Financial Review

What a Plan

….Stock uptrend continues. Afghanistan, again. Trump in Phoenix. Tax reform, maybe. iPhone 8. Warren wins when he loses. Wells Fargo, again. National Park pass reminder. Facebook says eclipse eclipsed Super Bowl

Financial Review by Sinclair Noe for 08-22-2017

DOW + 196 = 21,899
SPX + 24 = 2452
NAS + 84 = 6297
RUT + 14 = 1371
10 Y + .03 = 2.21%
OIL + .28 = 47.65
GOLD – 6.90 = 1285.40

 

The stock market is overvalued. Price to earnings ratios are too high. Investors are too complacent; the volatility index is still below historic average. The Federal Reserve isn’t just planning to raise interest rates but plotting a reduction of its $4.5 trillion balance sheet, which can add to the effect of monetary-policy tightening, further increasing borrowing costs. All good reasons why the stock market could collapse. Instead the Dow Industrial Average has the best single day of trading since April. Here is the key point, the thing that really does matter – the trend is up. The trend has been up for 8 years. A trend in place is more likely to continue than it is to reverse. A trend can keep going for a long, long time. At some point, the trend will indeed reverse but that was not the case today. The market has slogged along the past 2 weeks with a minor pullback – yesterday we called that a pause and sure enough, today the market hit the play button – but we have not seen anything yet to confirm a trend reversal. Individual stocks may have already reversed but the major bull market trend remains in place. Markets do not go up in a straight line, they fluctuate. It may seem totally irrational that the market can keep rolling along like this but the market can remain irrational far longer than individual investors can remain solvent. That does not mean that we should disregard the recent pullback.

 

The recent declines should remind us that the relentless bull market will not last forever. When that fateful day finally comes and stocks begin their painful unwind, will you be ready? Probably not. Just as you develop a plan for what and when to buy, you should also have a plan for when to sell. Maybe you are in it for the short-term or the long-term. Maybe you can handle 5% risk, or 10% or 20%. Whatever your plan, make sure you have a plan and that you stick to it. The holy grail of successful investing is not buying momentum stocks in an uptrend; it is not investing in a bull market when stocks pull back. The holy grail is discipline. A fairly good plan, executed with discipline will beat a brilliant plan with no discipline.

 

Last night, Trump laid out his strategy for Afghanistan. Confronted with a series of bad options, he chose one and explained it to the public in a national address short on details. We don’t know how many more troops will be on the ground. We don’t know what those soldiers will do. We don’t know when it will be over or if it will ever be over. Best guess is that 4,000 troops will be added to the 8,000 troops in country. Trump singled out Pakistan for harboring Afghan Taliban insurgents and other militants. Trump’s call for India to play a greater role in Afghanistan may actually constrain Pakistan and lead to the opposite of what he wants. After 16 years, it is hard to guess what difference that will make. He did not lay out a timeline – which might be a smart move. The one thing Afghan fighters do know is how to wait out occupying forces. Trump says we will stay until there is peace and victory. Identifying peace is subjective. What will determine whether we are winning or losing? The plan seems to be that the war will continue until something good happens. In Afghanistan that might be a very long time indeed. Shares of U.S. defense companies rose – Northrop Grumman, Boeing, Lockheed.

 

The next stop for Trump is Arizona, where he will address a rally (and perhaps protesters) about his border wall, and other issues. Large protests are expected near President Trump’s rally in downtown Phoenix. The rally, scheduled for 7 p.m. local time at the Phoenix Convention Center, is Mr. Trump’s first visit as president to Arizona. According to the Arizona Republic, more than 3,900 people had indicated on Facebook that they would attend one event, Protest Trump Downtown Phoenix, across the street from the convention center. Another 2,700 said they planned to attend White Supremacy Will Not Be Pardoned, organized by the Puente Human Rights Movement. Other protests are also scheduled. Gov. Doug Ducey was planning to greet Mr. Trump but not to attend the rally. Trump has discussed a pardon for former Sheriff Joe Arpaio. But some of his advisers are reportedly concerned that such a move would add fuel to the firestorm surrounding the president’s recent comments about race and further divide the country. Arpaio had committed a crime by refusing to stop detaining suspected undocumented immigrants despite a court order. He faces up to six months in prison and is to be sentenced in the fall. Arpaio said on Monday night that he would not attend the rally.

