Tax Loss Selling?

Lessons in TAX LOSS SELLING......Pair off the GE losses against the big gains in the FAANG stocks - just sayin.....
 
OK…Ok - Let’s start with the ELEPHANT in the room….GE - General Electric.  It lost another 7% yesterday after CEO Flannery made what was perceived as even worse presentation than what the street expected….in the early hours (pre-mkt trading) yesterday - traders thought that maybe the worst was behind it and that the 50% cut in the dividend - while a bit bigger than expected - would serve to stop the bleed and allow GE to begin to right the ship - the stock was trading UP……
 
Well that was before Flannery took to the stage to tell the whole story…..Once he began - some investors and traders ran for the hills and hit the SELL button - sending the stock plunging - While the buyers - and there were plenty of buyers - chose to sit back and let the sellers have their way - I mean Why stand in front of a moving train? Why should I pay $23 when there are multiple people/asset managers that want to sell it at the mkt?  "Get me out - mentality"...It's simple supply and demand - Econ 101. Mkt forces at their best....
 
GE lowered 2018 guidance by nearly 50% now saying that they expect to earn $1 - $1.07/sh vs. the $2 share expectation (see there's that word again - EXPECTATION) and they also lowered their  2019 guidance, slashed the divy by 50% and is set to unload a range of non-core businesses……but it stopped short of an “AT&T” style breakup - something that some analysts/strategists had been calling for….so this set the tone….
 
 Investors like Janna Sampson - co-chief in­vest­ment of­fi­cer of Oak­Brook In­vest­ments, which owned 1.1 mil­lion shares at the end of Sep­tember were not happy -
 
“They didn’t lay­out as much as we were ex­pect­ing to see” -
 
She was ex­pect­ing a div­i­dend cut but was also look­ing for the com­pany to make a big­ger move to shake it up and was clearly disappointed….she is now con­cerned that the long-term plan isn’t enough and that her $20 mil investment will be ‘dead money’ for the foreseeable future. Now think about it - GE is now down 41% ytd - so Janna's investment in January was worth 32 mil bucks, by Friday night's close it was worth 26 mil bucks and yesterday she lost another $7 mil - so of course she is disappointed and because she does not see the turnaround after yesterday's presentation - of course she thinks it's DEAD MONEY.  So what does she do?  Does she sell it and take the hit or does she sit with it and let it ride?  Think of the tax loss selling that Johnny Flannery just created!     Such is life - there are some who see the glass half empty while others see it as half full - and that ‘s what makes a mkt……
 
(A quick Bloomberg search reveals the top fund managers with big exposure to GE and at these levels we see that:   Vanguard - owns 600 mil shares and they are a BUYER, Blackrock  owns 500 mil shares and they are a BUYER, State St - owns 350 mil shares and they are a SELLER, Capital Group owns 250 mil shares and they 'like' the stock, Northern Trust is a net SELLER  while Franklin Resources 'loves' the stock....and so the sun rises again - fascinating really........)
 
Now overall the mkt appears to have held in there - even the Dow managed to eke out a gain even while GE was getting slaughtered….GE is a Dow component - and so yesterday’s action in GE (-7%) only took 10 pts out of that index - vs. TRV which was only down 1.6% took $15 out of the index - How could that be you ask?  Remember - the Dow is a PRICE WEIGHTED INDEX (see last week's note) GE is a $20 stock while TRV is a $133 stock thus TRV has more of an impact - So how did the DOW manage to close UP on the day....think BA +0.6%, MCD + 1.08% and UNH + 0.75% -  while these stocks were up only fractionally - they are high priced issues....... $262, $167 and $212 respectively..... Capisce? 
 
