Market Betting BIG on Future Legislation

Investor’s first read – Daily edge before the open
DJIA: 19,097
S&P 500: 2,204
Nasdaq Com.:5,368
Russell 2000:1,329
Tuesday, November 29, 2016 9:11a.m.
Recently, I mentioned infrastructure stocks as potential beneficiaries under a Trump administration, as well as banks, and drug companies.
Infrastructure stocks have had a big run, and while there will be buyers on pullbacks, there is risk about funding approval.
Infrastructure spending is not a new idea. One year ago, Congress approved a $305 billion bill for highways, bridges and rail lines. Worth noting, it was opposed by Republicans Cruz, Rubio, Paul and Democrats Warren and Carper. Does this suggest headwinds for Trump ?
The 16 sectors that will be competing for funds, if they are appropriated are: Energy, Transit, Ports, Aviation, Levees, Dams, Schools, Roads, Inland Waterways, Waste Water, Hazardous Waste, Public Parks and Rec., Rail, Bridges, Solid Waste, and Drinking Water.
The American Society of Civil Engineers (ASCE) estimates it would take $3 trillion to fix our problems. That’s not going to happen.
It will be a stretch to get $1 trillion approved
FYI: Recently, shipping stocks were suddenly thought to be infrastructure beneficiaries. Believe it , or not, DryShips (DCIX) got caught in a short squeeze and rose to $102 a share from $5 and is now back to $4.94 in 9 days. Top Ships (TOPS) rose to $8 from $2 and is back to $3 a share. Diana Container (DCIX) rose to $26 from $2 and is back to $4.
Imagine being sucked into buying DryShips at $45, $65, $70 – people were. That’s the, “I can’t stand it anymore” mentality. They see it running up and are compelled to buy.
This all has the potential for being one of the most inflated bubbles of all time. I give it a better than 50% chance. The burst depends on how rapidly
the bubble inflates.
Expect shock and awe January 23, the Monday after Trump is inaugurated, a feeding frenzy as Congress rushes to reverse everything that smacks of Obama. That can be unnerving for some energizing for others.

Corporate earnings.
Factset now sees Q3 earnings for the S&P 500 up 3.2%. On Sept. 30, its projection was for a decline of 2.2%. Q4 is projected at a gain of 3.3%, the year projected to come in at plus 0.1%. Earnings for 2017 are expected to increase 11.4%. Currently, the P/E based on 12 months out is 16.8x, which compares with a 10-year average P/E of 14.3x.
Interest rates
Just in case anyone is interested, Fed Chief Janet Yellen told Congress yesterday to expect interest rates to increase “relatively soon,” referring to a continuation of economic growth and inflationary pressures. With regard to inflation, Yellen said, “We don’t know economically what is going to happen.” (Great !, just what we wanted to hear)
At some point the stampede to own Trump stocks will yield to calmer heads. It is hard to stop a stampede underway based on what people hope will happen well into the future.
The market is taking a rest now. One push to the upside will start the stampede all over again.
SUPPORT “today”: DJIA:19,051; S&P 500:2,195; Nasdaq Comp.:5,353
RESISTANCE “today”:DJIA:19,157;S&P 500:2,210;Nasdaq Comp.:5,383
The six months between November 1 and May 1, tend to outperform the six months between May 1 and November 1, labelled the “Best Six Months” by the Stock Trader’s Almanac which began tracking the pattern in 1986.
iShares 20-Year Treasury ETF down 14% in 4 months
Long-term bonds have gotten hammered in the last three months. The iShares 20-yr U.S. treasury bond ETF has lost 16.1% since July. That’s nearly 8 times the yield an investor expected over 12 months. Obviously, bonds can be risky. Let’s not forget the name of the game is to buy low and sell high, which applies to long bonds as well as stocks.
A survey of economists reported by Bloomberg yesterday calls for U.S. inflation to surpass the Fed’s target in every quarter of 2017, which if even half true should depress long-term bonds even more.
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 November 27, 2016, a reasonable risk is 18,556 a more extreme risk is 18,837 Near-term upside potential is 19,556
 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:
*MarketWatch – Michael Brush – 10 Biotech companies ripe for buyout courtesy Donald Trump
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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