It is Thanksgiving week, and that means it’s time to pause and literally give thanks for all the blessings in our lives.
As Americans living in the 21st century, it’s easy to take for granted all the bounty we enjoy. Let’s face it; no people in human history have lived in so much relative luxury, and enjoyed so much wealth, so much prosperity, so much peace, so much freedom and so much safety.
Yet despite our good fortune, many of us feel our lives really aren’t in our control. Many of us feel disconnected with our fellow citizens, and many of us feel the nation is far too polarized both politically and culturally.
Now, I certainly understand the impulse to concentrate on the problems one faces in life. And I also understand that America isn’t a perfect union. All one need do is observe the social animus of the past in our nation’s political climate to easily arrive at that conclusion.
Yet despite her flaws, America remains a bastion of liberty, free minds, free markets, free choice and free thought.
Yes, I know that there are certain forces in Washington, on Wall Street and in academia and other institutions that are intent on exercising control over the economy, the markets and the culture.
Still, I want you to keep in mind that you are in control of the most important ingredient in your recipe for success… and that ingredient is your own choices.
This Thanksgiving, be thankful for the reality that…
- Only you can control how you approach life
- Only you can control how you react to events
- Only you can be mindful of your inner life
- Only you can take action that benefits yourself and others.
Indeed, the fact that you own your own life is perhaps the ultimate reason to be thankful this holiday season, every holiday season… and every single minute of your existence.
So, as you reflect on the good fortunes in your life, whether that be family, friends, financial success, career success, good health, your church, your faith, your community, etc., I also want you to reflect on that most important ingredient that makes it all possible.
That ingredient is you, your independent mind and your relationship with reality.
This Thanksgiving, be thankful for everything you have… especially you.
Selling into the Messy Tax Cut Process
Over the past couple of weeks, stocks have bounced around with more volatility than markets have been accustomed to seeing. And, there’s basically one reason why — the machinations on tax reform.
Traders, individual investors and professional money managers mostly have profited mightily over the past year, as the Trump pro-growth trade gave the bulls hope that regulation would be reduced (i.e. Obamacare repeal and replace), that infrastructure spending would be enacted and, of course, that taxes would be cut both on the individual and corporate fronts.
Yet the process we’re witnessing right now on Capitol Hill isn’t pretty. As I told subscribers to my Successful Investing advisory service recently, if you’ve read Upton Sinclair’s classic novel, “The Jungle,” you know just how ugly the operations of the meat industry were in the early 1900s.
And while this novel’s goal was to promote and advance socialism in the country (a goal that I abhor), the novel was an eye opener for the vile conditions that existed in the slaughterhouses and meat factories of the day.
I thought of that novel last week, and again this week, as I watched the metaphoric sausage being made in Congress on tax cuts.
From comments by Treasury Secretary Mnuchin on a possible delay of the corporate tax cuts, to the Senate’s outlined version of tax reform that included seven individual tax brackets, the tax reform outlook got decidedly muddy. We know that because stocks declined immediately after those Mnuchin comments. And though stocks have rebounded since, we’ve certainly seen an uptick in volatility.
While I realize this is all part of the tax cut sausage being made, the next step is for the Senate to unveil its bill, which will come after Thanksgiving. Depending on how that process unfolds (and assuming a bill passes in the Senate), that’s when the real “fun” begins. The House and Senate will then go into reconciliation to see if they can come out with some substantive reforms.
Unfortunately, as I’ve said recently, tax reform is no guarantee. Moreover, the proposed tax reform I’ve seen so far doesn’t represent the kind of big economic stimulus I had hoped for.
So, from a market perspective, it makes sense to see traders and professional money locking in some gains here, especially in front of the uncertainty of tax reform.
The Smart Money is fully aware that at current multiples, tax cuts are priced into this market. That means any major disappointment on tax cuts, i.e. a complete whiff on getting any bill passed, will likely take this market down.
If tax reform is another Obamacare redux in Congress, then look for the selling gates to swing wide open.
The Year of Living Dangerously
One year ago, America elected Donald J. Trump to be its 45th president of the United States. The incredibly unlikely ascent of the billionaire businessman to the highest office in the land defied the odds, stunned the world, and rewrote the book on political propriety. The Trump victory also has brought about something that few pundits (although there were some) failed to predict.
That something was the rise of hope.
This is a hope laced with optimism, and a renewed sense that the economy finally had a chance to extricate itself from the shackles of onerous big-government regulations, mandates and high taxation.
Indeed, it’s that hope that has driven financial markets to one of their best years in a very long time. The chart below of the S&P 500 Index over the past 52 weeks clearly shows the dramatic rise in markets.
As you can see, markets have barely tested the 50-day moving average (blue line), let alone tested the long-term, 200-day moving average over the past year. That move is a testament to the Trump pro-growth hope trade that remains intact… yet that’s clinging precariously.
In fact, one could describe this market in literary terms as, “The Year of Living Dangerously.” That’s a reference to the 1978 C.J. Koch novel of the same name, which also was made into an outstanding, and highly recommended, 1982 film of the same name.
I say that, because we are dangerously close to failing on all three fronts that ignited the Trump hope trade.
Those three fronts are: Increased infrastructure spending, deregulation (the main component here was the repeal/replace of Obamacare) and, most importantly, tax reform.
Well, Washington is currently 0-3 so far, but there’s still a chance to get that most-important big win, and that’s tax reform.
Unfortunately, tax reform is no guarantee. Moreover, the proposed tax reform I’ve seen so far doesn’t represent the kind of big economic stimulus I was hoping for. Now, to be fair, I am a purist on taxation, so zero income tax is my idea of proper (and moral) taxation.
That said, what has come from the House so far is, I fear, a lukewarm proposition that cuts some taxes, but that does not go far enough in terms of an overseas profit repatriation plan, or in terms of individual tax rates. Those individual rates also include the controversial high-profile reductions in state and local taxes, and restrictions and caps to mortgage interest deductions.
If this market is to continue the Trump hope trade, we need to see improvement on the tax front in the Senate, and then again in the House where the tax bill will go into reconciliation for its final adjustments.
If we fail to get something substantive out of Washington, this year of living dangerously for the bulls could turn into a hostile takeover for the bears.
Ward on Gratitude
“Feeling gratitude and not expressing it is like wrapping a present and not giving it.”
— William Arthur Ward
Expressing thanks for all our blessings at this time of year is common. Yet when it comes to expressing thanks and gratitude for all we have, I think any time of year is the right time. So, give yourself and those around you that wrapped present. It will make everyone feel better, especially you.
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