Hail To The Chief: Promises Made And Promises Kept

Tonight, President Trump will address the American public in his first ‘State of the Union,’ which promises to be must-see television. Just in time for the speech, Gallup released its poll on how satisfied Americans are with institutions, attitudes, and the direction of the United States. The great news is that Americans are most satisfied with our military and security from terrorism, along with the state of the nation’s economy.

Interestingly, a majority is satisfied with the position of women in the nation. While it’s in the bottom three, there is an overall spike in those satisfied with the state of race relations. The year-over-year shifts are great news for the White House, which rides a wave of momentum into the second year of President Trump’s presidency.

Promises Made

Joint Session Congress Address February 28, 2017

"What we are witnessing today is the renewal of the American spirit.  Our allies will find that America is once again ready to lead.  (Applause.)  All the nations of the world — friend or foe — will find that America is strong, America is proud, and America is free.

Dying industries will come roaring back to life.  Heroic veterans will get the care they so desperately need.  Our military will be given the resources its brave warriors so richly deserve.  Crumbling infrastructure will be replaced with new roads, bridges, tunnels, airports and railways gleaming across our very, very beautiful land.  Our terrible drug epidemic will slow down and, ultimately, stop.  And our neglected inner cities will see a rebirth of hope, safety and opportunity.  Above all else, we will keep our promises to the American people.  (Applause.)

We have undertaken a historic effort to massively reduce job-crushing regulations, creating a deregulation task force inside of every government agency.  (Applause.)  And we’re imposing a new rule which mandates that for every one new regulation, two old regulations must be eliminated.  (Applause.)  We’re going to stop the regulations that threaten the future and livelihood of our great coal miners.  (Applause.)

To protect our citizens, I have directed the Department of Justice to form a Task Force on Reducing Violent Crime.  I have further ordered the Departments of Homeland Security and Justice, along with the Department of State and the Director of National Intelligence, to coordinate an aggressive strategy to dismantle the criminal cartels that have spread all across our nation.  (Applause.)  We will stop the drugs from pouring into our country and poisoning our youth, and we will expand treatment for those who have become so badly addicted.  (Applause.)

As promised, I directed the Department of Defense to develop a plan to demolish and destroy ISIS — a network of lawless savages that have slaughtered Muslims and Christians, and men, and women, and children of all faiths and all beliefs.  We will work with our allies, including our friends and allies in the Muslim world, to extinguish this vile enemy from our planet.  (Applause.)

Right now, American companies are taxed at one of the highest rates anywhere in the world.  My economic team is developing historic tax reform that will reduce the tax rate on our companies so they can compete and thrive anywhere and with anyone.  (Applause.)  It will be a big, big cut.

At the same time, we will provide massive tax relief for the middle class.  We must create a level playing field for American companies and our workers.  We have to do it.  (Applause.)  Currently, when we ship products out of America, many other countries make us pay very high tariffs and taxes.  But when foreign companies ship their products into America, we charge them nothing, or almost nothing.

To launch our national rebuilding, I will be asking Congress to approve legislation that produces a $1 trillion investment in infrastructure of the United States — financed through both public and private capital — creating millions of new jobs.  (Applause.)  This effort will be guided by two core principles:  buy American and hire American.  (Applause.)

Tonight, I am also calling on this Congress to repeal and replace Obamacare — (applause) — with reforms that expand choice, increase access, lower costs, and, at the same time, provide better healthcare.  (Applause.)

Mandating every American to buy government-approved health insurance was never the right solution for our country.  (Applause.)  The way to make health insurance available to everyone is to lower the cost of health insurance, and that is what we are going do.  (Applause.)

I am asking all citizens to embrace this renewal of the American spirit.  I am asking all members of Congress to join me in dreaming big, and bold, and daring things for our country.  I am asking everyone watching tonight to seize this moment.  Believe in yourselves, believe in your future, and believe, once more, in America.

Thank you, God bless you, and God bless the United States.  (Applause.)"

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Promises Kept

• Regulatory cuts jump-started businesses that were already enthused with the election of President Trump
• There has been a marked reduction in violent crime, particularly in large American cities
• ISIS has been crushed
• $1.5 trillion tax cuts are one for the record books and big business is sharing their portion-the latest, ExxonMobil (XOM) that just pledged $50 billion investments over the next five years
• The American middle class has gotten a tax cut. I was hoping for a more robust cut, especially for small businesses

Moreover, Obamacare remains in place even with the removal of the individual mandate. Tonight, President Trump will reiterate his call on infrastructure.

Bipartisan Support and Massive Tax Benefits

The State of the Union address is much better than the mainstream media would ever give President Trump credit for. In fact, the checklist of promises made and kept outshines hypothetical stories from unnamed sources about actions that supposedly were going to happen but didn’t.

