Wrong Read on Timing – But WARNING Stands

Investor’s first read – Daily edge before the open
DJIA:22,158
S&P 500: 2,498
Nasdaq  Comp.6,460:
Russell 2000: 1,426
Thursday,  Sept. 14, 2017   8:20 a.m.

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When does a correction start ?
       I  thought it would start on August 17 with the DJIA at 22,024 (S&P 500: 2,468) when I headlined, “Catharsis Needed – Raise Cash , and followed with the same on August 24 and a “SELL” August 29.
       I was Wrong !       
       However, my reasons for bearishness stand, nothing wrong with my logic, but it didn’t happen when I thought it would, i.e. timing.  While the market averages have only gone against me by less than 2%, support for the market has stabilized, due to the big tax reform launch.
       It will be more difficult for the market to plunge from here. One of the first lessons serious investors and especially analysts who put projections in print for all to see is, recognize a miscall as soon as possible, and admit it.
       My “raise cash/sell” call may look great a month from now or two, but for now, the Street will not be denied, they want  to party.
       Center stage this week is very dynamic 13-state, 7-week, Tax reform road show was announced this week, giving the Street new hope. This will get a lot of press. The Street will salivate.
       The RISK of a severe correction is REAL. It can happen at any time, So buyer beware !
       The outcome of the Mueller investigation, Congressional and FBI investigations could be a game changer.  The S&P 500 dropped 50% in face of the Watergate scandal, though the OPEC Oil Embargo also had a hand in the carnage. A huge scandal now should have a big impact on the market and the ability of the Republicans to govern.
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      THIS IS A CHANCE FOR THE STREET TO RUN-THE-TABLE, TO DRIVE AN OVERVALUED MARKET TO YET A MORE OVERVALUED LEVEL, MAXING THE GAIN OF HIGHLY LEVERAGED POSITIONS BEFORE BAILING OUT.  That’s what this is about now, that’s what it has always been about in late-stage bull markets.
      The only difference this time around, is the whole investment process is computer algorithm driven, a think-alike buy-mode mentality that essentially creates its own bull market…….until someone breaks ranks and sells.

       The price/earnings ratio is one of the standard measures of stock value. At 17.5 times earnings projected ahead 12 months, the S&P 500 sells at 17.5 times earnings, which is significantly  higher than the ten year average of 14x.
       Analysts are quick to point out that the market has been this overvalued on only two occasions, before the 1929 crash and the bubble burst of dot-com stocks in 2000.
       Bloomberg reports that value investor, Seth Klarman, manager of $30 billion for Baupost Group, plans to return an unspecified amount of funds to clients simply because he cannot find  a reasonably valued stock to invest in.
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SUPPORT “today”: DJIA:22,107 ;S&P 500:2,493; Nasdaq Comp.:6,450
RESISTANCE “today” DJIA:22,196;S&P 500:2,507;Nasdaq Comp.:6,470

