Dumbing Down – American Tradition ?

Investor’s first read Daily edge before the open
DJIA:20,981
S&P 500: 2,402
Nasdaq  Comp.:6,149
Russell 2000: 1,393
Tuesday, May 16, 2017    9:08 a.m.
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        As I have emphasized over and over again, as long as the Street expects a major corporate tax cut and a big spend on the military and/or infrastructure, it will be bullish.

        There is a risk that the measures Trump proposes to juice the economy  will trigger one last wild speculative surge in the economy and stock market before a  recession hits.
       The current economic expansion starting in June 2009 is 96 months old compared with  the average of 58.4 months over the last 11 cycles ( 1945 – 2009).  However, it still has a bit to go to top the 1991 – 2001 expansion of 120 months.
TODAY
     
Yesterday I said, the DJIA needs to close above 21,000 and the S&P 500 above 2,400 to tip the scales in favor of the bulls.
      After hitting 21,000, the DJIA closed slightly lower but with a nice gain of 85 points.
      The S&P 500 closed slightly above 2,400 after hitting a new all-time high of 2,404.
The Nasdaq Comp. is in a world all by itself surging to a new high. The bulls stepped up to the plate yesterday after 13 days of consolidation. Odds favor a follow through today.
      May has historically marked a temporary high point for the market, followed by slippage in stock prices with intermittent rallies and sell offs until fall, but generally a good in and out trader’s market for the nimble.    
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SUPPORT “today”:DJIA:20,938;S&P 500:2,397; Nasdaq Comp.:6,136
RESISTANCE:“today”:DJIA:21,056;S&P500:2,411;NASDAQ Comp.:6,167

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CORPORATE EARNINGS
(updated  May 15, 2017)
Factset
      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.
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MY TECHNICAL ANALYSIS  of the 30 DJIA Companies
:  (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
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POLITICAL/STOCK MARKET
      Yesterday 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.
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PSYCHOLOGY 101 ?
     
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 !
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HEALTHCARE:  NOW THE HOUSE REPUBLICANS OWN IT !
NOTE:
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. 

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STARVE the BEAST  !
     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.

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I AM KEEPING THE FOLLOWING ALIVE BECAUSE IT HAS BEEN UPSTAGED BY TRUMP’S 100-DAY STAMPEDE TO  SAVE FACE.
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PREUTERS WORLD NEWS APRIL 19, 4:20 PM
“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.
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TRUMP  – TOAST ?
      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.

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WHY TRUMP WOULD PUT US  ON  A WAR FOOTING !
       THE STAGE IS BEING SET NOW !
      
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.
ALL OF THE ABOVE HAS THE POTENTIAL TO ADVERSELY IMPACT THE STOCK MARKET  AND   MERITS CONSIDERATION.
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CORPORATE EARNINGS (updated  April 14, 2017)
Factset
      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:
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MY TECHNICAL ANALYSIS  of the 30 DJIA Companies
:  (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
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ODDS FAVOR
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.     
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George Brooks
Investor’s first read
A Game-On Analysis, LLC publication
Brooks007read@aol.com
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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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