U.S. at a Crossroads Like Never Before

Investor’s first read – Daily edge before the open
DJIA: 19,804
S&P 500: 2,271
Nasdaq Comp.:5,555
Russell 2000:1,358
Thursday, January 19, 2017 9:01 a.m.
Eight years ago Barack Obama was sworn in as the 44th President of the United States facing a global meltdown, the worst recession. bear market since the 1930s.
Donald Trump will be sworn in as the 45th President of the United States tomorrow blessed with a stable economic recovery and stock market that has risen 241% from its bear market bottom.
This time next week we will have a good idea which path he decides to take, one of respect for our time-tested institutions and people of various religious, ethnic, moral and political beliefs, or
the tone he set campaigning for the office – offensive, disrespectful, divisive, and unpredictable marred by rants against anyone who does not agree with him and take him to task for his blunders.
President-elect Trump’s approval rating (40%) is the lowest of any incoming president in decades.
Little is expected from his inaugural address, and in many quarters, his presidency. There is little to stop him and the Republican Congress from doing anything they please.
For some, this looks like a palace coup, with the far right wing gaining the turf they so cherished all these years, yet that may have been what they saw eight years ago when the Democrats controlled all three branches.
Investors must be pragmatic though, setting politics aside and being prepared for an extension of the Obama bull market.
If his inaugural address is impressive, his approval rating will rise from the pits and the stock market as well.
Undoubtedly, Republicans made a bundle over the last eight years, first with his administration’s rescue of a largely Republican “Great Recession” and near global meltdown, then with a 241% bull surge.
Is there a Great Recession II lurking out there ? Don’t know yet, but nine of the last tem recessions have been with Republican in the Oval Office.
Nevertheless, a lot can happen in the interim. Bull markets tend to go to extremes before the party is over. This one has a chance to do that, as well, unless Republican overreach rekindles fears of a country that is so divided, confidence in the future totally evaporates.
The inauguration of Donald Trump on Friday presents the Street and American citizens with a full plate of considerations, including:
– 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
-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.
The question today is, will the Street front-run tomorrow’s inauguration ? Will its finality drive home the likelihood of the big corporate tax cut, deregulation and spend, all of which promises higher corporate earnings.
Today, it looks like most of that will be approved in one form or another.

SUPPORT “today”: DJIA:19,756 ;S&P:2,266; Nasdaq Comp.:5,544
RESISTANCE “today”:DJIA:19,856;S&P 500:2,278; Nasdaq Comp.:5,571
We are heading into the ugliest domestic and international era of the past 70 years, the Republican Controlled Congress’ rape and pillage of efforts during the last 8 years to define that we are a people of decency, compassion, mutual respect, and optimism. So much of the market’s stability depends on confidence, he does not breed it, he undermines it, and that can hurt investors.
There is a chance, not huge, but enough to take seriously, that our nation is coming apart at the seams, that divisiveness will trump cooperation, civility will yield to incivility, progress will yield to more gridlock, and demonstrations will cross the line to bloody violence..
Until last week, I steered clear of politics in my posts. I strongly think President-elect Trump is a major “risk” factor and that has to be addressed.
He is both predictable and unpredictable. Predictable in the fact he cannot tolerate criticism or opposition without rejection and retaliation . Unpredictable in that no one (including himself) knows what he will do under the kind of serious situations that confront a president every day.
The President-elect should busy himself with more important things than tweeting a counter attack on anyone who confronts him.
This behavior has persisted since he began his campaign and is truly scary. As President, such inability to ignore criticism suggests a skin too thin for this job.
As I have said before, I think Donald Trump is a big mistake, and when you make big mistakes, you pay a price, and that could be injurious to investors.
It’s one thing to run a company where you have employees who will do as they are told, or get fired. That is not how the office of the Presidency works.
Corporate earnings (update)
Factset now sees Q4 earnings for the S&P 500 up 3.0%. On Sept. 30, its projection was for a decline of 5.2%. Growth rates in 10 of 11 sectors have been reduced since Sept. 30. The growth rate for all of 2016 is est. at +2.2%. Earnings for 2017 are expected to increase 11.5%. Currently, the P/E based on 12 months out is 17.1x, which compares with a 10-year average P/E of 14.4 and a 5-year P/E of 15.1.
FYI: There was some missed estimates in 2016, Q3 in particular where earnings growth surprised the Street. Along with a firming economy, this was a contributor to the year year-end rally in addition to promises of tax cuts, dereg., and a big spend..
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.
I wrote the following in 2007 as I became increasingly aware of “risk.” I was not aware of how disastrous the subprime mortgage/housing bubble situation had gotten, just appalled how extreme the use of derivatives had become. As most of you know the bear market/recession that followed took us to the brink of a total meltdown. I am again concerned for the market, not so much about derivatives but the Trump presidency.
Perfect Storm Looms
The perfect storm in our financial markets is looming.
….It will take a heroic international effort to avert a meltdown of huge magnitude…
….Trading in everything may have to be stopped until some sort of sanity is restored
….This can get real ugly. No one has a handle on the leverage amassed in derivatives
….No one has a true handle on how precarious the situation out there is, and that uncertainty feeds on itself, prompting increased selling…With few buyers, stocks tank.
…Only when a cauldron of fear begins to boil, do you have a market that is reasonably safe to invest in.

George Brooks – August 19, 2007
 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: mam.econoday.com.
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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