Dividend Increases & a Buy

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Each week I catch up on blogs, comment on a handful and generally learn a thing or two.  On occasion I take issue with a post (or a portion thereof) – and provide a (hopefully) meaningful comment.  The most recent being Lanny’s post which included, the lines:

I don’t know about you, but the dividend increases keep coming in hot, right off of the Tax Cuts, Jobs Act!  and Let’s just say tax reform has continued to be nice, as it relates to dividend increases.

The rationale for my comment being – assuming all of his US company increases were a result of the tax plan, this would be a 12.45% increase.  Not shabby by any means but a far cry from his reported total of 20.13%.  The difference being his foreign holdings which weren’t beneficiaries of a tax cut but of strength in ore prices and China shipments.  My quibble is not the numbers – only the presentation of the tax bill being a panacea for businesses.  It may well be, however the rules are still being written and the jury is still out.

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Insider Dealing?

The news cycle appears to be churning ever faster.  Whether as a reaction to events, an attempt to manage the narrative or obscure the message is a debate that will occur for some time with the real answer becoming apparent in the hindsight of history.  Not to minimize the Charlottesville tragedy or the headline grabbing Bannon ouster, but these stories are playing out in several flavors depending on the source.  As one who attempts to discern the impact of issues on my investments, two (possible) financial headlines crossed my desk amid the other events that intrigued me.

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Isn’t the Election Over Yet?

Following the most divisive and cantankerous election I’ve ever seen, I – along with many others – were likely longing for a return to normalcy.  A day where markets are driven by earnings, GDP, or other useful metrics rather than tweets and soundbites.  A time when logic dictates norms rather than bluster and berating.  The ability to take a deep collective breath followed by attempting to figure out how our respective investing strategies need to be tweaked to profit from the new regime.  I’m not referring to the recounts as I suspect they will result in no significant change with Clinton winning a majority of votes cast but Trump winning the Electoral College – and therefore the election.  What I’m referencing is the ability to cipher a meaningful direction that the President-Elect (PE) is going to take the economy.

Three diverse events occurred this week that gave me pause.  On the surface these are likely one-off issues but looked at in total generate more questions than they answer.

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A Sea of Change

There are events that present opportunities through chaos and the US election – as Brexit was – appears to be one.   During these times as the sands are shifting I find it prudent to attempt to handicap the situation identifying strengths and weaknesses primarily using my portfolio as a lens.  Many questions currently have no answers and some stock gains appear to be based on assumptions more than facts.  I do reserve the right to modify my thoughts as more data is obtained.

REITs have generally taken a beating primarily on interest rate fears.  but the same could be said for Telecoms and Utilities.  Telecoms appear to have been spared due to M&A activity.

Financials appear to be a tale of diverging paths.  Pundits are bullish on the big banks but not so much on the little guys.  My guess is M&A will slow among the small banks as Dodd-Frank is tweaked but will accelerate as the reality of profitability through synergy is identified.  Multinational banks will continue to have to deal with Basel III to remain competitive globally tempering some of potential gains.

Healthcare is a wildcard.  To repeal a dysfunctional new scheme to implement an old dysfunctional scheme without morphing it into a newly dysfunctional scheme is ludicrous and where this sector’s profits will be found (until Congress gets wise).

Discretionary will depend on the economy – is the new plan recessionary?

And Mexico?  Strangely silent have been F, UTX, KO, DE and a host of others with operations there.  Then there is the NAFTA treaty which requires Senate action to modify.  It’s difficult to see many California or Texas senators supporting an action that would raise unemployment and reduce tax receipts by shuttering logistics centers.

Basically I see no immediate strategic portfolio change but additional diligence will be required.  A possible watch list might include UMBF, WBS and ONB for exposure to Health Spending Accounts (HSAs); KSU (Mexican trade); and KOF.  Other then the peso valuation and the ADR trade, I know of no other US exposure for KOF (Coca-Cola Femsa).

And how are you surviving?