Hopes for a Tax Cut

Hopes for a Tax Cut Drive Stocks to New Highs

by Louis Navellier

October 24, 2017

*All content in this Introduction to Marketmail represents the opinion of Louis Navellier of Navellier & Associates, Inc.*

Rising Stock Prices Chart Image

Last week the Dow surpassed 23,000 on the 30th anniversary of the 1987 crash, rising 2% for the week. The S&P 500 rose 0.86%, setting yet another all-time high at 2,575 last Friday, up 15% for the year.

That’s great, but I’m especially proud to report that the #1 stock mutual fund last quarter was none other than a fund for which my firm is the sub-advisor.  According to The New York Times (“The Stock Market Charges Ahead, Despite the World’s Storms,” October 13, 2017).

In other news, President Trump is expected to announce the new Fed Chairman in early November, with the current Fed Chair, Janet Yellen, still in the running to be reappointed.  If Ms. Yellen is reappointed for another term, the stock market will likely celebrate, since under Yellen both the Fed’s unemployment and inflation mandates have been met and exceeded.  On Thursday, Janet Yellen met with President Trump and I would have loved to be a fly on the wall to listen to their conversation.  If President Trump does not reappoint Janet Yellen, his new Fed Chair should be a decisive leader since the Fed needs to project far more stability and certainty, since some infighting among the Fed governors has generated uncertainty.

In This Issue

As Bryan Perry reports, below, Friday’s market surge was based on new hopes of a “grand bargain” on taxes, but the costs of that compromise could cripple some stocks and energize others.  Next up, Gary Alexander shows why North Korea and other global hot spots don’t really spook this bull market.  In Global Mail, Ivan Martchev takes an unconventional approach to the recent shrinkage of the yield curve, while Jason Bodner sees an emerging consensus in the sector sweepstakes.  My closing column focuses on the chances of a 1987-style crash, but don’t be overly fearful since it will likely be relatively short-lived.

Income Mail:
Rumors of a Congressional “Grand Bargain” Fuel Market Gains
by Bryan Perry
Income Investors Take Heed of Higher Bond Yields Ahead

Growth Mail:
Why North Korea (or China, or Russia, or ISIS, or Iran) Fail to Spook this Market
by Gary Alexander
The Market Hurricane Season is Nearly Over

Global Mail:
Yield Curve Shrinkage
by Ivan Martchev
About That Fed “Independence”

Sector Spotlight:
What’s Worth More – a Ton of Gold or $100 Bills?
by Jason Bodner
InfoTech is Up Over 30% Year-to-Date

A Look Ahead:
Could We Suffer Another 1987-Style Crash?
by Louis Navellier
Housing Market Likely to Recover After Natural Disasters

Income Mail:

*All content of "Income Mail" represents the opinion of Bryan Perry*

Rumors of a Congressional “Grand Bargain” Fuel Market Gains

by Bryan Perry

Last Friday’s big gains for the major averages were a direct result of the Senate’s passage last Thursday of a 2018 budget blueprint that increases the deficit by $1.5 trillion over the next 10 years, clearing the way for President Trump’s proposed tax cuts. The blueprint includes special instructions that allow for passage of a tax plan by a simple majority, without threat of a Senate filibuster to block it. On that note the bulls took charge on Friday. Stocks shot higher, as did Treasury yields.

What has market professionals feeling hopeful is the notion of a bipartisan “grand bargain” in the making. It seems that a deal for a 20% corporate tax rate can be struck if offered in exchange for a carbon tax to “pay for” the revenue shortfall. Congress loves to spend other people’s money and heading into the mid-term elections next year, even most Republicans argued this past week that Trump’s tax cuts will more than cover the $1.5-trillion shortfall by spurring economic growth, fueling higher future tax revenues.

However, it’s my view that the Republicans are painting themselves into a corner. The lower corporate tax rate will likely blow a huge hole in the current federal deficit. A carbon tax is a form of pollution tax that levies a fee on the production, distribution, or use of fossil fuels based on how much carbon they emit. The law sets a price per ton on carbon, then translates it into a tax on electricity, natural gas, or oil.