The S&P rose by 2 pts and the Nasdaq ended the day up 6 pts....as both of these indexes are MKT Cap indexes - so in reality they are a better and broader representation of what is really going on.....and so the mkt churns and waits for inflation data today - PPI - exp of +0.1%, Tomorrow CPI exp of +0.1%.  This has been a big question mark.   You would think the hurricanes would be a 'deflationary event' - as it disrupted businesses  and destroyed property but on the other hand, oil refineries were shut down for a while as a result and oil prices surged higher.... So anything is possible......If inflation is reported higher this week watch the dollar rally - as it would be another data point that confirms Decembers rate hike......and if the dollar rallies then look for commodity prices to sag...(think inverse relationship - higher dollar/lower commodity prices and lower dollar/higher commodity prices)   With market breadth deteriorating and junk bond prices plunging investors need to assess current mkt risk, especially with another rate hike on the horizon and a low probability that tax cuts will become a reality. 

The mkt is also awaiting the House vote on the tax reform bill.   The House is targeting this Thursday to bring  the tax reform bill to the floor for a vote but the President is still fighting for the removal of the Obamacare mandate, which the House and Means Committee has already decided against.  The probabilities suggest that  the tax bill will be passed in the House but not so much when it comes to the Senate. Naturally, the Democrats are opposed to anything that the GOP presents..... so the Republicans must find the Senate votes within to pass the bill and with Sen McCain out front and against it - how many others will follow suit? 
 
This morning we heard from HD - and they rocked the house...blowing thru the estimates....$1.84 vs $1.81.....Same store sales crush it.....rising 7.9% vs. the expected 5.8% - think Irma, Maria and Harvey.....
 
US futs are down 2 pts in early trading.....as the day begins.....eco data, some earnings and more discussion around tax reform will be the theme of the day....it appears that we remain in the 2565/2590 range.....with no reason to break out. 
 
In Asia - Chinese Production, Retail Sales and Fixed Asset Investment all disappointed vs. the expectations in October, raising growth concerns about the world’s No. 2 economy. Asian mkts all closed slightly lower.
 
In Europe,  I told you that Yellen, Draghi, Carney, and Kuroda would all be speaking on a panel in Frankfurt however nothing specific was mentioned so the mkt is ignoring this event.  European mkts are down in sympathy as well but nothing to get alarmed about.  All down between 0.10% - 0.25%, 
 
OIL is down 0.33ct/barrel at $56.42.  Gold is off $5 at $1,273 as it once again tests long term support right here. 
 

Shells w/Sweet Sausage, Pancetta and Cannelloni Beans 

This is a great dish for a cold night…Light the fire, curl up on the couch......
 
For this you need:  2 cans of cannelloni beans, garlic, thick-cut pancetta, cut into small cubes, sweet Italian sausage, removed from casing, large sliced onion, olive oil, vegetable broth (I like to use chicken broth), water, s&p, finely chopped parsley, fresh grated Parmegiana, and a box of medium shells.

In a saucepan over med hi heat  - add some olive oil and the sliced garlic – sauté for 3 or 4 mins…now add the sliced onions and sauté until soft and translucent – careful not  to burn the onion…..When ready…add in the pancetta and sausage and allow to brown up nicely.  Using your wooden spoon – break up the sausage as it cooks.  

Now add in the 2 cans of Cannelloni beans – juice and all and mix, allowing the beans to marry the other ingredients.  Next add the broth and the water at a 2:1 ratio….(2 c broth, 1 c water or 4 c broth, 2 c water…see the pattern?).  Let this simmer on the stove for 15 mins….stirring occasionally.   Now bring it to a boil (adding more water if you need to remembering that the pasta grows and sucks up the liquid) – toss in the shells  - you don't need a whole pound here....the pasta grows and sucks up the broth - so maybe like a half pound - depending on how much you are making and cook until al dente – maybe 8 mins or so – adjust for taste and serve in warmed bowls – adorn with the parsley and if you like a drizzle of olive oil.   Have plenty of fresh grated parmegiana cheese on the table for your guests.

You can serve this with toasted garlic bread – traditional “Pane di Casa” is the perfect texture
 

  
Buon Appetito.