GE Cuts Divy, Futs Weaker, Expectations Under Assault

***GE CUTS DIVIDEND BY 50% TAKING IT FROM 24 CTS/SH TO 12 CTS/SH.  CEO Flannery saying that

"We understand the importance of this decision to our shareowners and we have not made it lightly.  We are focused on driving total shareholder return and believe this is the right decision to align our dividend payout to cash flow generation".  

Now look - this was not UNEXPECTED at all...in fact the stock is down 36% ytd  and 21% since August when he took over......when rumors of a cut began circulating.....and investors have already reacted...so now that he has confirmed the cut - do not be surprised to see investors pile back in as it can't get much more negative than that......GE is trading a bit higher in pre-mkt trading after the news.....***

While stocks slipped on Friday – they were off their worst levels for the week – none of the broader action being driven by macro data points, fundamentals or earnings right now……nor should anyone expect that  to drive the action for the balance of the year.  Now - Yes,  global stock action this year has been helped by recovering economies, improved efficiencies,  central bank stimulus, improving confidence and EXPECTATIONS of fiscal reform........So now traders and investors must consider the implications of the Senate version of the tax bill…which – if you haven’t heard - is quite different than the House version -  and what that does to the fundamentals of the mkt. 

For the day - The Dow ended down 39 pts, the Nasdaq rose by less than 1 pt, the Russell ended the day flat and the S&P fell by 2.3 pts.  ON top of that – all 4 of these indexes posted weekly declines - although even those were relatively modest vs. what they could have been. 

Back to tax reform - The biggest difference is the 14 + months delay for any cut corporate tax cuts…..Remember this was the signature move, biggest economic growth provision that Trump has pushed and pushed. Both the Senate version and the House version differ in how and when to cut corporate and small business tax rates leaving investors and traders wondering if the current congress can deliver or just sit there and block Trump’s initiatives while hiding behind the confusion between the two versions of tax reform.

By now you realize that the House version has 4 tax brackets while the Senate version has 7 brackets.  Both bills tried to eliminate deductions to just charitable contributions and limited mortgage interest.   And then the fight began - High tax states went to the head of the class and screamed ‘not happening’ and so now congress is debating whether to allow any SALT (State and Local Tax) deductions against your Federal return…. With tremendous variability in State taxes - this becomes a subsidizing issue to decide whether to allow these tax deductions any longer...  The loss of SALT deductions will change the demographics in the US tremendously…..there will be a massive shift from these high tax states into NO tax states or lower tax states – in fact it is already happening  as business realize that work can get done from places like Florida, Texas, Nevada,  Tennessee, Washington (state) and even Wyoming – which by the way doesn’t  even have a corporate tax ……

The big banks  for one  - have shifted jobs – compliance, IT, back office etc. to places far away from NYC and the tri-state area – cutting salaries by 50% plus.  Hedge funds located along the northeast are now enjoying the benefits and quality of life that the Sunshine state offers – with 3 major airports, beautiful weather, 24 hr. golf, beautiful ocean, and this thing called the internet – NYC/Greenwich Ct have seen a mass migration south and this was before this debate even started – so imagine what happens if they eliminate those SALT deductions. 

Estate taxes?  Both versions keep them around for a few years - the House version drops estate taxes completely by 2024 and the Senate version keeps it around forever at a lower tax rate. And what about the ‘punishment taxes levied upon us in the Obamacare legislation?  Again – take a nothing done!  Neither version eliminates those taxes, so you can bet that voters have to be asking why not?  The House expects their version to be passed by Thanksgiving - which by the way is 10 calendar days away or 8 working days away….REALLY?  And the Senate version?  Anyone’s guess…But then they have to merge the 2 plans into 1 plan in what is known as a compromise version before it gets anywhere near the White House.

So, while the idea of tax reform/cuts sounded exciting - not happening in 2017 and nor does it look like it will happen in 2018 and so investors will lose patience and start to re-price bloated, inflated asset prices and that is what we began to see last week.  Look solid earnings have certainly helped stocks rise, and improving economy is always a good addition -  With 90% of the S&P reported – 73% of listed companies posted better numbers and solid growth.  But the fact is that investors have bought the mkt up in anticipation of tax and fiscal reform – and so if we don’t get any – then prices will have to adjust.   Toss in rising rates with no fiscal reform and you just complicated the picture even more. 