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CORPORATE EARNINGS (updated Sept. 8 , 2017)  – Factset.com
      Q2 earnings growth  is projected at +10.3%,up from 6.5% at June 30. Q3 is projected at +4.9%, and Q4 at +11.4%. For 2017 as a whole growth is projected at a plus 9.7%.  Currently, the P/E on forward  earnings is 17.4 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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TRUMP STIMULUS  – OVERRATED – i.e BULL S_ _ _ !    
      The Street has been buying stocks since November heartened by expectations that the big Trump stimulus tax cuts, deregulation, big infrastructure spend  will justify an already overpriced stock market.
TAX CUTS    
      President Trump is out hyping tax cuts as the catalyst for increased economic growth.  That all sounds good, but a closer examination suggests it’s more smoke and mirrors to please his base.
      Conservative, Gary Shilling’s Insight * reminds readers that 52% of American households pay no income tax, that it is the higher income people who benefit most and additional income doesn’t translate into additional spending.   
      According to the liberal non-partisan, Center For Budget & Policy Priorities, the bottom four-fifths of U.S. households would lose under Trump, adding that half of the tax cuts would go to the top 1% of households where annual incomes exceed $3.4 million annually.
      The GOP argues that the U.S. corporate tax rate makes us uncompetitive with comparable companies worldwide.  Not so, when accounting for loop holes and tax breaks, U.S. company’s tax rate is well below 35%.  The average tax rate on new investments made in the U.S is 24% vs. 21% for G-7 industrialized, democratic countries weighted by size.
DEREGULATION  
      Insight notes that every president since Jimmy Carter has been unsuccessful in reduce  the financial cost of regulations.
      Republicans plan to  undo regs. affecting power plant emissions, banks and other financial institutions, water quality, labor,  telecommunications and healthcare. 
      The dereg process can be so complicated in the case of water and carbon emissions a whole new rule making process would have to be pursued, it would be easier to just not enforce regs. or defund them. How’s that for the party of law and order ?
      Also according to Insight, the large banks don’t want to dismantle Dodd-Frank, the cost would be prohibitive on top of the huge cost to comply.
INFRASTRUCTURE SPEND
       The big spend for the infrastructure won’t hit for years.  The administration can allocate the funds, but spending occurs at the state and local level where it encounters bureaucratic hurdles. The need is undeniable, but “shovel ready” not yet.
       The American Society of Civil Engineers (ASCE) compiles a report card on the nation’s infrastructure components.
RATINGS ARE: 
Rail  –  “B”,
Bridges, Ports, Solid Waste  – “C+”,
Energy, Hazardous Waste, Waste Water, Parks, Schools – “D+”
Air Transport, Dams, Drinking Water, Inland Waterways, Roads – “D”
Transit – “D -“           
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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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TRUMP’S poll numbers got a bump last week, probably as a result of his outreach to the Dems.  Trump friendly Rassmussen puts his favorable at 44%, Gallup sees him stuck at 38%.
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YET ANOTHER ATTEMPT TO ZAP ACA !  Senators Lindsey Graham, Bill Cassidy, and Dean Heller just introduced a new health care repeal bill – here we go again.
The bill would allocate federal funds to each state (block grant), the idea being local control,as well as a firewall against single payer healthcare. It would have to be moved via te budget reconciliation process which allows te bill to pass the Senate with a simple majority, avoid a Democrat filibuster.  Problem here is, it would all have to be done before October 1.
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Chief of Staff, John F. Kelly has muzzled President Trump.  Can’t last long.
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A huge White House attempt to smear former FBI director, James Comey is underway. Looks like Special Counselor, Robert Mueller is getting under someone’s thin skin.   Will Acting Attorney General, Rod Rosenstein be told to initiate procedings against Comey. If he doesn’t, will he be fired ?
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AXIOS reports that the Freedom Caucus , 35 ultra conservative House Republican capable of blocking legislation , have leaked some details of their tax reform plan.
      It would reduce corporate taxes to 16% from 35%, double the standard deduction and scrap “revenue neutrality,” (reform can’t contribute to deficits In addition, it would extend tax cut expiration to 20 years from 10 years. True to form, the Freedom Caucus will be duking it out with the Big Six of the Republican Party, which is crafting their own tax reform.  The six include, Ryan, McConnell, Brady, Hatch, Mnuchin, and Cohn.
      The Freedom Caucus, (IMHO Constitutional anarchists) is demanding unrealistic goals and could trash passage of any reform. One Republican insider commented, “It make me wonder why these guys run for Congress if they don’t want to get things done.” 
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IS PRESIDENT TRUMP BROKE ? Bill Palmer, Palmerreport.com thinks so.
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REPUBLICAN NATIONAL COMMITTEE – WHAT GIVES ?
Sara Armstrong, RNC’S chief of staff, is leaving. This marks the sixth RNC staffer to leave in a month.
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We have a new head of the Justice Department’s criminal division. It’s Brian Benczkowski, previously an attorney for Russia’s Alfa Bank.   hmmmm !
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WOULD ANYONE WANT their spouse to lie repeatedly ?  their child ? mother ? father ?  minister, child’s teacher ? coach ? employer ?  IF NOT, why would they support President Trump who is on record with telling 4.5 lies a day, 1,000 lies since inauguration on January 20 ?
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PARDON ME, but  giving former Sheriff Joe Arpaio a pardon after being convicted  by a federal judge for  contempt  of court  suggests, Trump won’t hesitate to pardon anyone including himself who becomes  liable as a result of finding by the Mueller investigations and/or the House and senate committee investigations.  Presidents pardon all kinds of people, none ever was in a position to give a “get out of jail free” card to people guilty of rigging an election or committing serious financial crimes.
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TAX REFORM  – “Potholes and sinkholes”*
      Trump campaigned in  Missouri last week for  tax reform, including middle-class tax cuts,  and a simpler tax code. Few specifics are mentioned. The border-adjusted tax is off the table. The mortgage, charity and retirement deductions are safe. The big question is whether the tax cuts would be temporary or permanent. If th latter, the cuts may not increase the deficit.
      An August 4 – 9  Bloomberg poll of economists reveals 28 of 39 polled expect Congress to pass tax cut legislation by November 2018. Unfortunately this action is not expected to add more than  0.2 percentage points to the GDP, and that growth is forecast  to only slightly exceed  that this year’s 2.1 percent, this forecast coming from 71 economists.  Worse yet, 2019 is projected to fall back to the 2 percent level. Referring to a corporate tax rate for developed nations of 24%, Trump says…”We have no choice….we must lower our taxes.
       Facts from mic.com: In 2016 the Government Accounting Office (GAO) found at least two-thirds of U.S. corporations did not pay federal income tax between 2006 and 2012.  One-fifth of America’s largest profitable corporations didn’t pay any income tax in 2012.
      Another study released earlier this year found the effective tax rate for consistently profitable Fortune 500 companies is 21.2%
      All told, U.S. corporations pay slightly less  in overall taxes than companies  in comparable countries.
      This begs the question of how much impact would  corporate tax cuts have on the S&P 500.       
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Trump, Bannon Gone By 2019  (Investor’s first read:  3/21/2017)
      Right winger and Breitbart grad, Sebastian Gorka is now gone,  Gorka’s  exit closely follows the departure of Steve Bannon, another  Breitfart grad,  hopefully leading to the firing  of Stephen Miller, a brash, caustic right wing extremist and Breitbart supporter  cuddler. 

