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Tempting Tuesday – Stop Buying that Dip and GET OUT!!!

Related imageGET OUT!!! 

In this year's horror hit, "Get Out" the main character gets his warning just one time, early in the film.  I don't know if it's early or late in the Stock Market Film but I did, very clearly, tell people to GET OUT!!! in yesterday morning's PSW Report and I repeated that warning live at the Nasdaq at 10:30, causing the index to drop 50 points (sorry).  There may have been other factors in play – but I'll take the credit/blame for this one.

You can see a quick video review on my logic for why the market is 20% overbought here:

 

Yesterday we discussed the Global macro reasons why the current market prices are unrealisitic and, from talking to people, I thought it could be made a bit clearer if we focus on something more obvious and simple so we're going to look at just the 30 Dow components and think about how lower taxes would effect them. 

Since we don't have 2017 figures in yet, I'm using last year but, in general, there's not too much change in earnings.  The 30 Dow components have a market cap of $6.7 TRILLION, which is about 10% of the US markets and 6.7% of the World Market Cap so a good, representative sample.   

Symbol
Name
Price
 

 

Market Cap Billiions

 

2016  Pre-Tax EBITA
2016 Taxes Percent Paid
AXP American Express Co 98.59
 
86 9.2 2.7 29.3%
AAPL Apple Inc 169.80
 
871 64.1 15.7 24.4%
BA Boeing Co 277.97
 
166 5.9 0.67 8.8%
CAT Caterpillar Inc 141.50
 
84 0.64 0.14 21.9%
CSCO Cisco Systems Inc 37.72
 
186 13.1 2.7 20.6%
CVX Chevron Corp 120.84
 
230 -1.9 -1.7 -89.5%
XOM Exxon Mobil Corp 83.57
 
354 8.4 -0.4 0.0%
GE General Electric Co 17.95
 
156 14.1 -0.5 0.0%
GS Goldman Sachs Group Inc 250.65
 
95 10.3 2.9 28.2%
HD Home Depot Inc 184.90
 
216 13.5 4.5 33.3
IBM International Business Machines Corp 156.46
 
145 12.9 0.45 3.4%
INTC Intel Corp 44.49
 
208 12.9 2.6 20.2%
JNJ Johnson & Johnson 139.01
 
373 20.5 3.3 16.1%
KO Coca-Cola Co 46.23
 
197 8.9 1.6 18%
JPM JPMorgan Chase & Co 106.95
 
371 44.4 9.8 22.1%
MCD McDonald's Corp 170.65
 
136 6.9 2.2 31.9%
MMM 3M Co 239.26
 
143 7.3 2.0 27.4%
MRK Merck & Co Inc 56.22
 
153 4.7 0.7 14.9%
MSFT Microsoft Corp 81.08
 
625 23.2 2.0 8.6%
NKE Nike Inc 60.10
 
98 4.9 0.65 13.2%
PFE Pfizer Inc 36.06
 
214 8.4 1.1 13.1%
PG Procter & Gamble Co 91.41
 
231 13.7 3.1 22.6%
TRV Travelers Companies Inc 136.36
 
37 4.4 1.0 22.7%
UNH UnitedHealth Group Inc 221.42
 
214 12.9 4.8 37.2%
UTX United Technologies Corp 120.04
 
95 8.2 1.7 13.9%
VZ Verizon Communications Inc 51.72
 
210 25.4 7.4 29.1%
V Visa Inc 107.43
 
244 12.3 5.0 40.7%
WMT Wal-Mart 97.01
 
290 22.9 6.2 27.1%
DIS Walt Disney Co 110.22
 
164 14.2 4.4 31.0%
DWDP DowDuPont Inc 72.13
168 XX.X X.X X.X%

As you can see, we don't have figures for DWDP due to the recent merger but the other 29 components earned $406.3Bn and paid $86.25Bn in taxes, which is an effective rate of 21.2%.  So how will cutting the corporate tax rate to 20% make enough of a difference to justify the Dow's 35% rise, which added over $1.7 TRILLION in market cap to the Dow in 12 months?  Do you really think earnings went up $350Bn (1/20th) to justify it?   

The earnings growth certainly don't justify it though with an after-tax p/e of 20.9, the Dow is a huge bargain compared to the S&P 500s p/e ratio of 27.3 but that's mainly because Apple (AAPL) is such a weighty component (and such a bargain).  This is my problem with this market rally – we're up in anticipation of tax cuts being a huge benefit to these companies but only 8 of 30 companeis pay more than 25% in the first place and clearly Visa (V) and United Health (UNH) need to fire their accountants!  

You'll notice that, the bigger a company is, the less they seem to pay – that's because they generally have more opportunities to mess around with offshore shells and such to move the momey around.  In any case, whether it's from the reading of the bill or the huge disappointment that will be suffered when companies calculate their Q1 tax liabilities and they turn out NOT to be very different than Q4 (assuming a bill is passed by then) – I think we're going to see a huge let-down when the reality of the tax changes hit the expectations of investors.  

So, while there are still buyers we are GETTING OUT of all of our positions in all of our portfolios and we will start again, from scratch, in 2018, with all new portfolios on January 2nd.  