In sum, a carbon tax means the energy sector faces more stiff headwinds while businesses and consumers will pay more for gasoline, jet fuel, diesel, and other carbon-based forms of power. No one escapes the carbon tax. Tesla owners will feel the pain when they get their electric bill. While a carbon tax raises revenue, satisfies long-term economic efficiency and environmental goals, and is popular with Democrats, most Republican politicians loathe the idea of trying to sell this immediate and tangible policy directive to their constituencies against the yet-to-be-seen prosperity that corporate tax reform proponents forecast.

The map below provides a rough outline of how hard it will be to consummate a carbon tax. Most (26) states are clearly against a carbon tax, so the political sales job is a big one. This resistance could be a potential deal-killer. If the GOP base doesn’t go along on the carbon tax ride, then tax reform could stall.

Opportunities for Carbon Taxes at the State Level Map Image

In a variation on “Let’s Make a Deal,” Congress moved quickly to extend Obamacare for another two years, setting the table for President Trump to finally put a check mark in the win column with tax reform. But again, it’s going to be a tough sell in rural states where a carbon tax simply means a higher gas tax.

Financial deregulation, the wall, healthcare reform, and massive infrastructure spending have all failed to materialize – even in the form of a Congressional committee to formulate policy or a bill. Trump has also used a pen and a phone to get some results, but this isn’t what his base voted for and it’s pretty clear he underestimated the resistance from the Republican establishment that has caused more delays than the folks across the aisle. And if tax reform is passed, it will likely contain exemptions for special interests.

Income Investors Take Heed of Higher Bond Yields Ahead

If and when tax reform goes through, several things will happen. (1) Lower corporate taxes will generate a huge boost to corporate earnings, if in fact the corporate tax rate is lowered to 20% from 35%. (2) Bond yields will rise with the expectation of GDP growing at a faster pace above 3%. (3) The stock market rally will likely extend well into 2018, and, inevitably (4) America will take on considerably more debt to fund the federal government’s expansion, including the extension of Obamacare.

While all this political policy machination plays out, income investors should stay focused on the one key takeaway, which is that interest rates are likely to rise more over the next one to two years. Whether Fed Chair Janet Yellen, a self-admitting dove, or some other easy money candidate takes the helm as Fed Chair next year, the normalization of interest rates is in motion and the Federal Reserve dot plot plan is to raise the Fed Funds Rate by a quarter point in December and then three more times in 2018.

With that objective in mind, I would argue that more cyclical dividend-paying assets that are tied to the prospects of higher equity prices are best suited when seeking yields above 3%. There are some special asset classes that are generating such returns presently and deserve a place in one’s income portfolio.

Some favored categories would be private equity partnerships, covered-call option strategies, convertible bonds, convertible preferreds, business development companies with floating rate loan portfolios, select MLPs, adjustable-rate mortgage REITs, data center REITs, and hotel REITs. These areas comprise viable candidates for generating fantastic yields and capital gains in an up-rate investing landscape. (The benchmark 10-year Treasury closed last Friday at 2.38%, up from about 2.1% in early September.)

United States Ten Year Treasury Yield Index Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

Tax reform will likely happen – with or without a carbon tax. President Trump and the Republicans are determined to strike some kind of a deal with the Democrats. The stock market is “all in” on that scenario, so it might make all the sense in the world to proactively position income-oriented portfolios to ride the stock market up and not be tied to the fate of the bond market when rates rise and bond prices fall.

Growth Mail:

*All content of "Growth Mail" represents the opinion of Gary Alexander*

Why North Korea (or China, or Russia, or ISIS, or Iran) Fail to Spook this Market

by Gary Alexander

On Sunday, October 21, 1962, President John F. Kennedy was scheduled to visit Seattle to preside over the closing of our six-month World’s Fair, but he failed to show up, claiming a “cold” prevented him.  In truth, he was busily looking at high-altitude photos of Soviet missile bases being rapidly built in Cuba.

I was a high school senior at the time and it was a magical summer in Seattle.  World-class classical and jazz musicians visited our fair city.  Van Cliburn played under the baton of Igor Stravinsky on opening night, April 21.  I saw Count Basie, Benny Goodman (on the way to a tour of Russia), Errol Garner, and Dave Brubeck live that summer.  On October 12, I drove through a hurricane to see Louis Armstrong and his All-Stars perform, amid near-100-mph winds that lifted my car off the road on the way home and brought down tall Douglas firs on our property, narrowly missing our home.  But a greater terror awaited.

