Tax Reform in 2017 – Doubtful

Investor’s first read Daily edge before the open
DJIA: 21,963
S&P 500:2,476

Nasdaq  Comp.:6,362
Russell 2000: 1,428
Wednesday,  Aug  2, 2017   9:08 a.m.
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      I have referred to the fact so many institutional buy/sell decisions are generated by computer algorithms, that since so many track similar signals, they may all get a SELL at the same time, just like they are all getting a buy at the market and especially on dips.
      Tuesday, Bloomberg’s “Struggling Stock Pickers Eye Quant Tools to Gain an Edge,” notes that asset managers are forming “quant teams” to help in the selection of stocks.  Kai Bald, Deutsche Asset Management,  says digitalization will fundamentally change the  face of its industry.
     BlackRock’s CEO, Lawrence Fink, sees computer models and data science as the future of  investment management.
     Sooooo, more and more funds are coming under computer algo management.  WHAT HAPPENS to stock prices when we get a recession, or a crisis ?   All that concentration of money under management will be getting signals to stop buying, and sell.
     Everything appears just rosy now. Q2 earnings are up nicely, with the year as a whole looking solid.  The U.S. economy is stable, though not without some  pockets of weakness. The economies in China and Europe are improving, the Fed is accommodative, and the Trump administration is promising a massive stimulus.
      One area of concern is auto sales. New car sales in July dropped 7% for the 7th month in a row, with GM leading the pack at minus 15%. Granted, new models will come on in a month or two, but sales should be stronger  with a firming labor market, low financing rates and cheap gas.
TODAY
      Apple (AAPL) will add 60 points to the DJIA at the open. The stock is up after reporting strong results and a strong outlook after the close yesterday.
      Look for tomorrows press headlines to make issue of the DJIA crossing 22,000.  The level is insignificant except the publicity may encourage investors on the sidelines to make the plunge.
      The level would be more important if the DJIA tried over and over to pass it, then finally did, indicating buyers have finally overridden sellers.
      But this is not the case. The DJIA has been stronger than the S&P 500, Nasdaq Comp. and Russell 2000 in recent days.
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SUPPORT “today”:DJIA:21,946;S&P 500:2,475; Nasdaq Comp.:6,360
RESISTANCE “today” DJIA:22,017;S&P 500:2,486;Nasdaq Comp.:6,514

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CORPORATE EARNINGS
(updated July 27 , 2017)
Factset
      Q2 earnings growth  is projected at +9.1%,up from 6.5% at June 30. Q3 is projected at +6.1%, and Q4 at +11.7%. For 2017 as a whole growth is projected at a plus 9.5%.  Currently, the P/E on forward  earnings is 17.7 x. That compares with a 10-year average P/E of 14.0.
Note: These numbers change frequently. Factset.com is well worth a visit, it breaks its projections down by industry
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MY TECHNICAL ANALYSIS  of the 30 DJIA Companies
:  (UPDATED 7/14/17)
      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  June 15, 2017,  a reasonable risk is 21,597 extreme risk is 21,499. Near-term upside potential is 21,967.
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POLITICAL/STOCK MARKET
NOTE: Due to the seriousness of political developments, I find it necessary to retain the following issues here, even though it gets cumbersome, since past commentary  continues to be confirmed by unfolding events.  Prior to January, I have never injected my personal political feelings into a stock market blog.  What is happening has the potential to adversely impact stock prices.
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WAR – North Korea
      Sen. Lindsey Graham says a U.S. military strike of N. Korea is possible
,* that we cannot allow “this madman [Kim Jong-un] to have a missile to hit America.” His Tuesday, Aug 1, interview on the Today Show, follows N. Korea’s ICBM test days ago. Graham also said the Chinese  can stop such an attack. While such a war would take place on North Korean soil, South Korea  would incur huge casualties from N. Korean artillery.
OBSERVATION: Since January, I have warned Trump would put the U.S. on a war footing (see below) for political reasons, namely the mid-terms. Now I am convinced it is front burner because the Meuller investigations are  closing in.  
      Nuclear deterrence has been effective since the 1950s, for the obvious reasons.  The countries with the largest nuclear arsenals  and estimated warheads include United States (7,500), Russia (7,200), France (300), China (250), UK (215), Pakistan (110), India (100),Israel (80).
       The uncertainty of war would JOLT the market, especially if it disrupted  trade alliances. Reportedly, it would only take 33 minutes for a ballistic missile to reach the U.S.. If detonated high over the center of the U.S., it would cause an electromagnetic pulse (EMP) which would shut down “everything”  A-to-Z indefinitely.
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WILL TRUMP MOVE SESSIONS to Dept. of Homeland Security *to appease conservatives, and open up the slot of Attorney General for him to pick his replacement who may be able to  and possibly impede Special Counsel Robert Mueller’s investigation, worse yet fire him ?  But Mueller, can only be fired for cause (dereliction of duty, incapacity, conflict of interest, good cause ?(?), violation of Department policy).
       If Trump fires Mueller, it may trigger  the revival of the US Office of the Independent Counsel, which reports to Congress.
       I THINK TRUMP WILL TRY AND WORRY ABOUT THE REPURCUSSIONS LATER.
       When Rosenstein appointed Mueller, he gave him plenty of leeway to investigate ”any links and/or coordination between the Russian government and individuals associated” with Trump’s campaign, but also to examine “any matters that arose or may arise directly from the investigation, including perjury, obstruction of justice, destruction of evidence, and intimidation of witnesses”
       Wall Street and Congress clearly cannot ignore that, since it really smacks of “consciousness of guilt,”  small wonder why Trump is exploring the possibility of  PARDONING HIMSELF AND FAMILY.  Holy smoke, is this really happening ?
       Portions of this were provided by Businessinsider.com.
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RUMOR: National Security adviser, H.R. McMaster, the next administration official  to  be fired ?   (Monday’s blog).

