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Thursday, August 18, 2022

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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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just type : and ) together

You, thanks for the MU trade. Looks like you are a bit bearish short term and bullish long term. Seems about right.

Mkucstars thanks 🙂 but no smile???

OK got it 🙂

GME – gotta short these guys. never liked the business and taking on debt…to pay for stock buybacks and maintain dividends? Expect the dividends will have to go down at some point here. I'll consider my trade wrong if they get back over 21.

Phil thanks just try to pass some of my thoughts and plays on to the members. However I think now is the time to be patient and wait until next year.

PHIL,

What are your open future positions? What’s your outlook on /CL price going into January 2018 and after the IPO?

Bot some /YM at 24200 at noon per stick play rules, we'll see.

Phil

 

What would be an update on this hedge?

Or use something different

Thanks

 

Buy 200 DXD April $8 calls for $1.30 ($26,000) 

Sell 200 DXD April $11 calls for 0.30 ($6,000) 

sorry Phil I didn’t see that post. Thanks for reposting 

Albo/Yodi/RH

Bought back the short calls on theory of what can go wrong; not much really for them, and one of you or Phil  was right, they could announce something else, which would definitely send the shorts covering.  If it does go down, my puts will not be significantly impacted, and can then short again.  Thanks for letting me me talk this through.

WMT – Thanks for the adjustment on WMT Phil.  WMT seems really overvalued to me, with a 22+ PE.  Just because they are making moves to better compete with Amazon, doesn't mean they are going to start seeing significant growth.  I'm assuming you would agree with selling calls with a lower strike, to add more downside protection if we break below $90, and putting a stop on the $90's.  I can see one small earnings disappointment dropping this to $80 real quick.  

Baron – No matter which way it goes I think you made the right move taking off he risk.  And your short puts should be safe.

SVU/Phil – never coming back? To see that weekly 200ma again seems pretty distant… then look at a monthly chart. just eternal sadness and disappointment.. 🙁 

That's easy Phil, just start over again, keep repeating the oldest one.  I'm guessing economy not so strong, forget rate hikes after this one.  Should be enough to float the boat.

It´s now or never for FTR?

 

The tables below, highlighted in a note by Liz Ann Sonders, Charles Schwab & Co.’s chief investment strategist, contrast the performance of the S&P 500’s 11 main sectors in 2017, divided before and after Nov. 27, the day before tech stocks began their “swift reversal” from their leadership perch, through the end of last week.

 

"Wow, you guys are not satisfied with anything, are you?"

LOL, simple…. we want it all, and we want it now! 

You're doing awesome Phil and we appreciate you 🙂

PLAY beats by .004, misses on revs and lowers guidance but still up 4%. Noticed DIN, DNKN and CAKE strong today.  So notwithstanding my comment yesterday about paying $50 for pancakes, we must be betting that the first thing the idly rich do when they get take reform is throw themselves an orgy of pancakes, coffee and whatever CAKE makes.

Hmmm… I wonder too what the Cheesecake Factory makes…. LOL

Have you not seen The Big Bang Theory? Decent eats, there's one at Md Live casino.

Ooooh, kittens! Now that's more like it 🙂

Phil watched your interview earlier today. Forgot to mention: has anyone told you that you resemble Tony Soprano? 🙂

Phil /cats/cake?-…….Bday?

Tax Plan Crowns a Big Winner: Trump’s Industry

Consumer Bureau’s New Leader Steers a Sudden Reversal

How low will the GOP go?

BDC

Thanks for the comments on sparklecoin. I’m not sure about those crypto kittens of whatever they’re called. 

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