On Monday night, October 22, 1962, President John F. Kennedy went on live national TV to reveal the presence of nuclear missiles in Cuba.  On Tuesday, the Organization of American States unanimously approved a U.S. quarantine against Cuba, authorizing the U.S. to use armed force to prevent the shipment of more offensive weapons to Cuba from the Soviet Union.  The next day, in the tensest day of the Cuban Missile Crisis, Soviet ships slowed down, altered, or reversed their course as they approached the U.S. quarantine line, with the exception of one ship, the tanker Bucharest.  At the direction of the Joint Chiefs of Staff, all U.S. military forces went to DEFCON 2, the highest military alert reached in the postwar era.

That day, I stayed late at school for an orchestra rehearsal, but when I finished putting my music away, I saw a janitor leaning on his broom, crying.  He said, “This is Pearl Harbor, only worse.  They have bombs that will kill us all.  Go home to your family and pray for a miracle.”  I was stunned, to say the least.

The next day, the crisis remained at high alert as the USSR and U.S. both proceeded to a state of nuclear readiness, as the U.S. Ambassador to the U.N., Adlai Stevenson, demanded of USSR Ambassador Zorin to admit their Cuban missile bases existed, saying, “I am prepared to wait for my answer until hell freezes over.” On Friday, October 26, President Kennedy planned a U.S. invasion of Cuba, but then came a Soviet proposal for ending the crisis.  The Soviets suggested that their missile bases in Cuba would be dismantled under U.N. supervision, and Cuban leader Fidel Castro would pledge not to accept any more offensive weapons, in return for a U.S. guarantee not to invade Cuba.  Deal Accepted.  Crisis Over.

Not so fast!  On Saturday, Soviet premier Nikita Khrushchev reneged on his promise to remove Soviet missile bases from Cuba.  Under pressure by Soviet hard-liners, he publicly called for the dismantling of U.S. missile bases in Turkey in return for the removal of Soviet missiles in Cuba.  While Kennedy and his advisors debated this dangerous U-turn in negotiations, a U.S. U-2 spy plane strayed into Soviet airspace and narrowly escaped Soviet MiG fighters.  Hours later, a U-2 reconnaissance plane was shot down over Cuba and its pilot, Rudolf Anderson, was killed, but Kennedy vetoed a military retaliation against Cuba.

Later that day, with full-scale confrontation imminent, Kennedy and his advisors agreed to dismantle the Jupiter missile sites in Turkey in exchange for removal of Soviet missiles in Cuba.  Crisis over, again.

What did the stock market do during this first ever, worst-ever flirtation with nuclear annihilation?

October Dow Jones Industrial Average during the Cuban Missile Crisis Table

The week’s change in the Dow during the peak of a missile crisis threatening near-annihilation: +0.07%. The Soviet Union was a real danger, unlike the seemingly inept dictator of today’s North Korean regime.

Huge Spring 1962 Crash versus the Minor October 1962 Correction Chart

Pundits often refer to a major market correction of 1962, but it wasn’t based on the missile crisis.  The ‘62 crash happened from April to June.  It was centered around President Kennedy’s war of words with U.S. Steel, not his war of words with the Soviet Union over missiles.  The U.S. stock market is kind of blind in that way.  It is concerned more with business than geo-politics.  The market seems to assume that World War III will not really happen and, if there is a hot missile exchange, the U.S. is likely to quickly prevail.

The Market Hurricane Season is Nearly Over

There have been several historical crashes in late October – two falling on today’s date:

  • On Thursday, October 24, 1907, Manhattan’s streets were choked with anxious bank depositors lined up in front of even the soundest of banks, so the New York Stock Exchange came to J.P. Morgan’s door and said, in effect, “Please make enough cash available to our banks and brokers, to meet their obligations, or we will close the Stock Exchange.”  Morgan called several major bankers to his office.  Within five minutes, he raised $27 million.  Then, he said that any bears would be “dealt with.”  That night, he called every important banker in the city to his private library on East 36th Street, raising a then-huge $84 million.  In one bold move, the Panic of 1907 was over.  Even President Theodore Roosevelt, who earlier railed against “the malefactors of great wealth,” said, “Those substantial businessmen acted with wisdom and public spirit.”
  • Another Black Thursday fell on October 24, 1929.  Sell orders piled up the night before and the morning was a panic of selling at any price.  Terrified investors sold a record 13 million shares. The panic was stemmed at 1:30, when Richard Whitney, director of the Exchange, stepped to the center of the floor and said loudly, “I will buy 10,000 shares of U.S. Steel at $205.”  Many buyers were soon inspired to step into the breach by J.P. Morgan, Jr. and other wealthy investors, who said this was merely a passing phenomenon.  Morgan’s words were not backed by action.  After Black Tuesday, October 29, Morgan shrugged, “Let these speculators go broke.  This is a normal market cleansing process.”  (Morgan, Jr., never had the leadership and courage of his father.)
  • On Monday October 26, 1987, the Dow Jones Industrials fell another 156.83 points (down 8%), to close at 1793.93.  It was the second greatest daily percentage drop since 1932, second only to the previous Monday’s 22.6% loss.  The Hong Kong market, after being closed the previous week, fell 33% this day, matching the losses suffered by the rest of the world the previous week. NASDAQ was down 9% this day, 7% the next – the #3 and #5 worst daily losses to date.
  • On Thursday, October 23, 1997, the Dow fell 186.88 points (-2%), the second of four straight declines totaling 900 points (down 11%), based on fears generated by the Asian Currency Crisis.

Things got worse after October in 1929, but in the other three cases, the market recovered fairly quickly from a late October downdraft.  In 1907, the Dow rose 89.6% from November 15, 1907 to November 19, 1909.  In most of the major market lows happening in late October, the recovery was long and strong:

What Happened Next After Major Market Bottom Table

Sure, 1987 could happen again, but so could the powerful 575% recovery in the following 12 years.

Global Mail:

*All content of "Global Mail" represents the opinion of Ivan Martchev*

Yield Curve Shrinkage

by Ivan Martchev

The 2-10 bond yield spread is acase of shrinkage. Last Friday, the 10-year Treasury rate closed the week at 2.38% and the 2-year Treasury note closed with a yield of 1.58%. That’s a difference of 0.80%, or 80 basis points. In other words, the 2-10 spread is again shrinking, reminding us that a shrinking yield at the tail end of an expansion is as normal as certain side effects after swimming in a cold pool.

Ten to Two Year Bond Yield Spread Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

The yield curve has shrunk so much that it registered its lowest point in nearly 10 years, at 75 basis points earlier in the week. Right after the November 2016 election, the 2-10 spread vaulted all the way to 134 basis points, so the decline since then reflects a very significant shrinkage. The yield curve was never this flat during the tenure of President Obama. Mr. Obama’s shrunken 2-10 spread record was 76 basis points right after Brexit, so by that yardstick Mr. Trump faces a more shrunken yield curve than Obama.

About That Fed “Independence”

To be fair to Mr. Trump, his yield curve shrinkage is not necessarily his fault. Most of the cold water being thrown on Mr. Trump’s yield curve comes from the Federal Reserve, which is in the process of unwinding its infamous $4.5 trillion balance sheet as well as hiking the fed funds rate that has now risen to 1.25%. These fed funds rate hikes came before the balance sheet unwinding – which I characterize as “quantitative tightening,” albeit in baby steps. Fed funds rate hikes affect the 2-year note yield more, while quantitative tightening affects the 10-year note yield more. Since the fed fund hikes came first, the 2-10 spread has been falling.

United States Central Bank Balance Sheet versus United States Fed Funds Rate Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

In the past, before quantitative easing became part of the Fed’s monetary policy, the yield curve would shrink on its own due to normal market forces. The 10-year yield would decline as the fed funds rate rose and the outlook for inflation and economic growth would deteriorate. This time the shrinkage seems significantly more “engineered,” given the intricacies of quantitative tightening.

Observing the Fed’s gargantuan balance sheet expansion since 2008, I have often thought about the words of one of my finance professors in graduate school who told our class more than once that in his opinion the office of the Chairman of the Federal Reserve carried more power over the economy than the office of the President of the United States. At the time, I dismissed his view as an amusing aside, but after 20 years in the trenches of the fascinating world of finance, I have to think my finance professor was right.

