It's Everything


Mother's Little Helper portfolio was UP today +649.48 (+0.55%).

Overall GAIN YTD: +$1,970.41 (+1.69%).

According to CNN Money our benchmark index, the S&P 500 is up +9.62% Year To Date.

http://money.cnn.com/data/markets/sandp/

I'm Back

It's been a while since I've written here, I guess I've made up my mind to keep writing and answering all the questions I get. I'm happy that people find my perspective helpful. I am considering a name change from Mother's Little Helper to Stay Invested; we'll see. Your input on the name change would be appreciated.

What's Driving This Market?

If you had asked me back in July it would have been easy to tell you that the stock market was being driven by technology companies, specifically five companies contributed almost all of the gains in the market for 2018, Microsoft, Amazon, Apple, Netflix and Facebook. Alphabet ranked in the top 15 contributors.

But this week a shift started to appear. As the wall of worry seemed to get higher and wider with renewed trade war tensions, rising inflation and rising interest rates, the stock market digested it all and powered higher. The big change has been the growth in small cap stocks (the place where most of us work), industrial stocks (the companies that build stuff and make the equipment to build stuff), and the banks. YES! The Banks! Remember those guys, the people we still scream at for the financial crisis. Like it or not, without the banks our economy and the world economy doesn't move, so seeing the shares of bank stocks on the rise is good news for everyone that wants to see more prosperity. While a week doesn't make a trend, it is a glimpse through the economic it window into the near future. So while the pundit's are all screaming recession, please show me the data to support such an assertion.

Small Cap stocks as tracked by the Russell 2000 (IWO) are up 16.41% YTD, and just over 2% today alone. The ride up has been volatile, but the reward is fantastic; reminds me of a trip up The Going To The Sun Road in Glacial Park. The XLI, the ETF that tracks industrial's is up just 5.55% YTD, but 11.49% since July; a huge rally on optimism for future production, construction and investment in plants and equipment. The banks up just 3.3% YTD, have been down, volatile or just trading sideways most of the year, but since July are up 8.91%.

There's an old saying and it's true; you can't have a sustained bull market without participation from the transports. If the trains, trucks, planes and ships aren't moving stuff, the market can't grow higher. Year-To-Date the transports are up 5.15%, but since July, 8.91%. What's interesting about this number, aside from being identical to the banks, is that the transports would be higher if the U.S could find more truck drivers, train operators and pilots. There is literally a backlog of product waiting to be shipped because companies can't hire enough people to drive the trucks. That's a high quality problem.

It's Just Tax Cuts

The tax cuts have played a role in the growth of our economy. No matter where you come down on the political spectrum, the data is clear. Companies are hiring more people, wages are up, earnings are up and optimism is up. This year, private industry compensation was up 2.9 percent, a substantial rise from the 2.4 percent recorded as of June 2017. Government compensation increased 2.3 percent for the period, which actually was a pullback from the 2.6 percent gain recorded in June 2017.

Industry-wise, sales and related jobs recorded a 3.5 percent gain while transportation and material moving rose 3.4 percent. Hospital work showed the smallest gain at 2.2 percent.

Credit Suisse estimates that the lower taxes are adding nearly 8 percent to Earnings Per Share. With trend EPS growth on pace for 25.5 percent in the second quarter, stripping out the tax boost still leaves a 17.6 percent increase; the highest level since 2011. Said another way, earnings growth is the strongest its been in seven years, even if you take out the tax cuts.

So if only 8% of the growth is due to tax cuts, what's still out there? A recent survey of corporate CEO's and small businesses found that most companies are still trying to figure out how to implement the new tax rules and how they want to invest the savings and the capital equipment component of the tax cuts. Because companies can expense 100% of capital equipment purchases in the first year, there's a huge incentive to go out an spend the tax savings and excess cash on new equipment. That's trucks, modern manufacturing equipment, tractors, combines, processing equipment and more. All the stuff that makes businesses more productive and grow, which leads to further hiring, wage increases and growth; at least until the Fed raises rates too far and we hit the next recession.

But Wait That's Not All

Fearing I sound like a shill for the economy, keep in mind that there are still more catalysts waiting in the wings. The biggest one is all that overseas cash that U.S corporations are still sitting on. The tax cuts provided a one time reduced rate on that cash hoard, so the incentive is to bring it home and spend the money here. The info-graphic below is just a short list of the biggest cash holdings. Not all of the overseas cash will come home, these companies have business operations in other countries where the money can be invested, but even a third to a half of this cash would make a meaningful impact on the U.S economy.