WRONG !  It was Anthony Scaramucci, you know the hood with the sun glasses, the guy with the swamp mouth.  Apparently Marine Corps. Kelly didn’t like Mooch’s Esprit de Corp. …….Semper Fi ?   Forget it !
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GENERAL JOHN KELLY is Trump’s new chief of staff, replacing Reince Priebus, the goal being to establish some stability and discipline in the White House. 
     
I think, “someone” wanted a strong person between  our irrational and unpredictable President and the ability to initiate a nuclear attack on another nation. Reportedly, Trump would not press a red button on  desk (that’s for a diet coke) and it’s not the “football” that follows him everywhere, which a device used to confirm his identity via a “challenge code” with the National Military Command (Pentagon). Reportedly, the launch process involves more than pressing a button, takes several minutes, and  involves consultation with civilian and military officials, but the decision is the president’s. If under attack, the President can respond in seconds.  That’s the REAL REASON for Kelly – in my opinion.
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FOX FAKE NEWS STORY TO DIVERT ATTENTION FROM MUELLER:

      Fox News is being sued alleging it falsely  quoted Rod Wheeler, a news contributor, framing DNC staffer provided Wikileaks with DNC emails, not Russian hackers and there was  no collusion between Trump and the Russians.
The story alleges President Trump read the article and urged its release.   
      Most likely, you have read about this or seen a report  on television, I don’t want to elaborate until I know more and feel confident the suit and story  are credible.

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TRUMP A DRAFT DODGER ?  General Kelly
was emphatic with his feelings about duty to country recently telling NPR, “Back in my neighborhood in Boston, a working class neighborhood, when you got your draft notice, you went down, and got your draft physical,…if you passed it, you joined the Marine Corps.” 
      President Trump,
Kelly’s boss, responded to the “call” in the 1960’s as the Vietnam War heated up, with 5 deferments from military service.  Yikes !
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TRUMP – EARLY STAGE DEMENTIA ?  
Don’t know. Clearly he has personality disorder (Narcissism), but the question is being asked more and more with references to speech, use of words, disorientation, irritability, memory loss, late night tweets, confusion, paranoia. …………………………………………………………………………………………
“FIRE EVERYBODY” – White House Communications Director, Anthony Scaramucci has a solution for information “leaks” – “Fire everybody.”
       
For an administration that is grossly under-staffed, that just another example of a White House in disarray. I don’t see him lasting very long.  Just another disrespecting, crude, blowhard dragging our image here among decent folk, youth seeking something to respect and mirror, and nations abroad who thought for a moment there was a better place.
        OF SPECIAL NOTE:  On July 24, 1971, the Nixon White House formed  a small group that became known as the “plumbers,”  because they were charged with plugging “leaks” of sensitive information coming out of government agencies that were embarrassing to the Nixon administration.
       On June 17, 1972 five of the plumbers were arrested trying to bug the Democratic National Committee headquarters in the Watergate Building in Washington, DC.
      But it was the cover up, not the break-in that led to multiple attempts to circumvent justice that eventually forced the House Judiciary Committee to initiate impeachment proceedings on July 27, 1974, which resulted in the resignation of President Nixon on August 8, 1974.

      Is history repeating itself ?
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Trump, Bannon Gone By 2019  (my blog 3/21/2017)
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 TAX REFORM – Failure to strike the death blow to ACA, the Trump administration is attempting to unite on tax reform to include a tax cut for corporations, deregulation, and a big spend on either the military or infrastructure.
      I have no idea where tax reform is going. Apparently, most of Congress doesn’t either, discussions are being held in secret – sound familiar ?
 It will take priority over deregulation, which won’t be easy per the following from my February 8, post here.
       “It’s incredibly difficult to be optimistic about any legislation given the political dynamics around Wall Street regulation….any changes will be slow and limited,” said Issac Boltansky, a financial regulation analyst at Compass Point Research & Trading.

