Rejoicing in the Reflation Trade

Jim Woods

Rejoice, brothers and sisters… the reflation trade is back!

I channeled my best preacher voice for that line, and when you think about it, I am a preacher of sorts… a preacher for your money’s salvation.

This week, we heard the good news on the market front as stocks surged more than 1% Monday and again on Tuesday. Markets are up only modestly today, but that’s to be expected after two consecutive sessions of big buying.

There are several good reasons for the rise in stocks this week. First, there was the French presidential election, and the reaction to the results of the first round of voting was a collective “Vive la France!”

The field now has been narrowed to centrist candidate Emmanuel Macron and Marine Le Pen, leader of the National Front party. Financial markets want Macron, as he doesn’t want to upset the European Union apple cart. And, according to the early polls, Macron holds a two-to-one lead over Le Pen.

Now, given the polls showed Brexit would be voted down and that Hillary Clinton would be president of the United States, well, forgive me if I don’t have all that much confidence in polls. Still, Wall Street expects a Macron victory and is betting on it.

The other two big reasons stocks are up this week are that earnings have been very good, and the Trump reflation trade is back in business.

We got strong earnings results from many industrial bellwethers this week, including Dow components Caterpillar (CAT), McDonald’s (MCD) and 3M (MMM). We also got great results from many “trader favorite” stocks such as Chipotle Mexican Grill (CMG). For more on CMG, read my quote in U.S. News & World Report.

On Tuesday, markets got a taste of what came today, and that is more details on the president’s tax reform plan.

Now, I’ve told you in this publication, and I’ve repeated incessantly to subscribers of my Successful ETF Investing newsletter since the election, that the only thing that really matters on Wall Street is progress on the Trump agenda… and specifically a reduction in the corporate tax rate from the current 35% to 15%.

Well, we got details on corporate tax reform and a whole lot more from White House chief economic advisor Gary Cohn and Treasury Secretary Steve Mnuchin.

The two Goldman Sachs alums took to the White House briefing room to tell the nation this will be the “biggest tax cut” in U.S. history.

Highlights of the plan include:

  • Cutting the number of income tax brackets from seven to three, with a top rate of 35% and lower rates of 25% and 10%.
  • Eliminating all tax deductions except for the mortgage and charitable contribution deductions.
  • Creating a “one-time tax” on the trillions of dollars held by corporations overseas.
  • Eliminating the estate tax, a.k.a the “death tax.”
  • Moving to a “territorial” tax system, meaning most or all of the income that businesses earn overseas would not be subject to U.S. taxation.

And finally, the aforementioned cut in the corporate tax rate from 35% to 15%.

We are going to get more on this plan in the days and weeks ahead, and the details will certainly be interesting to uncover. Also, we’ll have to see how this plan is taken by Capitol Hill, as Congress will have to work with the Trump administration to get these proposed reforms into law.

If they can do it, it will be the key step everyone on Wall Street, myself included, has been waiting for, as it will justify the current rich valuation in stocks.

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It also will likely allow markets to continue to rejoice in the reflation trade, as markets and the economy will finally go from a potential tax-reduction stimulus to an actual tax reduction stimulus.

And, short of completely eliminating all forms of government confiscation of your money (that’s the libertarian in me coming out), the first step in getting the economy and the markets supercharged into growth is to get some tax reform in place.

If you want to find out how my subscribers are sitting on double-digit-percentage gains by strategically investing in the reflation trade, then I invite you to check out my Successful ETF Investing newsletter right now!

ETF Talk: Bond-Focused Fund with Enormous Holdings in U.S. Treasuries

By Eagle Staff

Why ‘Buy American’ is Un-American

Last week, President Trump signed an executive order directing federal agencies to “Buy American, Hire American.”

The president said the order would protect American workers and those in the building and manufacturing trades. He also used the following rhetoric to drive home the point: “It’s America first, you better believe it. It’s time. It’s time, right?”