Until then – it's time to go shopping! 

 

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Phil any thoughts on ICON (Iconix brand)?

Its very troubling when Phil is on the fence like this 😉

Good morning need some help on copying to our site. Like I have written something up on words and wish to copy, before it worked but something has changed. So please someone can help there TIA

?Yodi, have you tried using the "paste from word" icon a the top of the message box?

The next argument on Fox News will be that the president cannot obstruct justice however:

https://www.politico.com/story/2017/12/04/jeff-sessions-president-obstruct-justice-bill-clinton-278517

Sessions isn’t alone. More than 40 current GOP members of Congress voted for the impeachment or removal of Clinton from office for obstruction of justice. They include Senate Majority Leader Mitch McConnell – who mounted his own passionate appeal to remove Clinton from office for obstruction of justice – Senate Judiciary Committee Chairman Chuck Grassley and Senate Intelligence Committee Chairman Richard Burr, who was a House member at the time.

Won't stop them from arguing the opposite today!

Also, they will argue that Mueller has found no evidence of collusion and is bringing charges unrelated. Of course Ken Starr never found anything on Whitewater against Clinton either but still got him on very, very unrelated issues.

Chart of the day:

Hopefully EV will reverse that trend!

Someone else is thinking this could be the top:

http://theirrelevantinvestor.com/2017/12/04/this-could-be-the-top/

There were at least four times this year where one could have made a compelling case that it was wise to reduce risk. But most people don’t reduce risk. They’re all in or they’re all out. And you can only do to so many times before your brain turns into actual mush. Sure, this could be the top, but it’s always good to remind yourself that every time stocks fall a little, it feels like they’re going to fall a lot, even if we know they usually don’t.

Good Morning.

Carbon captures and storage (CCS) could save us from global warming:

https://qz.com/1144298/humanitys-fight-against-climate-change-is-failing-one-technology-can-change-that/

That economic hit would hurt a lot more than deploying carbon capture at large scale today. But even that may not hurt as badly as uncontrolled climate change. The latest projections show that, as soon as 2027, the cost of rising temperatures will be $360 billion per year for the US alone. The damage to the rest of world could be four times as much.
Prevention is better than cure. And, for our dying planet, either is better than doing nothing.

Mike thanks I have found it again it is "control V" which puts it on this site.

I've had a bit of trouble posting, not getting a cursor in the comment box. Haven't complained because if I click the "paste from word" box and cancel I can then type. I'm using chrome. Just an FYI…

Will DIS purchase the Death Star (FOXA)?  Could be a positive for humanity…..

Phil, /SI, 16 looking good for long, would you play front month or ???    And, /NG?  Winter months coming up and so low, any thoughts on why? 

 

 

[Your comment is awaiting moderation.] ???

sparkleCOIN – could be interesting – the crypto/e-tail space is a crowded one though. I have a longer, more detailed thought on why I think this isn't the right way to go with crypto but I'll spare you guys (for now…). Anyways, 16 days until the ICO ends. ICO's aren't my thing, I just wait until it's trading and see what the market says.

Very interesting, however, is crypto kitties. Not so much because crypto now officially has it's very own "beanie babies" every hater has been waiting for, but because it means mainstream adoption. It'll also stress test the ethereum network.

Sometimes I'm on top of things and sometimes exactly the opposite. For example, has anyone been using the "brave" browser? Everything else is a non-starter. They are building dapps like youtube tipping directly into it. The reason I came across is the essential 3-minute-movie you need to watch right now here. Metamask is insanely powerful. you can build tokens in your web browser in minutes. This means the cryptocurrency economy (as you know from earlier, what I calk the "Knowledge Economy") is completely distributed to every individual's fingertips. 

Phil just don't make fun of an old man I just simply forgot to press the V

Still trying to glose positions but tellung you it is not that easy!!!! 60% in cash now

Boy sure have finger trouble this afternoon here, must be the wine

So how to handle that butterfly WYNN position Phil.  Just closing it now is a big loss.  Could be worse later but at current prices in a year the losing long $160 call would be a winner.

Republican National Convention delegate comes forward about witnessing Trump-Russia conspiracy in action

I don't think they got the "stop buying the dip" memo.

On another note, NMFC is a BDC of reasonable quality paying 9.5% consistently and now trading at 14.10.

You can buy the shares and sell the April $12.50 call for $1.55 and sell the  $15 put for $1.50 and if it stays above 12.50 you get .55 plus .68 div in 136 days for annual return of 23.5%.  Anyone want to check my option math?

TSLA – Per usual Adam Jonas finds a way to reiterate his $379 price target with TSLA struggling to stay over $300.  I wonder if Elon has him on speed dial or he just does this on his own.  As usual if you actually get beyond the bot friendly price target picked up by the wire services it is actually describing Tesla's business as quite weak, so combine it with SpaceX.  He's very good at this CYA stock support routine.

https://www.streetinsider.com/Analyst+Comments/8+Reason+Elon+Musk+Could+Merge+Tesla+%28TSLA%29+and+SpaceX+-+Morgan+Stanley/13569880.html

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