Digesting the Gains, or Prepping for Pain?

The market had a nice gain last week, as stocks rebounded to the tune of about 1% on the major averages.

That rebound came after the prior week’s pullback, when stocks fell victim to the disappointment on healthcare reform.

In early Monday trade, the market displayed a bit of digestion from last-week’s gains. Here on the second quarter’s first day of trading, the major indices closed slightly lower.

Right now, it appears the market is waiting on Washington again.

In particular, markets now await any material progress on the big issue in Wall Street’s eyes … corporate tax reform.

Given the healthcare-bill debacle, there’s growing concern that Republicans are more fractured than ever, and that a deal in corporate tax reform is by no means a certainty.

At the crux of any tax reform is the issue of a border tax. (A sort of import tax on goods coming into the U.S.)

The more fiscally responsible Republicans in Congress are going to insist on a border tax. This could serve to generate enough revenue to help offset the lost revenue from a corporate tax cut.

Yet there is strong disagreement on this front. A border tax will hurt a lot of retail businesses, and increase the price of goods and services for every American.

So, the idea of a corporate tax cut is indeed good for corporate profits at large. That doesn’t mean it’s going to be favorable for the Average Joe, though. And that’s a conflict this Congress is bound to wrestle with.

Hope of corporate tax reform is high atop Wall Street’s agenda, but it isn’t the only thing. This week we also get key economic data in the form of the March employment report (due out Friday morning).

For the current rally to continue, economic data must remain robust. A strong jobs number that comes in hot enough to keep the bulls running … but not too hot as to usher in more than three total rate hikes in 2017, will be key.

So, stay tuned for the data, and the next word out of Washington.

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If you’ve been reading the Afternoon Edition for some time, you know that I love to hear from readers on all the various topics we cover in this publication, and also in our Morning and Weekend Editions.

Last week, my colleague Grant Wasylik wrote a great piece titled, "Investing in Veterans: Life, Liberty & 5% Interest for All."

In the article, Grant told us about the StreetShares community, which brings together business owners in search of funding and investors looking for both "financial" and "social" returns.

The company’s Veteran Business Bonds, or "VetBizBonds," offer a fixed interest rate of 5% over a one-year term. That’s pretty big in the world of rock-bottom Treasury yields and near-zero interest paid on cash.

One reader, Davis, wrote in to us for more information on StreetShares, asking:

I am interested in your recent suggestion to check out Street Shares Inc. Do you have any experience that would help us understand how reliable this would be as an investment? The interest rate of return looks very attractive, but just how secure would it be? Any input would be helpful.

Here’s Grant’s response to the question:

Davis, while I can’t provide individual investment advice, I can tell you that StreetShares has seen veteran business owners repay more than 1,000 business loans. That’s a pretty solid track record for its three years (so far) of lending.

VetBizBonds also are backed by a diverse portfolio. Additionally, StreetShares pre-funds any expected annual losses with a provisional fund.

Still, keep in mind that StreetShares is not a bank, and their accounts are not covered by the FDIC. However, their borrowers have a great track record on repayments because they know

StreetShares is a two-way street of veterans helping veterans. And the company keeps credit standards high because they actually invest in every loan they make.

Thanks Grant. As always, great stuff from you!

Editor’s note: Grant has shared many winning ideas in this e-letter. (And has the track record to prove it.) He also has two trading services that were among our top five market-beating services in 2016. On top of that, one of those services produced the two biggest trade winners across the entire Uncommon Wisdom Daily universe last year. So when he has an idea, I think many of you will agree, it can truly pay to take action.

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Now for more great stuff, here’s our resident "big brain," Sean Brodrick, with some thoughts on the future of the U.S. dollar.


Mining for Money

3 Reasons Why the U.S. Dollar is Going Lower
By Sean Brodrick

The bobbleheads on Wall Street will tell you that the U.S. dollar is going higher.

But they’re wrong. Big-time.

And you can consider placing your bets now for when the long-dollar trade blows up in their faces.

So why do they think the dollar is headed higher? Rate hikes.

The U.S. Federal Reserve is signaling at least two 25-basis-point rate hikes before the end of this year. Heck, maybe more. Boston Fed President Eric Rosengren said the central bank should raise rates three more times this year.

