The Dividend Cafe - The Equity Bull is Alive and Here is Why

Episode Date: October 26, 2017

The Equity Bull is Alive and Here is Why by The Bahnsen Group

Welcome to the Dividend Cafe, financial food for thought. Hello and welcome to this week's Dividend Cafe podcast. What a crazy week in the markets. We are into earnings season and we're actually seeing this old dynamic of on a given day, certain company results push the market higher and then on another day, certain company results push the market higher. And then on another day, certain company results push the market lower. It is a refreshing change to see the catalyst to day-to-day movement actually be earnings driven. And in some cases, literally like one or two companies resulting in 100 plus point move up, and then one or two companies resulting in 100 plus point day down. So that's sort of been the story of the markets

this week. And that's because the two major other stories that linger, continue to linger, and that is the fate of tax reform in the United States Congress. And then of course, President Trump's decision pending around the Federal Reserve personnel. The tax reform issue sits like this right now. The Senate has passed their budget resolution, which was the first and perhaps biggest roadblock to moving a reconciliation bill forward that would have tax reform attached to it. The House is expected to vote on it and vote positively on it next week. So then the House and Senate will have agreed on a budget resolution, and then that will start the reconciliation process for tax reform. And they can take 10 days, they can take 10 weeks, but the point is, we'll then be into the real nitty gritty

of the actual substance of the tax reform bill, the debates that will go around it, no doubt a slew of lobbyists that will come in to try to influence what it will end up looking like, and then ultimately a vote. And we do suspect that you'll end up getting a bill on the president's desk for signature, if not before the holidays, then into Q1 of next year. And we think tax reform in some form is very likely at this point to get done. We think tax reform in some form is very likely at this point to get done. How faithful it will be to the initial intent and proposed plan remains to be seen.

We think that it will likely come back to some degree from where it's been initially proposed. But again, some plans still will take hold. So those things are continuing to move. I write about it more in DividendCafe.com this week. But I'll tell you, I don't buy into this idea that there will be some form of problem from these political fights with Senator Flake and Senator Corker and others. The reality is that we have a political dynamic that, frankly, is silly and a lot of back and forth and a lot of posturing and whatever, but is not likely to affect final legislation. Because I just simply do not believe that some of these senators who very much ideologically believe in the merits of tax reform

would actually vote against it just on the basis of their disagreements and the kind of other stuff going on with the president. As far as the Federal Reserve side goes, we are very interested in that and follow it quite closely it's difficult because I talked to a lot of people and get a lot of information on where we think it's going and could go and of course all that information is is fallible and and frankly I'm not I don't know that the president knows it right this time what he's gonna do let alone other people talking so I think that the decision will from what we hear likely come down to the possibility of

continuing chairwoman Yellen I think that's a very small possibility the much likelier scenario of Jerome Powell one of the current Fed governors taking over as the Federal Reserve chairman and then we continue to hear that John Taylor, Stanford economist, author of the famous Taylor Rule, and someone I hold in very high regard, an advocate of a more rules-based monetary policy, that he is still very much in the game. So there are a lot of practicalities to consider. Could he end up with a Federal Reserve Chair who has a very different ideology than a Federal Reserve Vice Chair, regardless of who is filling in those couple different roles? Could he implement a number of those vacated governor seats with people that are of a different mindset than some of the others, and you end up with kind of a more mixed bag instead of a monetary policy by consensus? There's an argument to be made that could be very healthy,

and there's an argument to be made it could enhance a lot of volatility, obviously, especially around interest rates and in the bond market. So we need to follow those things. We're going to continue to see earnings season through, but we can already tell enough to know that it's what was expected. Really, so far, a very strong earnings quarter. Certain companies doing even better than expected, and others that have been somewhat disappointing but it's that trifecta you want to look to of of strong results in their profits strong results in their revenues and then

strong results in what they're guiding going forward and and the companies that are hitting all three of those spots are doing quite well in their stock price. So we are busy at work, really absorbing a lot of our individual company positioning, looking to take profits where necessary, de-risking and preparing to de-risk further around some of our non-equity holdings, and then just getting our equity position where we want it to be which is neither surrender mode or euphoria mode but rather defensive cautious optimism not in any way a cop out but a very sincere and high conviction way to approach equities at this time where we believe there's ample possibility of equities continuing further, but also being prepared for setbacks and maintaining dry powder necessary to capitalize on the potential resumption of normal volatility, which downside volatility has been so incredibly

absent in this market. So I'm going to leave it there for this week on the podcast. It's a little shorter than normal, only because I have to run to an appointment and because we really have some great material on the website, dividendcafe.com. A few charts, a few other things you'll want to play with. Check all that out and then get ready for a 2018 revamping of our podcast plans. More to come on that. Thanks for listening to dividend cafe thank you for listening to the dividend cafe financial food for thought the boston group is registered with hightower securities llc member finra msrb and sipc and So food for thought. or the investment opportunities referenced herein will be profitable. Past performance is not indicative of current or future performance and is not a guarantee. The investment opportunities referenced herein may not be suitable for all investors. All data and information referenced herein are from sources believed to be reliable. Any opinion, news, research, analyses, prices,

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