“Forty-three years after economist Arthur Laffer sketched
a pictorial representation of individuals’ response to changes in income tax
rates, economists still can’t agree if tax cuts pay for themselves: entirely,
in part, or not at all. In a capitalist system, a tax rate of
0% or a tax rate of 100% will
yield no revenue for the government: in the first instance, because there is no
tax levied on labor income; in the second, because there is no labor income to
tax because most of us would refuse to work without compensation…
…In a recent paper, Veronique de Rugy and Matthew
Mitchell, senior research fellows at George Mason University’s Mercatus Center,
reviewed the financial literature and found no consensus on the spending multiplier [for Government spending and its
impact on the economy]. The
estimates of the effect of a $1 increase in government spending ranged from
+3.7 (implying $2.7 of additional private-sector growth) to -2.88 (a
displacement of $3.88 of economic activity.)” Story at…
http://www.marketwatch.com/story/the-unanswerable-question-do-tax-cuts-pay-for-themselves-2017-05-03
My cmt: If tax cuts pay for themselves, why have we been
running a deficit since Ronald Reagan made huge tax cuts? Further, GHW Bush and
Bill Clinton combined (in a little over 4-years) to produce one of the largest
tax hikes in history. That was followed by the one of the biggest
booms in history during the dot-com era. One wonders whether taxes matter. The
answer is they probably matter a lot; it’s just hard to see in the short run. Over
the longer term the data isn’t clear., but there are red flags out there.
Government spending is now 35% of GDP (Gross Domestic
Product). That’s up from 20% of GDP in 1950. GDP growth was 4% in 1950; it’s
below 2 now. This is the first time in history that there are more businesses
failing than are being started.
Are tax cuts good or bad? … ask an economist. Personally
I hate to see deficits continuing to climb.
MARKET REPORT / ANALYSIS
-Monday the S&P 500 was unchanged at 2399.
-VIX fell about 8% to 9.77 at the close.
-The yield on the 10-year Treasury rose slightly to 2.388%.
RSI, (SMA-14)
Relative Strength measures the size of up-moves vs.
all-moves on a 14-day moving average basis and presents the result as a
percentile. For example if the RSI is 85, it means that the size of up-moves
are in the 85th percentile when compared to all moves over the 14-day
period. If ALL moves had been up, RSI would be 100 – a definite short term
sell indicator. For my purposes, 30 is oversold (suggesting a turn-around to
the upside) and 80 is overbought. If the up-moves and down-moves are equal in
size over the 14-day period, RSI would be 50.
RSI hit 79 today. 80 is “overbought”; that’s a concern
for the bulls, at least in the short run. My Sum of 17–indicators dipped from 6
to 2 on the day. That’s not a big deal
since this value jumps around a lot. The
10-day value is down, though, so we may be seeing a beginning of a short-term
slowdown (or not – it’s too early to say). Market Internals have deteriorated
and that’s worth watching.
Long term, VIX below 10 is a worry. That has happened before and it presaged major
tops. It could be signaling a major bear market, though it may be 2018 before THE
TOP is in. It really depends on the Fed and how the markets react to Fed rate
hikes.
CURRENT RANKING OF 15 ETFs (Ranked Daily)
The top ranked ETF receives 100%. The rest are then
ranked based on their momentum relative to the leading ETF. While momentum isn’t stock performance per
se, momentum is closely related to stock performance. For example, over the 4-months
from Oct thru mid-February 2016, the number 1 ranked Financials (XLF) outperformed
the S&P 500 by nearly 20%.
*For additional background on the ETF ranking system see
NTSM Page at…
I would avoid XLE; its 120-day moving average is falling.
No.1 remains Technology (XLK). I continue to hold the
XLK.
SHORT-TERM TRADING PORTFOLIO - 2017 (Small-% of the
total portfolio)
No positions. Long is the call now though, as it has been
since the Index closed above the 50-dMA. The
call may be neutral soon.
MONDAY MARKET INTERNALS (NYSE DATA)
Market Internals
are still neutral on the market, but they deteriorated today.
Market Internals are a decent trend-following analysis of
current market action, but should not be used alone for short term trading.
They are usually right, but they are often late. They are most useful when they diverge from
the Index. In 2014, using these internals
alone would have made a 9% return vs. 13% for the S&P 500 (in on Positive,
out on Negative – no shorting).
LONG TERM INDICATOR
Monday, Price was positive; Sentiment was negative;
Volume & VIX indicators were neutral.
MY INVESTED STOCK POSITION:
TSP (RETIREMENT ACCOUNT – GOV EMPLOYEES) ALLOCATION
I increased
stock allocation to 50% stocks in the S&P 500 Index fund (C-Fund) Friday, 24
March 2017 in my long-term accounts, based on short-term indicators.
Remainder is 50% G-Fund (Government securities). This is a conservative retiree
allocation, but I consider it fully invested.
