Generational Chance to Sell Equities?

Are tax cuts the final carrot in the free money episode we have witnessed over the last eight years?

Sven Henrich at the NorthmanTrader has an excellent article on The Carrot Top.

Henrich notes we have had 13 straight months of up in the global equity markets. However, central banking liquidity game has peaked and is dropping off:

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On Thursday, the Dow blasted over 300 points higher on news the Senate would pass a tax cut.

Will it create any jobs? I rather doubt it and so does any thinking individual. I will have more on the beneficiaries of the tax cut later today.

Meanwhile, retail investors have been sucked in hook, line and sinker as noted by record ETF inflows despite this being the most expensive market since 1900.

Curiously, Goldman Sachs' economist Peter Oppenheimer says "risks are to the upside" in a Bloomberg video in the above link.

Henrich as a much different opinion, meticulously laid out with 17 charts.

Whether you are a bull or a bear, do yourself a favor and read Henrich's excellent article.

Mike "Mish" Shedlock

Comments (18)
No. 1-18
Bam_Man
Bam_Man

It will continue as long as the ECB, BOJ and PBC keep expanding their balance sheets faster than the Fed is shrinking theirs.

Bam_Man
Bam_Man

BTW, the Fed was supposed to begin "Tapering" back in October, and their balance sheet hasn't budged at all.

Blacklisted
Blacklisted

I'm sorry, but the definition of an "excellent article" is not one that simply trumpets your own bias and beliefs. I have simpathy for people like you and Henrich, assuming you are sincere, as the debt problems and CB meddling certainly deserve criticism. However, just as the last 7+ years have gone against your logic and fundamentals, the next 7+ years will continue to befuddle the so-called experts because they fail to think globally and their historical perpective is way too short.

There are several flawed concepts stated as facts by Henrich, including the notion that rates and stocks can't rise together. The primary reason stocks are rising in the face of a stagnant-at-best economy is not QE, stock buybacks, the plunge protection team, or other manipulations put forth by the people that have been wrong for too long. The reason is foreign investment flows, which are an order of magnitude bigger than everything else, that are looking for a safer haven than their home currency.

What countries have worse debt and govt intrusion problems than the US? What happens to these countries when rates and the dollar rise? Where is all the govt bond money going to go when the govt bond bubble pops? Is peace going to break out anywhere? Since civil unrest and war are a direct result of turning the economy down, the answer is no. What has less risk - govt bonds backed by nothing and getting more broke, or blue chips backed by plant, property, equipment, and IP?

You and Henrich have it completely upside down. This is a generational chance to BUY equities. The only opportunity greater than stocks and silver is with a digital currency that is outside the fraudulent financial system, decentralized, and backed by a consensus of developers and users that loathe the establishment who brought us to this point.

SweetKenny
SweetKenny

@blacklisted yeah you a nameless internet troll knows more than Mish and Henrich... your ego is in a bubble like your precious Bitcoin.

Carl_R
Carl_R

what will the tax chance do to the average PE ratios in the market? Will they be back under 20 again?

Blacklisted
Blacklisted

SweetKenny, I don't think following Mish for over eight years qualifies me as a troll. Please answer my questions or tell me where I'm wrong. Relying on Mish, Henrich, or anyone else without doing your own research is foolish. I followed the sage advise of the gold bugs and dollar haters for a while, buying the story that QE would devalue the dollar, produce hyperinflation, and send gold to the moon. Fortunately, I started digging deeper to realize it's global capital flows and the invisible hand that dictates the trend, not central bankers and politicians that only wish to play God.

Millennials are not the only ones indoctrinated in an educational system that has led them astray - http://www.zerohedge.com/news/2017-12-02/doug-casey-why-millennials-favor-communism. It should be obvious that the financial geniuses that have led us to the abyss were worlthless, and anyone using traditional fundamentals and not considering financial history prior to the Great Depression will have no clue to the solutions going forward. Don't confuse facts with ego. They are simply a warning.

