the stage for a huge shortfall in US government receipts, resulting in the need to gut  dozens of government programs that address need and quality of life.
        For the most part Republicans, greedy bankers and financial institutions gave us the “Great Recession/Bear Market” 2007-2009.  The next one will be worse, because the government will lack the fiscal stimuli to pull the country out of its depressed state. 
       Can’t happen ?   Weren’t safeguards imposed through Dodd-Frank to prevent another meltdown ?
       Yes, however the House voted Thursday to roll back many of those measures, which they claim have slowed down economic growth. This is the same pattern of corporate “permissiveness” that set the stage for the 2007 – 2009 crash. ”Read “Too Big To Fail” by Sorkin, just don’t make it bedtime reading. 

     Trump’s plan to cut the corporate tax rate to 15% from 35% would trigger a $2.4 trillion shortfall in government revenues, forcing massive cuts to government programs, as well as increased taxes in other areas to offset the loss.   

     This is an opportunity of a lifetime for Republicans to fulfill their dream to devastate social programs across the board, i.e. slash government income and there is no alternative but to gut government programs. 
      It’s called “Starve The Beast,” and will result in a vast reduction in the quality of life of most Americans, especially those who put Trump in office.
      Congress will waste little time seizing an opportunity of their lifetime – to ruthlessly, senselessly and wantonly dismember a system that works well without the intrusion of Republicans.


“A Russian government think tank controlled by Vladimir Putin developed a plan to swing the 2016 U.S. presidential election to Donald Trump and undermine voters’ faith in the American electoral system, three current and four former U.S. officials told Reuters.
      Russian documents appear to confirm what U.S. intelligence agencies have believed  all along that Russia influenced the outcome of our presidential election. 
      Yesterday, Reuters released documents, which were prepared by the Russian Institute for Strategic Studies[https://en.riss/], after the election that confirm this conclusion.
      It recommended that a, “propaganda campaign on social media and Russian backed global news outlets to encourage U.S. voters to elect a president who would take a softer line toward Russia than the administration of then-President Barach Obama, the seven officials said.”
     Additionally, a second institute document recommended Russia end its pro-Trump propaganda and intensify messaging about voter fraud to undermine the U.S. electoral system’s legitimacy and damage Clinton’s reputation.
      So far, investigations by U.S. institutions and Congress have not concluded collusion between Trump’s team and Russian operatives occurred.
     But U.S. investigations are still being conducted.
     I personally believe collusion DID take place, and odds are GOOD that it reaches far beyond collusion, that based on what I see and how people in the administration are acting.

      Just a hunch, but I think collusion regarding influencing the election is only part of something much bigger, like major league money transfers for options on oil investments, real estate holdings, and land deals. That’s why it is taking so much time.
      If we begin to see more and more of VP Pence, it may suggest the end for Trump is getting closer. Clearly, the inside knows something is about to break.  Trump is “toast,” IMVHO.
      There are so many people who know so much, and they are going to be watching out for number ONE, and that is not Donald Trump.

Expect the Trump administration to put the United States on a war footing within one year, probably regarding North Korea.  For one, it would justify its big military spend. For another, it would facilitate a mid-term election victory, since voters are reluctant to change  Congress significantly when the nation is gearing up for war.. It worked for George Bush in 2003.  Finally, it would deflect attention away from the Trump/Russia issue, that could sink the administration.

CORPORATE EARNINGS (updated  April 14, 2017)
      Q1 earnings are projected to increase 13.5%. Q2 growth  is projected at +7.2%, Q3 at +7.7%, and Q4 at +12.5%. For 2017 as a whole growth is projected at a plus 10.0%.  Currently, the P/E on forward  earnings is 17.5 x. That compares with a 10-year average P/E of 14.0. Energy is the big contributor to Q1, S&P 500 growth.  While its percentage growth rate cannot be calculated since the sector was losing money a year ago it is in the black to the tune of $8.5 billion vs. a loss of $1.5 billion in Q1 2016. Materials:
:  (UPDATED 4/28/17)
      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  April 25, 2017,  a reasonable risk is 20,763 a more extreme risk is 20,571.Near-term upside potential is 21,333
1-Trump’s presidency will implode within three years, Bannon will be gone, along with Breitbart News and Alt-Right’ influence.
2-Trump will put the United States on a war footing with North Korea in coming months with or without China’s cooperation.

Conclusion: It is happening now
3-Expect major domestic violence this summer as alt-Right groups confront protestors against tax reform and Congress’ gutting of a host of popular government programs.

Conclusion: It started on Easter weekend in Berkeley.
4-Seeds of a recession will be planted as Congress guts programs needed and used by millions.  Stock market has its final run.
5-Social Security and Medicare will be targeted for drastic changes if the Republicans hold control of both houses in 2018 and Congress is successful in gutting most of social service programs and the EPA per Trump’s wish list.     
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>                                                       Note: Source of weekly economic calendar and good recap of indicators: mam.econoday.com.
*CBS News
**Bloomberg: Noah Feldman (May 17, 2017)
*** New York Times: Charles Savage, (May 18, 2017)

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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