Will The US Tax Reform Destabilize Global Banks?

A key part of the US Tax Reform passed last week includes giving US companies a tax break on profits earned and kept in banks overseas.

As per the legislation, US firms can now repatriate offshore earnings at a tax rate of 15.5%, compared with the previous rate of 35%.

In 2005, the Bush administration had a similar “tax amnesty” when over 50 US firms sent back about $350 billion in profits earned overseas.   

In an interview last week, Mr Trump estimated that the total amount of US corporate profits on deposit offshore is between $3 and $5 trillion. 

This is a pretty wide spread. But considering that just 5 tech firms (Apple, Microsoft, Google, Cisco and Oracle) are estimated to be holding over $650 billion offshore, it’s clear that the repatriation numbers will be much higher than in 2005. 

In fact, Apple CEO, Tim Cook, announced that they intend to repatriate over $250 billion during 2018, which is over 70% of the 2005 total spread across 50 firms. 

The most obvious impact of this massive transfer of funds will be the boost in demand for US Dollars. The amnesty plan in 2005 triggered a 12% rally in the USD Index from 81.00 to over 90.00 from March to July.

However, with some EU and Japanese banks already teetering from bad debts and non-performing loans, the short-term implications could be devastating to the banks that have been holding the cash that Mr Trump wants back.

We believe that with just one company like Apple draining $20 billion a month from the European banking system, there will be a negative impact on the health of many EU banks.

At this point we don’t have any clear numbers reflecting the amount of money being held in Australian banks, but we would expect the general strengthening of the USD, on a global basis, will see the AUD/USD retreat back into the lower .7000 handle.

ASX listed stocks which will benefit from the lower Aussie dollar include RHC, QAN, TWE, RIO and NCM.

Aussie Dollar













Amcor – Generating 10 – 12% cashflow

We recommend investors look at Amcor with a view towards a buy-write strategy.

Owning the stock at $15.50 and selling slightly out-of-the-money calls into June 2018  generates 10 – 12% cash-flow, when combined with the February dividend of $0.25.

FY18 underlying EPS growth should be in the 5 – 7% range, placing AMC on a 4.3% forward yield.


Algo Update – AGL Targets $26.00

Our ALGO Engine triggered a recent buy signal in AGL at $23.38.

With the stock now making a further “higher low” formation at $24.50, we highlight the current price as a reasonable entry level.

AGL is likely to upgrade their dividend payout in 2018 & 2019 which will see the stock re-rate and trade into the $26.00 range.

AGL is a suitable buy-write for income portfolios and is a current holding in our ASX 50 model.



ALGO Update: Buy The Dip In Sydney Airports

Shares of Sydney Airport are down today as the company went ex-dividend and will pay shareholders 18 cents per share.

This pencils out to a yield of 4.8%.

SYD has been in our Top 50 model portfolio since July 3rd and our ALGO engine triggered a buy signal on July 31st at $6.70.

With the 52-week high at $7.75, we believe there is a solid argument for owning SYD at or around current levels.

Sydney Airports



RIO Extends Buy-Back Scheme Into 2018

Shares of RIO Tinto are trading near a 6-year high of $75.00 as the resource giant announced yesterday that it would buy back an additional $1.9 billion worth of on-market shares by the end of 2018.

This is in addition to the $1.5 billion worth of shares the company bought back in 2017 as part of RIO’s commitment to return the proceeds from the sale of its Coal & Allied assets to shareholders.

With the share price over 8% higher since December 1st, the internal momentum indicators are approaching an over bought condition.

However, RIO has been a cornerstone stock in our model portfolio since March 6th, when it was trading at $61.50, and our ALGO engine triggered a buy signal on April 18th at $58.00.

It’s reasonable to expect some type of price correction in the near-term, but we would expect longer-term buying support in the $71.40 area over the next few weeks.

Rio Tinto