Putting Everything In Context With 6 Charts
The US Dollar has now given up nearly the entirety of its post-election gains. An economic divergence suggesting that the post-election confidence in economic policy is waning. click chart to enlarge In the meantime, yields have once again taken the road less traveled (or the road driven to death dependent on how you look at it), threatening to once again move into the 1% range, which is one of the biggest macro surprises as we move towards the halfway point of 2017. A move below the 2% support area seems to be imminent. Transports refuse to be a participant in the celebration of U.S. economic vitality, as they are lagging in a worrying fashion, with future prospects of a move below 8,000. And financials, while not looking as ominous as Dow Transports, are putting in a classic head and shoulders pattern with increasing distribution taking place on the XLF as the right shoulder forms. This is very simply a confirmation of the pattern. Individual blue chip financials are further confirming the pattern in the XLF as they look at be susceptible to weakness going forward. Long-term view of the Nasdaq 100 here. The trajectory going back to the 1990 low has marked support, resistance and acceleration of trends in the past. I suspect that given the reluctance of the NDX to clear above the line in a hurry, via a substantial acceleration, that the trajectory will act as a force of gravity, pulling the average below the trajectory over the next few months. A move below 5,000 on the NDX wouldn't be unusual in the least bit. In fact, it should be expected. The SOX faces a similar issue. It is now below its trajectory, with the trajectory acting as a point of resistance. This indicates an early change in trend for what is an extremely important leading indicator for...
APRIL CLIENT LETTER: TAXES; EMOTIONAL SPIN CYCLE; WARREN, TED & TODD
What follows is a section from the “Thoughts & Analysis” portion of my monthly letter to investors at T11 Capital. Taxes Like most in the business community, I have been keeping up closely with the tax debate. It carries a special place in my heart as I carry the double edged sword on my back of having to potential to benefit from passage of Trump's tax plan while having a primary investment that will benefit more from its failure. The one page tax manifesto that took 100 days to develop was underwhelming to say the least. There are a multitude of issues that won't allow for passage in its current form, whether the fact that favoring pass through entities for the lowest corporate tax rate of 15% while leaving the top individual tax rate above 30% creates millions of wealthy individuals who simply funnel their income through corporations. Or the fact that even with the most generous dynamic scoring, the tax plan is a plague to the deficit within an already deficit laden government. JP Morgan economists Jesse Edgerton and Daniel Silver had this to say about the issue of deficits, "The Congressional Budget Office has scored every 1 [percentage point] reduction in the corporate tax rate with a budgetary cost of about $100 billion over 10 years," Silver and Edgerton wrote. "Thus, reducing the corporate tax rate from 35% to 15% would be scored as adding about $2 trillion in deficits over the next 10 years." In order to incorporate a deficit of this nature into the budget over the next 10 years it will require bipartisan support. Dangling the carrot of childcare benefits within the tax plan, as one example, in order to entice Democrats was a valiant effort. However, short of making the state of Florida a habitat for endangered seals while giving families making less than $50,000 a year a new Cadillac, President Trump will have a difficult time having a single Democrat supporting a tax plan that favors corporations that are already making record profits and wealthy individuals that have benefited inordinately since the end of the financial crisis. The only other way for the tax bill in its current form to pass is through the reconciliation process, which would avoid a filibuster by Democrats in the Senate. The dilemma here is that the reconciliation process doesn't allow for a projected increase to the deficit 10 years after the implementation of the plan. In other words, the Trump plan, in its current form, is virtually impossible to pass. The plan will need to become more deficit friendly in order to be implemented. Meaning,...