Now, I consider myself very patriotic, and for rational reasons. That is to say, I see the intellectual foundation this country was built on, and that foundation is freedom from government and the protection of individual rights.

I also volunteered to defend that freedom by joining the U.S. Army as an infantryman, paratrooper and member of our special operations forces.

Yet despite my patriotism, I think the president’s rhetoric is flawed.

In fact, the notion that someone has a patriotic duty to buy American is something that I think goes against the free minds and free market principles our founders embraced.

About six years ago, I wrote an article for MarketWatch titled, “Why it’s un-American to buy only American.”

Considering the president’s executive order, I thought this piece might shed a little different light on this issue. Here is the text of the article that appeared on MarketWatch, Dec. 2, 2010.

Why it’s un-American to buy only American

By Jim Woods

When General Motors Co. went public again last month and GM executives rang the opening bell on the NYSE, many Americans rejoiced in the fact that the auto maker was back.

I must admit that I’m also pleased that GM shares are back where they belong, available to the public so that we can render a verdict on the company’s performance with our investment dollars.

One thing I’m not happy about, however, is the renewed chatter I’ve heard about how Americans need to once again “buy American” in order to support companies here at home — including General Motors.

Americans shouldn’t feel some kind of duty to buy American-made goods. In fact, it’s actually un-American to buy only American.

For the record, I am a proud owner of a GM automobile. I’m a Corvette enthusiast, and I currently drive the ultra-high performance Z06 model. I love the car for the automotive heritage it represents, its styling, the incredible bang for the buck — and for the fact that it can pretty much blow the doors off of just about anything else on the road.

But I love the Corvette for its virtues — and freely chose to spend my hard-earned dollars on such a product because I believe it’s superior. It is decisions like this that are the cornerstone of being an American consumer and succeeding as an American business.

If my Z06 was an inferior machine, I wouldn’t have bought it, and GM wouldn’t have gotten my money.

American consumers must have the right to freely make purchases based on a product’s virtues. This idea was perhaps put best by Harry Binswanger in an article called “Buy American is UN-American,” where he makes the case that buying American products out of a sense of patriotic duty actually runs counter to the basic premises of Americanism.

“In purchasing goods [only made in America], we are expected to view ourselves and the sellers not as individuals, but as units of a nation. We are expected to accept lower quality or more expensive goods in the name of alleged benefits to the national collective,” Binswanger wrote. Binswanger concludes with a powerful idea, “A patriotic American acts as a capitalist and an individualist: he buys the best, wherever it may be found.”

To be clear, I’m not saying boycott GM or any other American company. My Corvette purchase was based on factors such as quality, aesthetics and price and this vehicle represents all of these things to me. The Corvette just so happens to be an iconic American-made car. However, if the Corvette would have been made in Brazil, China, Portugal or Mexico, I still would have bought it based on its aforementioned virtues.

Besides, in this global economy it’s hard to even know what “American made” even means. For example, GM’s Equinox sport-utility vehicle has an engine that’s made in China. Rival Ford Motor Co.’s popular Fusion model is assembled in Mexico, and Chrysler’s beefy 300C model is assembled in Canada, and has an engine that’s made in Mexico.

Oh, and as for Japanese cars? Toyota Motor Corp. (TM) actually makes its ubiquitous Camry model largely in the U.S., with some 80% of that car’s parts made here. The company also has over 25,000 U.S. employees.

This international hybridization of not just car companies, but also many multinational companies, brings into question the very concept of a company having a national identity.

I realize that politicians, pundits and labor movement leaders like to use the “buy American” issue to get votes, or to rile up the public against a convenient foe. But the reality is much more complicated than just an “us versus them” issue.

So, if you’re one of the many new GM stockholders or one of the millions of Americans like me who owns a General Motors automobile, I hope you made your decision for reasons other than a desire to “buy American.”

No matter what a marketing message says, owning a lemon is never patriotic.