I think that if the Federal Reserve Board of Governors wanted to drive Mr. Trump out of office, or at least lean on the scales to affect the 2018 mid-term elections, they could adjust the rate of their quantitative tightening. Given the fact that such quantitative tightening happens at a time of non-existent inflation, one has to wonder what the Fed’s true objective is, as the ultimate outcome could be rather deflationary.

United States Inflation Rate Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

Of course, various Fed Governors have made the repeated point over the years that they are apolitical and that they always worry about the perception of how any Federal Reserve action may be perceived in the political context. Such Fed statements are all fine and dandy, but if one were to use the time-tested practice of taking all official statements, not just the Fed’s, with a grain of salt, one could see the problem of concentrating that much power in what is in effect an unelected office.  (For more on the political pressures and power of the Federal Reserve, see the December 14, 2016 MarketWatch column by Greg Robb, “Not Hero nor Zero: The Complicated Legacy of Alan Greenspan.)

European and Japanese Central Banks' Balance Sheets Surpass Fed's Balance Sheet Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

Appreciating the role of central banks as major countercyclical forces in the global economy, I have to say that I do not believe that most global central banks are truly independent. That is true for the Federal Reserve, the Bank of Japan, the European Central Bank, and especially for the People’s Bank of China.

The world’s major central banks opened a Pandora’s Box with this quantitative easing business. I am not sure the Fed will close Pandora’s Box at their present rate of quantitative tightening. My analysis tells me that the next big financial crisis is centered on China due to years of runaway credit growth that has driven the total leverage in their economy from 100% debt-to-GDP ratio to 400% in less than 20 years.

Watching the Fed, ECB, and BOJ balance sheets balloon by trillions surely does not make me feel good.

Sector Spotlight:

*All content of "Sector Spotlight" represents the opinion of Jason Bodner*

What’s Worth More – a Ton of Gold or $100 Bills?

by Jason Bodner

The other night, my wife and I were having dinner with friends, one of whom told me a mind-blowing story. As he set out on a recent long flight home from a business trip, he struck up a conversation with his neighbor. Inevitably, these chats turn to the question, “What do you do for a living?” My friend has a unique job, owning an international medical company, but his seat-mate said he is an arms dealer. He procures and resells arms to U.S.-backed countries – all with the blessing and backing of Uncle Sam.

When I heard his story, I conjured visions from the recent movie War Dogs, which portrayed deals paid with literal pallets of U.S. cash moved by forklift from dubious sources. I don’t think I’ll ever know how a real arms transaction settles, and perhaps that’s a good thing. Ironically, this is not the first arms dealer I have heard of directly; in fact I, too, have met a major arms broker… it must be something about Florida.

Pallets of Cash in War Dogs Movie Image

One $100 bill is light, but a pallet of $100 bills totaling $100 million weighs a metric ton. By comparison, a metric ton of gold is worth about $40 million. (A metric ton equals one million grams, or 2,205 pounds.)

Gold is valuable due to its scarcity. According to recent studies, humans have mined only 165,000 tons of gold throughout all human history, but a new discovery was just revealed. Scientists last week announced that two neutron stars collided and created what is estimated to be perhaps one quintillion tons of gold.

Neutron Star Gold Production Image

We humans desperately try to impose order and inflexibility in an overwhelmingly chaotic universe in constant flux. The same is true for the stock market and its sectors. As the markets keep grinding higher to new all-time highs, some investors feel increasingly nervous. Investors wonder: “When will it fall?” Recently we haven't seen many signs of it slowing. Last week I went into several reasons why I believe the market is headed higher. Nothing is changed in the past week nor do I expect it to in the near future.

InfoTech is Up Over 30% Year-to-Date

Information Technology was only up 0.97% for the week – the sixth best-performing sector for the week, even though it has been the best performing sector for the first three weeks of October and it is up 30.9% for 2017 to date, more than twice the S&P’s YTD gain. I keep harping on the outsized earnings and revenue growth of the sector, which is in stark contrast to the internet bubble of the late 90’s.

Financials and Health Care continue their respective marches higher as well. The sagging performance of Real Estate versus the soaring performance of Financials echoes a sentiment of higher rates to come. For October so far, the only notable weak spots are Telecom with its very small universe, and Energy.