 

 

House Speaker Paul Ryan said Monday night tax reform should be easier to pass than a health-care overhaul.  Politico reports, meanwhile, that Trump’s top aides and congressional leaders have made significant strides in shaping a tax overhaul. Sources familiar with the talks told Politico that there’s broad consensus on some of the best ways to pay for cutting both the individual and corporate tax rates. Options include capping the mortgage interest deduction for homeowners, scrapping peoples’ ability to deduct state and local taxes, and eliminating businesses’ ability to deduct interest, while also phasing in what’s known as full expensing for small businesses. That allows them to immediately deduct investment like new equipment.

 

The Senate Health Committee will hold two hearings next month on stabilizing premiums in the individual insurance market, the panel’s chairman and top Democrat said Tuesday. The first, scheduled for Sept. 6, will feature state insurance commissioners, and the second, on Sept. 7, will have testimony from governors. The hearings come in the wake of the Senate’s failure last month to repeal and replace the Affordable Care Act, or Obamacare. Obamacare plans are sold on the individual market.

 

Bloomberg gathers up what we know so far about what will be new in the iPhone 8. The new smartphone arrives with lofty expectations. After all, this is the 10th anniversary of the original iPhone. Apple plans to release three new phones: successors to the iPhone 7 and iPhone 7 Plus as well as a new, revamped model that sits at the high-end. All will have the usual upgrades like faster processors. The display will use a technology called OLED, which makes for better color reproduction and deeper blacks and whites. The screen will also take up nearly the entire front of the phone, save for thinner bezels and a notch at the top of the front to fit in the camera and new sensors. But don’t expect lots of new stuff, rather look for improvements to existing stuff.

 

Wells Fargo CEO Timothy Sloan said that forthcoming results from the bank’s review of its consumer sales scandal could cause more negative attention. Sloan also said that “within a few weeks” the bank will announce the completion of an expanded review by a third party of the fake consumer accounts workers had opened. They were pressured by aggressive sales goals, a practice Wells Fargo has since ended. In an Aug. 4 quarterly 10-Q filing required by the SEC for public firms, Wells Fargo said it expanded the review period to 2009 through 2016 and that could reveal a “significant increase” in unauthorized accounts. The bank will also send notices about the process for customers to make claims against the bank and is compiling a list of additional customers who complained an account was opened without their consent, Sloan said in the memo.

 

Yesterday, Berkshire Hathaway’s $9 billion all-cash deal for power transmission company Oncor was terminated after Sempra Energy emerged as the victor. Warren Buffett’s conglomerate had been battling for Oncor with the hedge fund Elliott Management. Berkshire has a nearly $100 billion war chest of cash to make deals. S&P affirmed Berkshire’s AA rating and a stable outlook. Berkshire had been on review since July, after bidding $9 billion in cash for the Texas power transmission operation of Energy Future Holdings. Berkshire A shares hit $270,960, and B shares rose to $180.61, both all-time highs. Even when Buffet loses, he wins.

 

Here is a reminder about the National Park Service’s Lifetime Senior Pass. I mentioned this about a month ago, but the deadline is next Monday. The passes grant lifetime entry for citizens who are older than 62 to more than 2,000 sites and parks across the country. Due to legislation passed in Dec. 2016, these lifetime passes will jump from $10 to $80 on Aug. 28. If you go to just one park, the $10 pass pays for itself. Just a reminder.

 

The solar eclipse was bigger for Facebook than any of the last four Super Bowls. Facebook says that 66 million people worldwide created 240 million interactions about the eclipse. Last year’s Super Bowl pulled in 64 million to Facebook. Monday’s obsession with the eclipse shows that Facebook doesn’t need a massive TV event to draw Super Bowl-sized crowds. The social network has long pitched advertisers that it can deliver a “Super Bowl-sized” audience every day, but now we know it can deliver a Super Bowl-sized audience for events that have nothing to do with sports or football or traditional TV. Millions and millions of people took tens of millions of photos, and like 20 of them are good. (In that sense, it was just like every other day.)

 

 

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