Rape and Pillage

Investor’s first read – Daily edge before the open
DJIA: 20,068
S&P 500: 2,298
Nasdaq Comp.:5,656
Russell 2000:1,382
Thursday, January 26, 2017 9:03 a.m.
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TECHNICAL
Two days ago, the S&P 500 and Nasdaq Comp. moved up to new highs, starting a new upleg in the market. The DJIA hit new highs yesterday and the Russell 2000 cold follow suit today.
Barring unexpected bad news, this is the final phase of the Obama bull market. It could last a month or a year depending on progress to slash corporate taxes, gut regulations and pass legislation for a big spend on the military and infrastructure.
This phase has the potential to get wild, so long as nothing gets in the way of the tax cuts, dereg., “spend.” With Republican control of the presidency, Congress and shortly the Supreme Court, all systems look like a “GO.”
The last two quarters of 2016 featured a rebound in corporate profits after a year of flat-to-down earnings.(see below: ”Corporate earnings”). A return to profitability stands to continue this year, though a continued strong U.S. dollar may slow its rise.
Currently, the S&P 500 is over-priced at 16.9 times projected 12 months earnings vs. a 5-year average of 15.1. The Street isn’t concerned, so long as it gets the goodies noted above.
As noted in the past, late-stage bull markets tend to enter a highly speculative phase where price/earnings ratios are meaningless, where investors believe the party will last forever and are driven to load up on stocks, even leverage positions in riskier and riskier stocks.
It is important to note that this new stimulus comes on top of a solid but slow growing economic base. The danger is expectations can lead to a speculative blow off that leads to a bear market.
If you slash corporate taxes, gut regulations, many imposed to guard against a 2008-2009 meltdown, and spend a trillion dollars, you won’t have any firepower to bail the country (world) out of a crushing recession.
What I see in the early days of the Trump administration a rush to widen the gap between the corporate elite and the working man/woman, ironically the people who narrowly elected a very dangerous man to the Presidency. >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
ISSUES TO CONSIDER
– 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 this computer sucks wind so
-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.
-intense economic stimulation by the Trump/Republican Congress stands to trigger a rebound of inflationary pressures forcing the Fed to bump interest rates sooner than expected.
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RESISTANCE “today”:DJIA:20,078;S&P 500:2,298; Nasdaq Comp.:5,643
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POLITICAL/STOCK MARKET
Cutting corporate taxes to 15% stands to reduce Federal government revenues by upwards of $800 billion. So, what if the “big” spend runs upwards of another $800 billion, where are the cuts going to come from to avert a significant increase in the national debt ?
Most likely from social programs that the lower income people have come to rely on. Aren’t they the ones who voted for Trump ?
Does withdrawal from TPP open the door for China to fill the void we abandon ? China thinks so.
If we sever ties with the United Nations, what doors are we opening for our adversaries ?
What about creating 25 million jobs in the U.S. ? Sounds great when campaigning for office, but where will these jobs come from ?
Automation is sinking its deadly talons into the existing job force, which is great for business bottom lines, but eliminating jobs. Robots are manufacturing robots, computers can now fillet a fish. Oil rigs are increasingly being automated. Nabors Inds., the world’s largest offshore driller, tells Bloomberg it will cut workers at each well to five from 20 via automation.
THIS is the real jobs crisis. Companies benefit, yet much of their spare cash goes into repurchase of stock, not training employees. This is the crisis Trump should be addressing.
It is disturbing that President Trump cannot accept that he lost the popular vote by 2.9million votes. He insists three-to five million illegals gave Clinton that margin. He offers no proof, but if he claims that often enough, the public will believe it. That’s one reason why he repeats it over and over again. The other is so he can believe it himself. Even top Republicans are appalled. SCARY !
WHAT IS HAPPENING NOW IS HISTORIC. UNFORTUNATELY, OUR CONSTITUTIONAL REPUBLIC IS AT RISK IN A POWER GRAB THAT WILL HAVE ITS GREATEST IMPACT ON FREE SPEECH AND DISSENT. WHAT IS HAPPENING IS UN-AMERICAN, WHICH IS LIKELY TO TRIGGER A GROUNDSWELL OF OPPOSITION TO WHAT IS AN ATTEMPT BY THE ALT-RIGHT TO TAKE OVER EVERY ASPECT OF OUR COUNTRY. TIME TO PAY ATTENTION.
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Corporate earnings (update)
Factset now sees Q4 earnings for the S&P 500 up 3.4% vs. a Dec.31 est. of 3.0%.. Earnings for 2017 are expected to increase 11.4%. Currently, the P/E based on earnings 12 months out is 16.9 x, which compares with a 10-year average P/E of 14.4 and a 5-year P/E of 15.1.
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MY TECHNICAL ANALYSIS of the 30 DJIA Companies: (UPDATE)
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.
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 STATUS OF MARKET: bullish
 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.
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Note: Source of weekly economic calendar and good recap of indicators: mam.econoday.com.
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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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