Finally, while I am in no way opposed to the president trying to create American jobs or bring the American economy back into full-blown growth mode, I am opposed to the notion that you should buy something simply out of a sense of nationalism.

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The real virtue is buying the best product or service for the job. If that product or service is American, all the better.
What’s Your ETF’s Literary Theme?

I love literature, and I studied the art intensely during my college years. And while most of my time these days is focused on finding the best exchange-traded funds (ETFs) for my subscribers to own, I still devote a block of time each week to reading and studying literary fiction.

Aristotle once wrote that fiction is of greater philosophical importance than history, and the reason why is because “history represents things as they are, while fiction represents them as they might be and ought to be.”

I think it’s important to look at the world, and one’s life, as an exercise in developing things as they ought to be. Literature helps us in that herculean task.

As for the basic attributes of literature (i.e. the novel), there’s style, characterization, plot and theme. Of these, the most important is plot, as that is basically the purposeful progression of events in the story.

Yet a work of literature’s plot cannot be properly constructed without a theme.

The theme is basically the summation of a novel’s abstract meaning. For example, the theme of Victor Hugo’s “Les Miserables” is: “The injustice of society toward its lower classes.” The theme of George Orwell’s “1984” is: “The horror of totalitarian government.”

Great novels always have discernable themes, and ones that can be put succinctly the way I just did with “Les Miserables” and “1984.”

Now, when it comes to ETFs, there’s a growing trend in the industry toward investing in themes.

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A recent article in Investor’s Business Daily detailed some of the pros and cons of investing in so-called “thematic ETFs.”

These are ETFs that are designed to take advantage of specific trends and/or themes, in society.

For example, one big theme in the investment space today is robotics and the rise of artificial intelligence, or AI.

Here’s what the IBD article stated about this investable theme’s ETF:

Alphabet’s (GOOGL) self-driving cars, Amazon’s (AMZN) Alexa and Apple’s (AAPL) Siri put a consumer-friendly face on machine learning and artificial intelligence (AI). However, robots, AI and automation have widespread industrial and commercial uses.

Global X Robotics & Artificial Intelligence (BOTZ) seizes the companies that stand to gain most from the trend. Its stock holdings include Mobileye, Intuitive Surgical (ISRG) and iRobot (IRBT).

The AI theme is big in literature, too. Isaac Asimov’s “Robot” series is one example, but perhaps the most well-known example of a literary AI theme is the “Terminator” film series.

The theme of the “Terminator” series is: “The rise of the machines,” i.e. AI gone terribly wrong, and turning on its creator.

For investors, the AI investment theme might be: “Taking advantage of the rise of the machines.”

Other thematic ETFs include lithium batteries via the Globak X Li Battery Tech (LIT), think electric cars like Tesla Motors (TSLA); 3-D printing via the Ark Invest 3D Printing ETF (PRNT); think printing spare parts and tools at home, and the Global X U.S. Infrastructure Development ETF (PAVE), think Trump infrastructure build.

Like great literature, a great ETF might just be the one with the most targeted, popular theme.

So, what’s the literary theme in your ETF portfolio?

Wisdom of ‘The Next Storm’

So open the shutters

Raise up the masts

Rejoice! Rebuild! The storm has passed!

— Frank Turner, “The Next Storm”

English punk/folk rocker Frank Turner has some of the best lyrics in pop music (my opinion, of course). In his song, “The Next Storm,” the singer-songwriter reminds us that storms of all kinds will always be part of our lives. It’s how you face the next storm that determines who you are and what you achieve. That’s true for all of life’s challenges, and particularly the challenges we face when we put our money to work in the financial markets. So, is your money ready for the next storm?

Wisdom about money, investing and life can be found anywhere. If you have a good quote you’d like me to share with your fellow readers, send it to me, along with any comments, questions and suggestions you have about my audio podcast, newsletters, seminars or anything else. Click here to ask Jim.

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