Look for a big push on infrastructure, which has bipartisan lip-service. Meanwhile, benefits from the Trump Tax cuts keep coming.  Late yesterday, ExxonMobil released this statement:

Tax and regulatory reform’s economic boon

At ExxonMobil, we plan to invest more than $50 billion over the next five years to expand our business in the United States. These investments are underpinned by the unique strengths of our company and enhanced by the historic tax reform recently signed into law.

Message of the market

Monday was a difficult session that saw stocks never gain any traction. While there wasn’t any panic, the selling picked up into the closing bell. All eleven S&P sectors were lower, including utilities, which continue to take it on the chin. This suggests investors aren’t clamoring for yield, and are not afraid of equities in general.

Still, there was lots of chatter on the impact of higher-bond yields on stocks. The ten-year yield has rallied to 2.72%, the highest level since April 2014.

I don’t see bond yields competing with upside potential of the market, considering the economic data and the favorable inflationary backdrop. Moreover, as you can see in the past market peaks, the ten- year yield was so much higher:

• 1980: ten-year yield was north of 12%
• 1987: ten-year yield was close to 9%
• 2000: ten- year yield as (6.66%) around the peak

I’ll reassess this at 3.0%, but I’m not worried that this overdue bounce in yields is a reason enough to head for the hills.

I’m sure the noise will continue because there always has to be a reason for the market to be down beyond more selling than buying. On that note, there is excessive anxiety coming into the week. The Federal Open Market Committee (FOMC) gathering begins tomorrow big time. Tech names are reporting, and they must justify mind-boggling rallies. On Friday, we get the January jobs report.

After the Close

• Maxim Integrated Products (MXIM) shares surged on rumors of a bid coming out of Japan
• MetLife (MET): To take a $195 million charge after finding “material weakness” in internal controls, in response to the Securities and Exchange Commission
• Today, the FOMC gathering begins, but all eyes will be on the State of the Union address, which I think has potential to spark the next leg of the stock market rally

Today’s Session

Stocks were under enormous pressure this morning before word that three of the world’s biggest and most powerful companies were combining business acumen and resources to address employee healthcare.

Press Release

Amazon, Berkshire Hathaway, and JPMorgan Chase to partner on US employee health care

Amazon (NASDAQ: AMZN), Berkshire Hathaway (NYSE: BRK.A, BRK.B) and JPMorgan Chase & Co. (NYSE: JPM) announced today that they are partnering on ways to address healthcare for their U.S. employees, with the aim of improving employee satisfaction and reducing costs. The three companies, which bring their scale and complementary expertise to this long-term effort, will pursue this objective through an independent company that is free from profit-making incentives and constraints. The initial focus of the new company will be on technology solutions that will provide U.S. employees and their families with simplified, high-quality and transparent healthcare at a reasonable cost.

Tackling the enormous challenges of healthcare and harnessing its full benefits are among the greatest issues facing society today. By bringing together three of the world's leading organizations into this new and innovative construct, the group hopes to draw on its combined capabilities and resources to take a fresh approach to these critical matters. Berkshire Hathaway Chairman and CEO, Warren Buffett said,

"The ballooning costs of healthcare act as a hungry tapeworm on the American economy. Our group does not come to this problem with answers. But we also do not accept it as inevitable. Rather, we share the belief that putting our collective resources behind the country's best talent can, in time, check the rise in health costs while concurrently enhancing patient satisfaction and outcomes," 

Jeff Bezos, Amazon founder and CEO said,

"The healthcare system is complex, and we enter into this challenge open-eyed about the degree of difficulty, [...] Hard as it might be, reducing healthcare's burden on the economy while improving outcomes for employees and their families would be worth the effort. Success is going to require talented experts, a beginner's mind, and a long-term orientation."

"Our people want transparency, knowledge and control when it comes to managing their healthcare, [...] The three of our companies have extraordinary resources, and our goal is to create solutions that benefit our U.S. employees, their families and, potentially, all Americans."

said Jamie Dimon, Chairman and CEO of JPMorgan Chase.

The effort announced today is in its early planning stages, with the initial formation of the company jointly spearheaded by Todd Combs, an investment officer of Berkshire Hathaway; Marvelle Sullivan Berchtold, a Managing Director of JPMorgan Chase; and Beth Galetti, a Senior Vice President at Amazon. The longer-term management team, headquarters location and key operational details will be communicated in due course.

The news is a shot across the bow of the entire medical care and insurance spectrum.  Stocks are reacting as if Star Trek like handheld devices that monitor vital signs, mend bones and arrest the growth of cancer will emerge tomorrow. 

I applaud the news but think the stock market reaction is overdone.  We are sending alerts on healthcare names in our model portfolio. 

As for the board market, this is the selling that we have anticipated for a few weeks and why we’ve asked subscribers to take profits on more positions than usual.  I’m hoping we get a chance to put those funds to work on this dip.