Lower Taxes on Top of Higher Earnings

Investor’s first read – Daily edge before the open
DJIA: 20,996
S&P 500: 2,388
Nasdaq  Comp.:6025
Russell 2000: 1,411
Wednesday, April  26, 2017    9:15 a.m.
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Stocks continued to surge higher yesterday, goosed by weekend news that the feared Marine Le Pen would not be elected President of France on May 7, as well as by news that a threat of a government shutdown Saturday was reduced when President Trump backed away from insisting Congress agree to funding his wall, or else.
      While the issue of tax cuts has been raised before, Trump will present an outline of his preferences today, including a reduced corporate tax rate of 15% down  from  the current rate of 35% (which few corporations pay anyhow).
      Nevertheless,  the Street is doing the math and concluding that a lower tax rate regardless of what it turns out to be combined with a projected increase  of 9% in earnings this year spells higher prices.
      Three of the 30  Dow stocks (Goldman Sachs +3.41, Caterpillar +7.61, McDonalds +7.47) accounted for 126 of the DJIA’s  232-point advance.

       Friday, April 28, marks the deadline for Congress to avoid a government shutdown. More than likely, a stopgap bill will be passed to buy time until September 30, the end of the US fiscal year. Unlike in 2013, the deadline does not coincide with the need for an increase in the debt ceiling.
      If a stopgap bill, a Continuing Resolution (CR), is not voted, parts of the U.S. government will shut down at 12:01 am, Saturday.
      Don’t rule out a surprise new healthcare proposal by Trump, something he can neatly fit into proposals advanced within his first 100 days.
      I think the decision process on the Street is so computerized, negatives and potential negatives have little effect of stock prices. That suggests any change of heart will be sudden and marked by an abrupt downdraft in stock prices that does not afford investors a chance to raise cash.
      Right now, it’s a scramble to buy anything that moves. We are almost getting to the “I can’t stand it anymore” point, where investors feel it is safe to go all-in !!
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SUPPORT “today”:DJIA:20,943;S&P 500:2,389; Nasdaq Comp.:6.011
RESISTANCE:“today”:DJIA:21,098;S&P500:2,398;NASDAQ Comp.:6.049

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POLITICAL/STOCK MARKET
Can Section 4 of the 25th Amendment to the U.S. Constitution be used to dump Trump ?
     
Apparently not, according to Keith Obermann Feb. 3, 2017 in The Slatest.  “For my money, he’s nuts – couldn’t pass a sanity test,” Obermann says, but adds Section Four of the 25th Amendment does not say ,nuts, or impaired, or erratic or unbalanced or unhealthy, or bipolar, or narcissist, or sociopath, or psychopath. It only says if the president is unable to discharge the powers and duties of his office.”
       The behavior of President Trump has triggered many to scramble to find ways to remove Trump from office before he does irreparable damage to the country. For them a four year wait is too long.
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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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      The rape and pillage of our federal government continues,
as Republican Thomas Massie  introduced a bill in February aimed at terminating the Department of Education effective December 31, 2018. This coincided with the Senate confirmation of Conservative Betsy DeVos, a long time advocate of school vouchers and critic of public education.

      As a budget is being developed, we can expect a major revamping of the nation’s government structure and huge cuts.
      Mick Mulvaney, director of the Office of Management and Budget plans to streamline the U.S. government structure by drastic reallocation of resources away from social “Great Society” programs to the Dept. of Defense and Homeland Security.
      Action is already underway to gut the EPA and Dept. of Education, but the administration’s efforts are bound to encounter Congressional opposition, since budget cuts and the elimination of agencies will undoubtedly have widespread impact, none the least of which may be the loss of Republican House and Senate seats in 2018.     
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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.
     PRESIDENTIAL RECALL ?    
     Reportedly, there is no mechanism in the U.S. Constitution that enables voters to recall at the federal level, though 19 states permit recalls at the state and local levels. Impeachment is the only recourse in the event high crimes and misdemeanors are committed.
      The truth may never be confirmed, it being so debilitating to orderly and effective governance, that it would  result in irreparable divisiveness.
      THIS COULD BE THE ULTIMATE TEST OF THE GOVERNMENT SO MANY DEDICATED PEOPLE STRIVED AND DIED FOR.

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 9.2%. That compares with a Q1 est. on Dec. 31 of +12.5%.  Q2 growth  is projected at +8.7%, Q3 at +8.2%, and Q4 at +12.6%. For 2017 as a whole growth is projected at a plus 9.7% down from Dec. 31 estimates of 11.6%.  Currently, the P/E on forward  earnings is 17.4 x. That compares with a 10-year average P/E of 14.0.
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MY TECHNICAL ANALYSIS  of the 30 DJIA Companies
:  (UPDATED 4/13/17 and )
      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 20,396.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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