Blacklisted
Blacklisted

Carl_R, PE's will be meaningless in a world were stocks, not govt bonds, become the safe haven.

SweetKenny
SweetKenny

@Blacklisted you bash gold bugs then you reference an article to Doug Casey?

doraemon
doraemon

Isn't foreign capital inflow a byproduct of foreign and US money printing by central banks forcing the former holders of bonds to buy riskier assets? And if you are talking inflows from countries with heavy current account surpluses (mainly trade surpluses), that too is a result of credit expansion on steroid which originates from fractional reserve banking. How have these sources of inflows changed compared to previous stock market crashes? How is it different this time?

Snow_Dog
Snow_Dog

Will somebody please assure me this has nothing to do with the comedian who performs under the name Carrot Top.

I said please.

Realist
Realist

Well argued Blacklisted. I appreciate people who can think for themselves and make cogent arguments. Just because you follow Mish, you don't have to agree with everything he says.

killben
killben

@Blacklisted,
"The reason is foreign investment flows, which are an order of magnitude bigger than everything else, that are looking for a safer haven than their home currency."

But then how would you explain the ATH in the home market? Also the inflows is itself due to the meddling central banksters in those countries. There is no question that the central banksters in a coordinated manner have been able to get the market up and away by intervening at every point (Taper tantrum, Aug 2015, Brexit, Trump election, Feb 2017), QE baton passing and jawboning. But does that mean there would be no end to this party. How long it can continue is anybody's guess. But pray tell me how are the central banksters going to extricate themselves without some damage. Would you say that is the reason why they act as if they are walking on egg shells? Will there ever be a market where price discovery is allowed? These are some questions I ask myself...

Easyp
Easyp

Yes but not yet. I think the tax cuts and momentum will push the markets on for a few more months assuming the US does not nuke North Korea. On that basis I have about 75% in shares and the rest as cash in my pension. I have some risky plays on uranium, a bit in gold and silver and perhaps 50% in conventional companies that pay dividends. Everyone entitled to an opinion but where you put your cash is perhaps the truer test.

RonJ
RonJ

"SweetKenny, I don't think following Mish for over eight years qualifies me as a troll. Please answer my questions or tell me where I'm wrong." 100% of bubbles burst and deflate. "Foreign investment flows" go in two directions, not just one. First they went into Japan, then they went out.

Ambrose_Bierce
Ambrose_Bierce

Periods of rapid change are historically never easy to navigate. The myth of American exceptionalism will meet the reality of life in the gulag, and turn out to look pretty good. Have you read China's Constitution, Russia's Bill of Rights? Do you like Indias caste system, their economy? Japan is nice, unless you are black. The populist anger against the global banking system, wealthy robot robber barrons, and stock market highs made on foreign capital, (these investors can disinvest faster than an HFT) is being turned inward. Trump is the king of bear baiting, he is the great divider, sent to end this experiment in Democracy, and we feel it should end because we feel guilty that we have done so well for ourselves in the face of institutionalized human misery everywhere else. That someone from outside can come to America and become an American, that is a good thing, now we have to fight for that, and it won't be easy. The next thing that awaits you mils, is a uniform and a rifle, but you are dying for a good cause. You will know that finally.

Carl_R
Carl_R

I'll answer my own question. If the corporate tax rate dropped from 35% to 20%, the PE ratio, which is based on after tax earnings will change. If a company is paying 35% tax, and has a PE of 25, the PE will drop to 20.3, a much more reasonable level. Of course, not all companies are paying 35% tax. Many use a variety of writeoffs to pay less. Thus the overall market PE may only drop a couple points, perhaps from 25 to 23. I presume the companies are are up the most in the last week, and that the tech sector is not up because tech companies rarely pay the full tax.

Brother
Brother

I'm going from bull to bear and I assure you I know nothing, nothing komandan.