And the junk bond mkt is sending smoke signals - but are investors paying attention?  (Junk Bonds - known as HI-YIELD Bonds are 'non-investment grade bonds'.  HI-YIELDS sounds so much better than JUNK, no?   They typically carry a BB rating or lower and can be unsecured or partially secured, they pay higher rates than their cousins - 'blue chip corporates'  because of the possible greater risk of default)  

Now in a strong healthy bull market junk bonds usually do well as the economy hums along and times are good... mirroring the action in the broader mkt..... - until they don't and when that happens it causes some concern for the overall strength of stocks as well.  If you are close to a Bloomberg machine take a look a the S&P vs. the HYG - ETF.  Since late August - the two have moved in opposite directions....with the HYG ETF falling 2.5% - breaking all supports and now back at March 2017 levels at $87.11.  Support is at $86 on this ETF - so keep your eyes on it.    (The S&P is up 7% in the same time period - as investors anticipated earnings and tax reform).  So as the HYG makes lower lows and lower highs - you can bet that investors will start to pay more attention to what this is telling us.  

US FUTS are down 5 pts....after the GE announcement  and weaker global mkts.  There are no eco reports to speak of today so expect the focus to remain on DC and the tax bill. The mkt is expecting a full vote on the House bill and a committee vote in the Senate by the end of the week.  Failure will put pressure on the mkts as investors begin to discount anything that DC says.   
 
Keep your eyes on tech sector  -XLK (Tech ETF)  and FDN (Internet ETF), Bio-Tech (XBI),  Financials - XLF, Industrials (XLI) and energy (XLE).    If there are signs of more profit taking, those sectors will underperform and stocks could drop further.  Last week’s lows in the S&P at 2565 is still an important support- a break here will test the 50 dma at 2540. 

No FED speakers today..but tomorrow watch for Yellen, Draghi and Kuroda (BoJ) speak at an ECB conference on central bank communication techniques.  ST Louis Bullard will be speaking on monetary policy and the economy.

Overnight Asian Stocks closed mixed - Japan lost 1.3% - banks, tech and financials all lower…Australian stocks lower as the financials weighed heavy on that index as well.  Hong Kong and China bucking the trend – rising by almost 0.5%.  Bank stocks rally after China said that they would ease foreign ownership restrictions. Alibaba in the news – as the Chinese celebrated ‘singles day’ (opposite of Valentine's Day) on 11/11 (see the singles?) spending nearly $25 bil in one day….that was up 40% over last year’s $17.8 bil spend  - I’d like to know what the heck they are buying in one day? BABA trading up $1 at 187.68 this morning on that news.

 IN Europe - mkts there are lower as the focus turns to the broader political events....Will PM Theresa May be living in 10 Downing St much longer?  The Pound dropped helping to send UK stocks up while the rest of Europe is lower.  Banks and financials under pressure on the back of confusion in the US over tax reform.....FTSE +0.10%, CAC 40 - 0.43%, DAX - 0.52%, EUROSTOXX - 0.34%, SPAIN -0.16% and ITALY - 0.54%.

OIL is up 0.08 ct/barrel at $56.81.  Oil's rise to $58 last week was a direct result of the political infighting  in Saudi Arabia that could jeopardize global oil supply... NEWS FLASH..... it does not.  The House of Saudi will maintain export production at all costs. The Kingdom is in a tough position and needs cash to fund its heavily indebted infrastructure campaign, begun more than 10 yrs ago....before the American's discovered  shale and blew $100/barrel oil out of the desert......  Recall that the DOE (Dept of Energy) reported U.S. production has set a new record of 9.6 Mil b/d and OPEC has suspended quotas for Libya, Nigeria and Iraq over their own political instability. So the world is awash in supply - no matter what they tell you......, I suspect we will see oil come back in a bit - to the low $50's. 
 

Simple Roasted Cornish Hens

This is such a simple yet good dish.  The crisp skin dressed in a butter lemon sauce make these Cornish hens perfect for a simple meal;
 
For this you need:
4 Cornish hens - cut in half lengthwise. s&p, olive oil, 1/2 stick of butter and the fresh lemon juice - maybe 3 or 4 depending on size.  
 
Melt the butter and add the lemon juice - set aside. 
 
Preheat oven to 400 degrees. 
 
Now - season the hens with s&p - set aside.  Next - using a cast iron pan - cover the bottom of the pan with the oil and get it really hot.  Now put the hens in the pan - skin side down and then place in the oven and roast for 20 mins or until done.  Remove the pan from the oven and then remove the hens from the pan.  Let the fat drain off.  Plate each hen and then drizzle with the butter lemon sauce.   Serve with you favorite vegetable and a nice mixed green salad  dressed with s&p, lemon juice, olive oil and oregano. 
 
Simple yet delicious and it doesn't take more than 35 mins start to finish. 
 

  
Buon Appetito.