The counter argument I hear all the time is that corporations are just going to spend the money on share buy-backs to line their own pockets. Yeah...that's not how that works. Yes, corporations will buy back their own shares with some portion of the tax cuts and the overseas cash. Here's how that transaction works. When the share prices are favorable, the company buys shares in the open market and holds them. This takes shares out of the market which causes the share price to go up. Over the past few years most investors have parked their money in ETF's, exchange traded funds (like a mutual fund without all the excess cost). Pension plans, 401K's, and individual accounts are loaded with ETF's and index funds; it's the best way for an individual to save these days and stay ahead of inflation. To keep these ETF's balanced and represent the market they buy and sell shares at prevailing market prices. In short, when companies buy back their own shares they are benefiting everyone who holds shares in those Index funds, not just the CEO's and insiders, it's all of us, we all benefit because a company said, "we need to invest this capital and the best investment we can make is in our own company". The rest will get spent on new plants, equipment, new hires, increased benefits and wages to attract those new hires and research and development.

The Distinguished Gentlemen's Ride

Today I wanted to bring your attention to something other than the stock market, natural disasters and geo-political events. I'm speaking about men's health, specifically prostrate cancer and suicide prevention. The state of men’s health is in crisis. Men experience worse longer-term health than women and die on average six years earlier. Prostate cancer rates will double in the next 15 years. Testicular cancer rates have already doubled in the last 50. Three quarters of suicides are men. Poor mental health leads to half a million men taking their own life every year. That’s one every minute.​

On Sunday September 30th 2018, tens of thousands of distinguished gentlefolk in hundreds of cities worldwide will don their cravats, tweak their mustaches, press their tweed and sit astride their classic and vintage motorcycles to raise funds and awareness for men’s health, specifically prostate cancer and men's mental health. I will personally be hosting a DG Ride in Murphys, California on Sunday September 30th. I will slip into my most dapper suite, and cruise my 1972 Norton Commando down main street. The bike is bright orange and very loud, perfect for gathering the awareness this initiative requires. This is the second year I'm hosting a DG ride in Murphy's CA.

While the ride is small, the purpose is great. Last year I rode alone, this year I'll be joined by four other riders and the contributions they bring.

Clay Baker DG Sponsorship page:

https://www.gentlemansride.com/rider/ClayBaker163790

Lady's, remember all the distinguished gentlemen in your life; grandfathers, fathers, uncles, husbands, boy friends, cousins, brothers and sons. Your support is a gift of love to all those men in your life.

Please share my sponsorship page on your social media pages, Instagram, Twitter, LinkedIn, Facebook, Google, and email to friends or share any other way you wish.

The growth and support have been phenomenal because of people like you who say, enough is enough, let's make a change.

In 2017, over 94,000 riders in 581 cities raised over $4.8M (USD) for prostate cancer research & men's mental health programs in partnership with the Movember Foundation.

In 2017, Clay Baker, the sole rider & host in Murphy's California raised more money than all rides combined in China.

Please support Distinguished Gentlemen everywhere by contributing in any way you can. You can make a donation on my sponsorship page, register to join my ride, get out and cheer the riders in your area, or simply write some encouraging words on the DG Facebook Page.

Clay Baker DG Sponsorship page:

https://www.gentlemansride.com/rider/ClayBaker163790

Stay Invested

Clay Baker

Disclosure: I am personally invested long in these stocks that appear in the MLH portfolio and may purchase or sell shares within the next 72 hours. I am also invested in other stocks that do not appear in the MLH portfolio: BA, BRK.B, CELG, CSCO, CTXS, CVX, DOW, DVAX, FB, IBM, NTES, NVDA, OMER, PFE, PG, RDHL, SCHW, THO, TWX, VEEV, VZ, XLNX, XOM

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. This article is not intended to offer investing advice, guarantee 100% accurate predictions, or to be interpreted as providing a personal recommendation.

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This material is provided for informational purposes only, as of the date hereof, and is subject to change without notice.
This material may not be suitable for all investors and is not intended to be an offer, or the solicitation of any offer, to buy or sell any securities.

© 2016 by Clay Baker all rights reserved