Higher rates mean that Treasuries pay more interest. So you can get more interest on bonds denominated in U.S. dollars than in, say, euros.

That’s the theory. But other forces can push currencies around, too.

Let me point out three horsemen bearing down on the greenback right now …

Reason #1: Trump’s Tax Reform May Not Fly. The dollar is rising on optimism that tax cuts proposed by President Trump will sail through Congress. Those cuts, in turn, will stimulate business and boost the economy. Economic growth boosts the dollar.

Not so fast! The conservatives in Congress will balk at raising the deficit. More on that in a minute. So that means we need spending cuts to match the tax cuts.

There isn’t that much to cut. There’s the Defense budget, and Trump proposed raising defense spending. That leaves Social Security and Medicare.

So basically, the way to get tax cuts is to cut checks to Grandma. And Grandma votes. Grandmas vote in disproportionate numbers. Any Congressman who votes to cut Social Security might as well place a metaphorical gun in his mouth and pull the trigger.

Unless Trump has some miracle in his back pocket, tax cuts could be in trouble. That’s bad news for the dollar.

And speaking of the budget …

Reason #2: Watch Trump Bang His Head on the Debt Ceiling. Even if Trump changes nothing, he’s still going to bump up against the debt ceiling. It’s set to expire on April 28.

Do you remember when there was a battle over the debt ceiling in 2011? The government shut down briefly. It triggered the first U.S. debt downgrade in history. It also helped send gold to $1,900 an ounce.

We also narrowly avoided a government shutdown in 2013. Here’s where it gets interesting.

The hot-heads opposed to raising the budget ceiling in 2013 were in a group called the "Shutdown Caucus." One of the members of that caucus … was a guy named Mick Mulvaney.

Fast-forward. Now, Mulvaney is the Director of the Office of Management and Budget. In other words, he’s the head of the agency that prepares the federal budget.

I think Mulvaney might end up like the dog that finally catches a car. What the heck is he going to do? Propose big cuts to Social Security and Medicare? Good luck with that, Charlie.

If the government shuts down … and if the government balks, even briefly, at paying its debts … then this throws the full faith and credit of the U.S. government in doubt. As a debtor nation that depends on other countries buying our bonds, this is juggling dynamite.

Such a move would also kneecap the U.S. dollar.

Now let me show you one more thing that tells me the dollar is in trouble.

Reason #3: Dollar Downtrend. Here’s a chart of the greenback …

Lower highs and lower lows mean one thing — a downtrend. That’s what the dollar is in now.

I’m not saying the dollar is doomed. YOU can make that argument, but I don’t believe the world will get rid of its reserve currency overnight. I’ve marked strong support for the dollar on the chart. Maybe it will visit that level. Maybe it will bounce for other reasons.

This downtrend is happening despite anticipated rate hikes. So maybe ask yourself, what if the Fed doesn’t hike rates? What will the dollar do then?

Sure, we’ve had some good news on consumer confidence and manufacturing. But that’s the icing on a pretty disappointing economic cake.

For example, FactSet tells us that over past three months, first-quarter earnings dropped by 3.6% while the S&P 500 itself actually went up 5.8%.

To me, that sounds like a disconnect from harsh reality. One that could run headlong into the Woodchipper of Disappointment for all sorts of reasons.

Bottom line: The dollar is trending lower — even as gold is trending higher. What I’m going to do is use counter-trend zig-zags to add new positions. To ride that trend to potentially enormous profits. You should consider doing the same.


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I want to know what you think, so if you have a comment or question about today’s Afternoon Edition topic, or any of the topics we cover, let me know. All you have to do is leave me a comment on our website or send me an e-mail.

Good luck and happy investing,

Brad Hoppmann
Publisher
Uncommon Wisdom Daily

P.S. Sean Brodrick will be speaking at the Metals Investor Forum in Vancouver, Canada, on May 5th and 6th. It’s a private meeting of the best brains in Canadian metals and mining. And you’re invited. If you believe, as Sean does, that the small-cap miners and explorers are on the launch pad, you won’t want to miss this. Please join him, if you can. You can find more information here.