Standard and Poor's 500 Weekly, Monthly, Quarterly, and Semiannual Sector Indices Changes Tables

These sector tables should make one thing clear. The bull market is pervasive across most sectors. Over the last six months, only Consumer Staples and Telecom are in negative territory. Whether you like it or not, trend-following is a common trading strategy that has shown great success throughout history. Any trading strategies – whether based on value, bargain-hunting, or momentum – all inherently look for a trend to develop since, once you buy an asset, the only way to make money is for that asset to trend higher.

One of the beauties of trend-following is that in order to know when to trade, one must wait to observe the trend beginning and only then hop on board and hope to follow it. This is a strategy that works well in a chaotic landscape. In financial markets, trends develop and disappear, but right now no one can argue that the trend is up. Remember, the trend is your friend – until it bends.

Lao Tzu said: “Life is a series of natural and spontaneous changes. Don't resist them - that only creates sorrow. Let reality be reality. Let things flow naturally forward in whatever way they like.”

Lao Tzu Quote Image

Your next airline trip could find you seated next to a friendly car dealer, a broker-dealer, or it could be a wheeler-dealer, or even a weapons dealer. It's all relative – let it happen. Listen and learn.

A Look Ahead:

*All content in this "A Look Ahead" section of Market Mail represents the opinion of Louis Navellier of Navellier & Associates, Inc.*

Could We Suffer Another 1987-Style Crash?

by Louis Navellier

Since last week marked the 30-year anniversary of the October 19, 1987 market meltdown, the financial media could not help themselves.  They got an early start on Halloween by attempting to scare investors.  In fact, several of our money management clients asked if they should lock in their profits and get out of the stock market.  Since I am finalizing a new white paper that warns that the Robo-Advisors could trigger a brief market meltdown, I thought that I would highlight some of the 1987 research I’ve been reading.

Barron’s featured a credible review entitled, Black Monday 2.0: The Next Machine-Driven Meltdown (October 16, 2017).  This article highlighted the recent “quant quakes” and “flash crashes” that struck on May 6, 2010 and August 24, 2015.  As the volume of machine-driven trading continues to steadily rise, the trading algorithms have had the positive benefit of providing liquidity and making financial markets more efficient, but they also have severe liquidity limits when overloaded by extraordinarily large orders that could “break” most trading systems.  In other words, poorly designed algorithms are ignoring trade volume and liquidity limits, so in the end, they are designed to fail, just like portfolio insurance failed in 1987.

Trading algorithms that do not have liquidity restraints are destined to ultimately fail.  The best analogy is that it is physically possible to push a watermelon through a keyhole, but it’s going to be extremely messy!

Another helpful review from October 16 was a MarketWatch article entitled, “Would ETFs hold up in a 1987-style crash?”  The article asked two more key questions in its subtitle: “Would ETFs exacerbate or limit a decline?  Would they have functioned properly at all?”  This article pointed out how a stock market crash in 2017 or later would be entirely different than it was in 1987, due largely to the explosion in ETFs.

There is no doubt that the influence of ETFs is growing.  In 2016, 14 of the top 15 securities – as measured by the highest trading value and trading volume – were ETFs.  According to Credit Suisse, ETFs accounted for 23% of all U.S. trading in terms of value and 30% in terms of volume in 2016.  Since ETFs do not trade at their underlying net asset value (NAV), but instead typically trade at premiums (on up days) and discounts (on down days), reckless Robo-Advisors can overwhelm automated trading systems with excessive volume.  In such cases, these premiums and discounts could widen from a negligible 0.1% to a potentially devastating 35% or more.  This is exactly what happened during the flash crash on August 24, 2015, when large liquid ETFs traded at up to 35% intraday discounts to their NAV.

The MarketWatch article pointed out that UBS strategists concluded that “if there is a ‘rush to the exit’ an ETF will likely trade to a discount that’s influenced by the volatility and the liquidity of the underlying market.”  Just how much ETFs will exacerbate a market decline remains unknown, but my new white paper is predicting that the Robo-Advisors could trigger another market meltdown due largely to poorly designed algorithms that can overload fragile trading systems with excessive volume.

Speaking of meltdowns, Treasury Secretary Steven Mnuchin issued a stern warning to Congress to pass his proposed tax cuts or they risk blowing up the stock market.  Specifically, Mnuchin said, “There is no question that the rally in the stock market has baked into it reasonably high expectations of us getting tax cuts and tax reform done.”  He added that “to the extent we get the tax deal done, the stock market will go up higher.  But there’s no question in my mind that if we don’t get it done you’re going to see a reversal of a significant amount of these gains.”  Yikes! This seems a bit desperate to me and I suspect that he may have jinxed himself with a threat that Congress risks hurting the stock market if it does not pass tax cuts.

