{"id":104489,"date":"2017-04-07T10:52:17","date_gmt":"2017-04-07T14:52:17","guid":{"rendered":"http:\/\/countingpips.com\/?p=104489"},"modified":"2017-04-07T06:52:53","modified_gmt":"2017-04-07T10:52:53","slug":"trumps-2-5-trillion-moneybomb-detonates-soon","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex\/2017\/04\/trumps-2-5-trillion-moneybomb-detonates-soon\/","title":{"rendered":"Trump\u2019s $2.5 Trillion Moneybomb Detonates Soon"},"content":{"rendered":"
April 7, 2017<\/div>
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By WallStreetDaily.com<\/u><\/a> \"\"<\/p>\n

Here comes the money!<\/p>\n

In this week\u2019s chart edition, where we select a handful of graphics to convey important economic or investment insights, I\u2019m focusing on the $2.5 trillion \u201cMoneybomb\u201d destined to hit U.S. shores this year.<\/p>\n

You\u2019ll recall, President Donald Trump promised to slash corporate taxes and<\/i> set up a one-time tax holiday to repatriate cash held in foreign countries.<\/p>\n

If the health care reform failure is any indication, tax reform or even just a tax holiday won\u2019t come easy. But it\u2019ll come.<\/p>\n

And once it does, it promises to trigger one of the largest one-time wealth transfers in the history of capitalism.<\/p>

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How do we grab our share of the fortune? As you\u2019ll see in a moment, it shouldn\u2019t be too difficult.<\/p>\n

Bring Home the Money<\/b><\/h2>\n

U.S. companies are hoarders. Because of onerous tax regulations, they\u2019ve stashed an estimated $2.5 trillion in profits in overseas tax havens. That amounts to about 10% of the entire market cap of the S&P 500 index. So this isn\u2019t mere pocket change.<\/p>\n

Granted, not all of that money is parked in cash. Some is tied up in plant and inventories \u2014 making it illiquid. But there\u2019s still a ridiculous amount of cash desperate to make its way back home at lower tax rates.<\/p>\n

And the first part of profiting from this gigantic repatriation windfall is distinguishing between sectors and companies with empty pockets and ones with Costanza wallets<\/a> overstuffed with cash.<\/p>\n

Armed with the data, it\u2019s abundantly clear what sectors are the highest-value targets \u2014 technology and health care.<\/p>\n

\"Stranded<\/p>\n

At end of 2015, S&P 500 technology and healthcare companies collectively reported over a trillion dollars of untaxed foreign profits \u2014 or roughly 50% of the total. No other sectors come close to hoarding as much.<\/p>\n

Drilling down to the company level, it\u2019s clear the cash is not only concentrated in a handful of sectors, but a handful of companies, too.<\/p>\n

\"Top<\/p>\n

For investors, there are two ways to play this reality\u2026<\/p>\n

Almost Forgotten History<\/b><\/h2>\n

Most investors fail to realize that the U.S. enjoyed a one-time tax holiday in 2004, making it easy to predict what companies will do this time around. The same thing!<\/p>\n

In 2004, U.S. firms repatriated over $300 billion, and stock buybacks rose 84%, according to an analysis by Goldman Sachs. In this case, correlation does imply causation.<\/p>\n

Buybacks have already been a major outlet of excess cash \u2014 and, in turn, the driver of the latest bull market. That\u2019s because fewer shares outstanding increases earnings per share. Check out the Nasdaq Buyback Achievers Index for proof.<\/p>\n

The index tracks the stock performance of U.S. companies that have repurchased 5% or more of outstanding shares over the trailing 12 months.<\/p>\n

\"A<\/p>\n

Giving executives even more cash promises to increase such activity.<\/p>\n

Or as Goldman\u2019s chief U.S. equity strategist David Kostin says, \u201cA significant portion of returning funds will be directed to buybacks based on the pattern of the tax holiday in 2004.\u201d<\/p>\n

The easiest way to benefit from this trend is to buy the index.<\/p>\n

Instead of trying to predict the individual companies that will boost buyback activity the most, we can own them all via the PowerShares BuyBack Achievers ETF (PKW).<\/p>\n

Of course, buybacks won\u2019t be the only outlet for cash. Many firms will plow repatriated cash into mergers and acquisitions.<\/p>\n

As Ethan Lovell, a portfolio manager at Janus Capital Group, told Bloomberg, \u201cThe vast majority of companies that I speak with want to make acquisitions. Their first order of business is build the business and enhance the growth rate.\u201d<\/p>\n

The most obvious targets are small- and midcap players with innovative technologies or treatments. Like Visteon Corp. (NYSE: VC) or Zynerba Pharmaceuticals Inc. (NASDAQ: ZYNE). Both are compelling buys at current prices.<\/p>\n

Contrarian or Victim?<\/b><\/h2>\n

Here\u2019s the best part about the Trump \u201cMoneybomb\u201d trade \u2014 Wall Street is completely downplaying the possibility, which sets the stage for even bigger gains.<\/p>\n

A recent analysis by Jefferies found the companies that stand to benefit the most<\/i> from tax reform are performing the worst<\/i> since the election.<\/p>\n

\"Unjustified<\/p>\n

As one mentor likes to remind me, there are only two classes of investors on Wall Street \u2014 contrarians and victims.<\/p>\n

Right now, the victims are lining up, betting against any meaningful tax reform or holiday. Don\u2019t join them. Bet against them.<\/p>\n

In fact, if you want to claim your piece of what could be the largest one-time wealth transfer in the history of capitalism\u2026<\/p>\n

And the chance to turn every $2 you invest into as much as $5,744\u2026<\/p>\n

Click here now.<\/a><\/p>\n

Ahead of the tape,<\/p>\n

\"Louis<\/p>\n

Louis Basenese
\nChief Investment Strategist, Wall Street Daily<\/em><\/p>\n

The post Trump\u2019s $2.5 Trillion Moneybomb Detonates Soon<\/a> appeared first on Wall Street Daily<\/a>.<\/p>\n

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 <\/p>\n","protected":false},"excerpt":{"rendered":"

By WallStreetDaily.com Here comes the money! In this week\u2019s chart edition, where we select a handful of graphics to convey important economic or investment insights, I\u2019m focusing on the $2.5 trillion \u201cMoneybomb\u201d destined to hit U.S. shores this year. You\u2019ll recall, President Donald Trump promised to slash corporate taxes and set up a one-time tax […]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-104489","post","type-post","status-publish","format-standard","hentry","no-post-thumbnail"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/104489","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/comments?post=104489"}],"version-history":[{"count":2,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/104489\/revisions"}],"predecessor-version":[{"id":104491,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/104489\/revisions\/104491"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/media?parent=104489"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/categories?post=104489"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/tags?post=104489"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}