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DONT READ THIS AT BEDTIME ! – Radical right wing broadcaster, Sinclair Broadcast Group,  is on track to reach 70% of US households in its effort to match Fox News for neo-conservative impact with its pro-Trump media fake news. (Mother Jones 8/15/17)
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CLOSET BIGOTS

     Charlottesville was not the bombshell I warned about before leaving, however investors must be aware one or more are hovering.
    If white supremacists, Nazis, KKK, anti-semites, and haters of people of color think their ideas have a chance of developing a meaningful  following, let them watch people at the Newark airport for two hours. 
    My rough count put two-thirds of the people as people of color.  The terminal was packed, but everyone got along. Maybe all the trouble makers were in Charlottesville.
    What concerns me more than those out demonstrating are the closet bigots. They talk equality and profess tolerance, but inwardly condone the behavior we saw in Virginia.
     Why should anyone be surprised if President Trump was slow to take on the white nationalists ? 
      He craves conflict between others, the kind of mentality that watches cock fights, dog fights. Yet he was too cowardly to serve in the military, getting 5 deferments during the Vietnam War.
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ALT-RIGHT (Investor’s first read Jan. 27, 2017)       

     The Alt-Right has been associated with nationalism, racism, xenophobia, which may well be true for some of its followers, but basically they are  well to the right of  neocons, and America does not want to go there, it isn’t who most of us are. 

        Some will call the current trend in our government fascist or totalitarianism, autocracy, even corporatocracy, kratocracy, or plutocracy, however, I see it simply as a rush to secure total control through rigging voting districts (gerrymandering) and voter suppression, repeatedly disseminating lies and misinformation often enough so people accept it as the truth, the manipulation of people’s priorities and simply taking advantage of their lack of information and inability to understand what is best for them. 

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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 REPERCUSSIONS 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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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.

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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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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.

       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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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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