“Because No One Wants to Get Rich Slowly…”

There’s been rising chatter about a lack of liquidity in the markets.

Folks, we’re not even close. 

The next bear market will not be because of a shortage of liquidity.

America’s corporate tax overhaul at the end of last year boosted corporate earnings and cash flow.

But more important was how that tax reform package required US corporations to deem earnings that they accumulated abroad as repatriated.

And to ease the pain, a one-time mandatory transition tax replaces the previous 35% statutory tax rate on repatriated earnings; that one-time tax has been set at 15.5% for liquid assets and 8.0% for illiquid assets, and is payable over eight years.

As such, the change effectively shifts the US from a worldwide tax system to a territorial one.

In other words, going forward US multinationals generally will be taxed by the US only on domestic profits and not on dividends from their foreign subsidiaries.

And the concept of “repatriated earnings” will no longer exist.

So That Means What?

Well, Dr Ed Yardeni reminds us that the Fed’s quarterly "Financial Accounts of the United States" includes a series called “Foreign Earnings Retained Abroad.”

It’s available through Q4-2017 for non-financial corporations, and last year, it totalled $213.5 billion. In fact, it’s been hovering around this four-quarter sum since 2010. 

And, since the year 2000, the cumulative total of foreign earnings retained abroad is $2.9 trillion; up over $1.7 trillion since 2010.

During the stock sell-off earlier in the year, which we are still chopping through, there was also some noise about a decline in buybacks. Wrong as usual. Instead, there is now more chatter about how a significant portion of the repatriated earnings could go into buybacks!

Our suspicion is that we should look for a record high, one that exceeds $600 billion this year for the S&P 500 companies.

That’s purely based on the collective guidance provided by company managements' during the just-completed Q1-2018 earnings reporting season.

And buybacks are not alone - dividends will also continue to fuel the upside surprises.

So, while it sounds scarier to suggest the entire bull market has been based on the "Fed QE program," this usually comes from investors who have missed out on the rise. 

It seems as if since time began bears have been unable to "understand who was buying stocks."

But the data makes it clear: Corporations were buying back their shares and paying out record-high dividends. In fact, many of those dividends went back into the stock market.

How much? 

Over the past four quarters through Q1-2018, dividends totalled a record $436 billion.

If buybacks exceed $600 billion this year, note that total cash distributed to shareholders will easily exceed $1.0 trillion for the first time on record.

Pointing Out the Obvious?

None of these things fit with the daily "impending doom" storylines.

Here’s my favourite of late from CNBC:

"I think we should just not even use the word "constructive" at all.  I mean what does that word really mean anymore?"

I kid you not.

“You Had Me at Boring…”

Don't mind us. We will just sit back in the shadows and do what Mr Buffett says few like to do:

“…because no one wants to get rich slowly.”

Listening to Junk is Expensive Over Time

Do NOT be concerned that summer is coming.

Summer has looked much the same for the last 36 years (at least the 36 I have witnessed). 

And every single "summer swoon" feared by so many, so often, for so long took place at a lower price than where we are today. 

Meaning…?

They were ALL opportunities for the long-term investor.