Will the “BIG Spend” Happen ?

Investor’s first read – Daily edge before the open
DJIA: 19,887
S&P 500: 2,268
Nasdaq Com.: 5,531
Russell 2000:1,357
Tuesday, January 10, 2017 9:09 a.m.
Looks like the Street is beginning to question whether Trump will be able to deliver on all his promises. Budget hawks may be reluctant to juice spending on both the military and infrastructure, though the latter is adaptable to some extent through private/public partnerships. It will take a couple of years before this spending hits the economy, and that may be why these stocks are slipping. Ten of the 12 infrastructure stocks I track have softened in recent days after a big year-end run up.
Military spending could have wider impact on the nation’s employment than infrastructure spending with military manufacturing facilities reasonably well distributed across the U.S.. The latest talk is shipbuilding, that’ll put Rosie to work.
There is the possibility that the Fed is behind the curve on interest rate increases. It may have overstayed its low rate policy in recent years, time will tell. A sudden big spend by the government, or just the anticipation of one, could trigger inflationary expectations forcing the Fed to act sooner on its first of three expected increases this year.
I don’t expect the Fed factor to crimp anything for months.
The Nasdaq broke out to new highs yesterday, the DJIA and S&P 500 have been in a flat, narrow trading range for 18 days, which is healthy.
A two-day correction here would set up another rally, but we may be range-bound for weeks. Look for a one-day reversal to the upside Thursday/Friday.
If the BIG money pulls the plug, look for a 12% – 14% correction. With euphoria for all kinds of corporate goodies in store running high, that is unlikely, but must be given some weight.
SUPPORT “today”: DJIA:19,819 ;S&P:2,263; Nasdaq Comp.:5,523
RESISTANCE “today”:DJIA:19,920;S&P 500:2,272; Nasdaq Comp.:5,536
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 Meryl Streep calling her an “overrated actress” because she condemned him in Sunday Nights Golden Globe awards event for his imitation of a disabled reporter.
This behavior has persisted since he began his campaign and is truly scary. As President, such inability to ignore criticism from insignificant sources suggests a skin too thin for this job.
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.
These companies possess something unique, that is not reflected in the price of the stock, until it is discovered ! There are fewer today than 20-30 years ago, reporting requirements and the ability of computers to uncover hidden values has culled the landscape.
Today’s opportunities usually develop after a brand name stock gets pummeled beyond reason. I noted Viacom Friday at $40.90 as one possibility.
Not all VIACOM subsidiaries are at max (MTV, Paramount, Home Entertainment, DreamWorks, BET networks) but a base is there for development. Then there’s Paramount Pictures (content).
Motion picture companies with huge libraries of what is now called content almost went out of business in the late 1960s, including Disney (DIS). No one wanted them.
In 1979 I wrote a BUY on 20th Century-Fox entitled “How to Take Over 20th Century-Fox for Practically Nothing.” I wrote that to accomplish this you had to make a cash tender offer for twice its price at that time, sell off most of its assets,(TV stations, Aspen Skiing, Coca-Cola Midwest, foreign theaters, L.A. real estate to become Century City, $76 million in cash) to get your tender money back and you are left with its film production and distribution company and film library (incl. Star Wars ) all an estimated value of hundreds of millions of dollars and growing at warp speed as television networks started to scramble for content.
What, which triggered my recommendation was the irregular trading in the stock, which I detected watching the trades pass on the screen in a broker’s boardroom. The stock would trade up on heavy volume, then trickle all the way back down on light trading. This could only be detected by watching the trades on the tape
The irregular trading in Fox kept happening, leading me to the conclusion the Specialist on the NYSE floor (who is supposed to maintain a fair and orderly market) was letting a big investor accumulate the stock.
I visited management in L.A. and later addressed the Fox annual meeting, recommending they change their Specialist. Herbert Jay Siegel (Chris-Craft Inds.) had filed a disclosure of acquiring 5.3% of Fox a month prior, but assured Fox it was for investment purposes only.
But someone was still buying. Variety gave me nice ink on the matter that week, but nothing was done by Fox about the Specialist on the floor.
In 1981 Fox was acquired by Marc Rich and Marvin Davis then sold to Rupert Murdoch who had to become a U.S. citizen in order to control the television holdings gained in the acquisition.
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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