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:

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

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.

"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.

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.

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.

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