      Oliver Ireland, partner for the law firm of Morrison & Foerster, agrees, saying, “This is not a short-term issue… It’s going to take a long time to work some of these things out.”

      Regardless of whether the cut in  corporate taxes to 15% or 20% from 35%, companies won’t reap a windfall with estimates ranging from an increase in S&P 500 earnings of 3% to 6%.
      As  for the repatriation of money earned by U.S. companies abroad but not taxed here, I noted that there is more than $1 trillion overseas that may be repatriated at lower tax rates. Hopefully, a decent portion of it would be used for capital spending rather than stock buybacks. The 2009 – 2016 bull market was powered by buybacks, a clear benefit to a company’s  bottom line as it reduces shares outstanding, but of little help to an economic recovery.

      Bank of America estimates that if only half of the repatriated money is used for buybacks, it would give S&P 500 earnings a one-time boost of  $4 (3%).
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       In October 2016 it was reported that an email server inside the Trump Tower had communicated with  Alfa Group, a Russian bank. The Senate Judiciary Committee  has told Donald Trump, Jr. and Eric Trump, Executive Vice President of the Trump Organization, to turn over all communications with the bank
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MANAFORT GETTING IMMUNITY ? I have always believed Paul Manafort knew everything anyone wanted to know about collusion by the Trump team and Russians, as well as where to look for financial interactions with Russian oligarchs and direct/indirect representatives of President Putin.   As of July 25, Manafort is “negotiating with the Senate Judiciary Committee for immunity to spill the beans.
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TRUMP looking for a “Get Out Of Jail Free Card if the Feds close in?”
    Why not, he dodged military service with 5 deferments  during the Vietnam era (1964 – 1970).
     Reportedly, he has asked advisers about his power to pardon family members and himself  relating to Mueller’s investigation.
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TRUMP SETTING STAGE TO FIRE Attorney General Jeff Sessions, Deputy Attorney General Rod Rosenstein  and Special Counsel Robert Mueller.  Not so fast, Congress warns.
      In an interview with the New York Times, Trump expressed displeasure with Sessions and Rosenstein.  His beef with Sessions is that he recused himself from overseeing the Russia investigation, saying if he knew that in  advance, he wouldn’t have hired him

      He blames Rosenstein for appointing Mueller, who he indirectly warns not to extend his investigation into Trump finances. One source says only Rosenstein would have to be fired, or agree to fire Mueller, before Mueller would be fired.  Trump fired FBI’s Comey, then boasted about it in person in the White House to Russian Foreign Minister, Sergey Lavrov and Russian Ambassador Sergey Kislak, referring to Comey as “crazy and a real nut job.”  STOP AND THINK OF THAT STATEMENT if you have doubts about Trump firing Mueller.  IMHO, collusion here is one problem, but I suspect this mess goes deeper into Trump family dealings and Trump must stop it there.
W HAT HAPPENS WHEN THE INVESTIGATION IS COMPLETED ? If the Special Counselor  concludes it is “necessary and appropriate” he is authorized to prosecute federal crimes arising out of the investigation, which he does after submitting a report to the attorney general explaining his reasons.

REASONS NEEDED TO FIRE MUELLER:  Misconduct,  dereliction of duty, incapacity, conflict of interest, good cause (??), violation of Department policies.
WOULD MUELLER BE REPLACED ? Unclear. If the Democrats controlled Congress they could appoint another Special Counselor
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  “Connect the Dots.” This investigation is open-ended
       Nigel Farage – President Trump- Jeffrey Sessions – Robert Mercer – Cambridge Analytics – Bannon- Carter Page – Kushner (Jared and Ivanka) – Eric Prince – Donald, Jr.  and Eric Trump – Wilbur Ross –  Michael Cohen – Ezra Cohen Watnick – Michael Flynn – JD Gordon  –  Christopher Steele – Michael Caputo -Breitbart News – Roger Stone – Julian Assange – Paul Manafort – Rick Gates – Jill Stein – Sam Clovis –  Kellyanne and George Conway –Dana Rohrabacher – Bill Browder – Peter W. Smith (deceased: suicide), Paul Behrends – Boris Epshteyn, Ike Kaveladze, and  Russia’s alfa Group – Felix Sater – Rob Goldstone – alfa Group – Emin Agalarov – Sergey Gorkov –  Sergey Kislyak, ambassador to the U.S., Natalia Veselnitskaya all connect directly or indirectly to the Trump/Russia investigation and some have a connection to Brexit, as well.
      According to the “Observer,” Mercer’s Cambridge Analytica was connected with Canada’s AggregateIQ through an intellectual property agreement and worked together on the Brexit referendum. Aggregate is also a data mining company. While Mercer was a big supporter of Trump, there is no known connection between AggregateIQ and Trump’s campaign staff.