Housing Market Likely to Recover After Natural Disasters

Construction Worker Image

The Commerce Department on Wednesday announced that new housing starts declined 4.7% to an annual rate of 1.13 million in September compared to August.  In the past 12 months, however, housing starts are 6.1% higher than a year ago.  Single-family home starts are especially strong and running 9.1% higher than the same month a year ago.  There is no doubt that after the devastating flooding from Hurricane Harvey and now the horrific fires in Northern California, new home construction will pick up in the upcoming months.  The biggest problem that builders now seem to have is a shortage of qualified workers.

On Friday, the National Association of Realtors announced that existing home sales declined 1.5% in September vs. a year ago, the first monthly decline since July 2016.  Compared to August, existing home sales rose 0.7% to a 5.39 million annual pace.  August home sales were impeded by Hurricane Harvey and represented the slowest month this year.  September was the second slowest month.  Hurricane Irma also impeded existing home sales in September.  The current supply remains at a tight 4.2-month supply.

On Wednesday, the Fed released its Beige Book and openly discussed that it cannot find any evidence of inflation despite a labor shortage and the cost of some materials increasing.  Interestingly, all 12 Fed regional banks said companies “were having difficulty finding qualified workers.”  Labor shortages were especially acute in the construction, manufacturing, trucking, and health care industries.  The Beige Book survey said that the U.S. economy weathered three major hurricanes better than expected, even though these hurricanes dampened economic growth in September.  The Fed still seems to be on track to raise key interest rates in December to fight mythical inflation before it actually shows up.  However, growing infighting within the Fed between the doves and hawks might forestall any key interest rate increase.


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Past performance is no indication of future results.

FEDERAL TAX ADVICE DISCLAIMER: As required by U.S. Treasury Regulations, you are informed that, to the extent this presentation includes any federal tax advice, the presentation is not intended or written by Navellier to be used, and cannot be used, for the purpose of avoiding federal tax penalties. Navellier does not advise on any income tax requirements or issues. Use of any information presented by Navellier is for general information only and does not represent tax advice either express or implied. You are encouraged to seek professional tax advice for income tax questions and assistance.

IMPORTANT NEWSLETTER DISCLOSURE: The performance results for investment newsletters that are authored or edited by Louis Navellier, including Louis Navellier's Growth Investor, Louis Navellier's Breakthrough Stocks, Louis Navellier's Accelerated Profits, and Louis Navellier's Platinum Club, are not based on any actual securities trading, portfolio, or accounts, and the newsletters' reported performances should be considered mere "paper" or proforma performance results. Navellier & Associates, Inc. does not have any relation to or affiliation with the owner of these newsletters. There are material differences between Navellier & Associates' Investment Products and the InvestorPlace Media, LLC newsletter portfolios authored by Louis Navellier. The InvestorPlace Media, LLC newsletters and advertising materials authored by Louis Navellier typically contain performance claims that do not include transaction costs, advisory fees, or other fees a client may incur. As a result, newsletter performance should not be used to evaluate Navellier Investment Products. The owner of the newsletters is InvestorPlace Media, LLC and any questions concerning the newsletters, including any newsletter advertising or performance claims, should be referred to InvestorPlace Media, LLC at (800) 718-8289.

Please note that Navellier & Associates and the Navellier Private Client Group are managed completely independent of the newsletters owned and published by InvestorPlace Media, LLC and written and edited by Louis Navellier, and investment performance of the newsletters should in no way be considered indicative of potential future investment performance for any Navellier & Associates separately managed account portfolio. Potential investors should consult with their financial advisor before investing in any Navellier Investment Product.

Navellier claims compliance with Global Investment Performance Standards (GIPS). To receive a complete list and descriptions of Navellier's composites and/or a presentation that adheres to the GIPS standards, please contact Navellier or click here. It should not be assumed that any securities recommendations made by Navellier & Associates, Inc. in the future will be profitable or equal the performance of securities made in this report. Request here a list of recommendations made by Navellier & Associates, Inc. for the preceding twelve months, please contact Tim Hope at (775) 785-9416.

