Super highways, coast to coast, just easy to get anywhere
On the transcontinental overload; just slide behind the wheel
How does it feel when there's no destination that's too far
And somewhere on the way you might find out who you are?

-Living in America

President Trump has declared ‘Made in America Week.’ Yesterday, products from all 50 states were on display. Tomorrow, President Trump will issue an official proclamation on the importance of making goods in America while commissioning the USS Gerald R. Ford in Virginia. 

I have always said owning great American companies that hire Americans and sell products around the world is the best way to successful long-term investing. The notion of filtering investments solely through the lens of where factories are located can be complicated and could mean a near-term underperformance. Companies moored in the United States are typically safer investments with more stable dividends.  

According to FactSet Data, 270 S&P 500 companies will receive 70% + of their annual sales in the United States but pay higher taxes, consequently.  

Sector	% Revenue Domestic	Effective Tax Rate
IT	40%	17%
Materials	51%	25%
Energy	56%	NA
Industrials	60%	25%
Staples	70%	31%
Discretionary	72%	28%
Financials	77%	26%
Health Care	80%	20%
Utilities	94%	29%
Telecom	100%	28%

 

Without a doubt, we must celebrate ‘Made in America Week’, but we should also find a way to reward these businesses with lower taxes.  I don’t think they need 15% to see material improvement, which leads to greater hiring and investment. On the other hand, small businesses should get a sub- 20% rate that can’t be hijacked by wealthy folks and big businesses.

President Trump talked about leveling the playing field to help American businesses - which is music to my ears - but we can’t forget other issues beyond poor trade deals. According to a new report from Ball State University, out of the 5,000,000 job losses since 2000, only 13% came from trade and 87% are from automation. I think the actual number is higher but if we took this at face value, it would be a total 650,000 job losses.

Higher Wages Around the Corner?

Yesterday, the National Association for Business Economics (NABE) added to the growing list of anecdotal evidence that an explosive wage growth could be around the corner; 47% of respondents say that wages will increase in the next three months.  With this in mind, 50% see higher sales against only 17% that are bracing for fewer sales.

One-third of respondents reported trouble with finding workers.  The adjustments should address America’s skilled trade dilemma:

• 22% Hiking Pay
• 19% In-House Trading
• 10% Invest in Automation 

Of course, at some point, alarm bells should ring loud enough for America to shift its educational system to produce worker-ready graduates with modern skills.  It might mean ripping control from the vice grip of teachers’ unions.  In fact, I’m surprised individual states haven’t seen this as a better weapon to attract business than lower taxes and other economic incentives.  

Market Under the Hood

The biggest winners yesterday were retailers and restaurants. Macy’s (M) and Kohl’s (KSS) were joined by Buffalo Wild Wings (BWLD) to lead consumer discretionary names.  I suspect a part of this rotation into these battered names are folks looking for an oversold bounce; although there could also be a sense that as the dust settles, brick-and-mortar names left standing will be competitive.

We have the other end of consumer discretionary names: Netflix (NFLX), which posted blowout results that, reflected a strong subscriber growth during an unusually slow period of the year.  There is a sizable short position on NFLX; it will be interesting to see if there’s a massive covering or if the shorts will go out on their shields as they usually have in the past.

Note: International business is more than 50% of the total now, and will become profitable this year.  This is another example of American know-how dominating the world.

Today’s Session

The market looking to open flat to slightly lower as the earnings parade continues.  The Achilles Heel are financials, led lower by Goldman Sachs (GS) not because they missed Wall Street consensus but because of the “quality” of gigantic earnings beat. Like other banks that have reported, the street is upset that loan loss provisions are lower (I guess they didn’t model for that to happen), and for Goldman the huge miss in fixed income is being read as the death knell for the company.

There are blue chip names that beat this morning and look to trade higher when the opening bell rings.

• Johnson & Johnson (JNJ)
• Lockheed Martin (LMT)

Then there’s news from Sen. McConnell that has yanked the latest and perhaps last incarnation of GOP healthcare after two more members of his party informed him their intention to vote against the bill.  This level of ineptitude is difficult to put into perspective.  Republicans rode the coattails of Donald Trump and Obamacare’s failures to control of the House and Senate.

Now, there will be a symbolic vote on repeal only to shame GOP members.  I just don’t think that’s going to help. The fact of the matter is the leadership when this is the wrong way, although it was easy to assume easy passage of any repeal and replace legislation.

Comments

Charles I miss having you on tv while I work. I find my self watching Fox less and less, I like fox business but really miss you. thanks for all your great advice over time. ed Edward Seebald on 7/18/2017 9:44:13 AM

Charles, you're the best. Keep up the good ol' fashioned hard work and take advantage of the next opportunity. Fox appreciates you for branding Making Money and so do we. It's not the only reason you have so many followers though! Whit Parrish on 7/18/2017 10:34:14 AM

You need to be back on TV. Podcast like Bill O'Reilly? Miss seeing you. Can't watch Making Money without you! ALISON HARRIS on 7/18/2017 2:42:13 PM

Why are they trying to build healthcare with the roof first. You must start with the foundation just like a house or building, which are the costs of healthcare. As usual they are trying to put the cart before the horse. There must be clarity and uniform costs for the whole system before we can legislate any lowering of costs for insurance. The way they are going about this is nuts. D. Hays on 7/18/2017 3:02:31 PM

Thank You Charles for your contributions on Making Money with Charles Payne. Miss You! So tired of false allegations against the best men on Fox of which you can stand tall. Fox had better wake up to the truth. Rebecca Panther on 7/19/2017 10:48:28 AM

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