       The Palmer Report.com  recently reported that Peter W. Smith (recent suicide) sought to collude with Russian hackers stealing emails from Trump’s opposition while claiming to be working with Michael Flynn.

      The Wall Street Journal  released two articles, one documenting Smith had some kind of recruiting connection with Steve Bannon and Kellyanne Conway. Unfortunately, Smith cannot be contacted to further confirm the story as he died of unknown causes shortly after his disclosure to the Journal.
            Additionally, IMHO, Vice President Mike Pence simply had to be aware of what was happening in the campaign, but is being shielded because he is the second in command if  President Trump is impeached and convicted  or forced to resign. Stephen Miller, Joseph E. Schmitz may be of interest to the FBI for information they possess relating to the FBI investigation.
      According to CNN Politics,  Marc Kasowitz  represented Trump for personal and business matters for years. Worth noting, Kasowitz is defending Russian bank, OJSC Sberbank in U.S. court, as well as a Russian billionaire, Oleg Deripaska, who has close ties with the Kremlin.
       As of July 21, Kasowitz’s is no longer Trump’s personal attorney   
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ROSENSTEIN and MUELLER OUT ?      Who Takes Over ?
       Will President Trump  fire special counsel Robert Mueller Donald Trump, Jr. to impede criminal charges against his son Donald Jr. and stall the investigation of he and his team ?
       As I understand it, he would first have to fire  Rod Rosenstein, Deputy Attorney General –
      
Obviously,  firing Mueller would smack of  “consciousness of guilt,” and could lead to impeachment proceedings by the House, and/or increase pressure for Trump to resign..

      With Rosenstein out of the way,  associate attorney general, Rachel Brand, would take over.  If she resigns, or is fired, Dana Boente, U.S. attorney general for the Eastern District of Virginia would take over.
       I believe this scandal reaches far beyond collusion with Russia to get Trump elected.
 

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     REMOVING TRUMP FROM  OFFICE

Can Section 4 of the 25th Amendment, U.S. Constitution – Remove Trump ?
      It’s a stretch. 
The key for his removal is ”that he is unable to discharge the powers and duties of his office.”  Section 4 mentions nothing  that he is unfit, delusional, unbalanced, crazy,  impulsive, irrational, impaired, sociopathic, psychopathic, narcissistic.
      That would be the threshold that would have to be crossed if Trump is removed from office via Section 4 of the 25th Amendment of the U.S. Constitution. There is no precedent

      It isn’t just Democrats, liberals, moderates and reasonable people who find Trump caustic, and dangerous, conservatives like George Will, David Brooks and Ross Douthart are also urging his removal.
      First, there are four ways to get rid of Trump – death, resignation, impeachment and Section 4 of the 25th Amendment.
      The procedure employing the 25th Amendment requires the Vice President and the majority of the cabinet of 15 (8) to vote to remove the president. They would submit their declaration in writing to the President pro tempore ( Sen. Orrin Hatch) and Speaker of the House (Paul Ryan) that the president is unable to discharge the powers and duties of his office, and the Vice President will immediately assume to office as acting president.
      However, the president may contend the move by submitting his own letter to the President pro tempore and Speaker of the House, that he believes he is capable of performing his duties, in which case he will resume the office of presidency.
       The Vice President and Cabinet members may then resubmit their declaration at which point Congress would vote within 48 hours if in session. If not, Congress  will act within 21 days where a two-thirds vote would be required to remove  him.  
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IMPEACHMENT
      A  Consult/Politico poll shows 43% of Americans want Congress to begin procedures for the impeachment of President Trump.

      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.
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TRUMP TO PUT US  ON  A WAR FOOTING !
       I retained this one in the queue, due to a recent Trump tweet that help from China “has not worked.”
       On January 12, I noted:
       “I am sure of one thing, the United States will be on a war footing in the spring of 2018. Two things, it will juice the economy….may push war hawks to act on military expenditures; two, ensure support for the mid-term elections.
(Investor’s first read.com.)
       In April, Trump told the Financial Times, “If China is not going to solve North Korea, we will.” In June, he said, “While I greatly appreciate the efforts of President Xi & China to help with North Korea, it has not worked out.”
       This looks like a countdown to military action, or brinkmanship so dire that North Korea comes to the table. 
        Strategically, Trump would want to put the country on a war footing  with North Korea closer to the election in 2018, but if the Russia investigation gets too hot, he may want to begin the process earlier as a distraction.
 

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Note: Source of weekly economic calendar and good recap of indicators: mam.econoday.com.
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*Business Insider. 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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