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It should not be assumed that recommendations made in the future will be profitable or will equal the performance of the securities in this list. Click here to see the preceding 12 month trade report.

Although information in these reports has been obtained from and is based upon sources that Navellier believes to be reliable, Navellier does not guarantee its accuracy and it may be incomplete or condensed. All opinions and estimates constitute Navellier's judgment as of the date the report was created and are subject to change without notice. These reports are for informational purposes only and are not intended as an offer or solicitation for the purchase or sale of a security. Any decision to purchase securities mentioned in these reports must take into account existing public information on such securities or any registered prospectus.

Past performance is no indication of future results. Investment in securities involves significant risk and has the potential for partial or complete loss of funds invested. It should not be assumed that any securities recommendations made by Navellier. in the future will be profitable or equal the performance of securities made in this report.

Dividend payments are not guaranteed. The amount of a dividend payment, if any, can vary over time and issuers may reduce dividends paid on securities in the event of a recession or adverse event affecting a specific industry or issuer.

None of the stock information, data, and company information presented herein constitutes a recommendation by Navellier or a solicitation of any offer to buy or sell any securities. Any specific securities identified and described do not represent all of the securities purchased, sold, or recommended for advisory clients. The reader should not assume that investments in the securities identified and discussed were or will be profitable.

Information presented is general information that does not take into account your individual circumstances, financial situation, or needs, nor does it present a personalized recommendation to you. Individual stocks presented may not be suitable for you. Investment in securities involves significant risk and has the potential for partial or complete loss of funds invested. Investment in fixed income securities has the potential for the investment return and principal value of an investment to fluctuate so that an investor's holdings, when redeemed, may be worth less than their original cost.

One cannot invest directly in an index. Results presented include the reinvestment of all dividends and other earnings.

Past performance is no indication of future results.

FEDERAL TAX ADVICE DISCLAIMER: As required by U.S. Treasury Regulations, you are informed that, to the extent this presentation includes any federal tax advice, the presentation is not intended or written by Navellier to be used, and cannot be used, for the purpose of avoiding federal tax penalties. Navellier does not advise on any income tax requirements or issues. Use of any information presented by Navellier is for general information only and does not represent tax advice either express or implied. You are encouraged to seek professional tax advice for income tax questions and assistance.

IMPORTANT NEWSLETTER DISCLOSURE: The performance results for investment newsletters that are authored or edited by Louis Navellier, including Louis Navellier's Growth Investor, Louis Navellier's Breakthrough Stocks, Louis Navellier's Accelerated Profits, and Louis Navellier's Platinum Club, are not based on any actual securities trading, portfolio, or accounts, and the newsletters' reported performances should be considered mere "paper" or proforma performance results. Navellier & Associates, Inc. does not have any relation to or affiliation with the owner of these newsletters. There are material differences between Navellier & Associates' Investment Products and the InvestorPlace Media, LLC newsletter portfolios authored by Louis Navellier. The InvestorPlace Media, LLC newsletters and advertising materials authored by Louis Navellier typically contain performance claims that do not include transaction costs, advisory fees, or other fees a client may incur. As a result, newsletter performance should not be used to evaluate Navellier Investment Products. The owner of the newsletters is InvestorPlace Media, LLC and any questions concerning the newsletters, including any newsletter advertising or performance claims, should be referred to InvestorPlace Media, LLC at (800) 718-8289.

Please note that Navellier & Associates and the Navellier Private Client Group are managed completely independent of the newsletters owned and published by InvestorPlace Media, LLC and written and edited by Louis Navellier, and investment performance of the newsletters should in no way be considered indicative of potential future investment performance for any Navellier & Associates separately managed account portfolio. Potential investors should consult with their financial advisor before investing in any Navellier Investment Product.

Navellier claims compliance with Global Investment Performance Standards (GIPS). To receive a complete list and descriptions of Navellier's composites and/or a presentation that adheres to the GIPS standards, please contact Navellier or click here. It should not be assumed that any securities recommendations made by Navellier & Associates, Inc. in the future will be profitable or equal the performance of securities made in this report. Request here a list of recommendations made by Navellier & Associates, Inc. for the preceding twelve months, please contact Tim Hope at (775) 785-9416.

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