We always say: "Buy on weakness when you have an exogenous event that hurts the market." We always say: "This could be the opportunity to get your toe in the water if you are in all cash or you have some spare money lying around." So after Sen. Mark Rubio said Thursday that he couldn't vote for the new tax bill without child tax credits and the market took a hit in response, did you take advantage of it?
I bet most people reading this will say "no." I bet most of you figured: "OK, here we go again, I don't want to get in front of this freight train that's been banking on the tax bill's passage."
Yet at the risk of being a Pollyanna, I would like to point out that this is precisely the kind of event that brings out mass sellers, especially of the 500 stocks that are in the big S&P index. It's indiscriminate and brutal and makes you want to call Sen. Rubio and say: "We know you mean well. Who doesn't like children? Who doesn't want to make it easier for families to make a living? But are you kidding me? We have a chance to have a major overhaul that could truly cause the economy to expand -- making the pie bigger for everyone to feast on, including mothers and fathers -- and this is what you do?"
I say that after the lamenting, what you want to do is ask yourself: "Can this derail the real reasons why we have been climbing higher?"
Earlier this week, I did a seminar with legendary money manager Ken Fisher and he dazzled me with some pretty shocking statistics about tax reform. (You can see our entire webinar right here.)
Fisher's research showed that since 1927, corporate taxes were cut 10 times. Over the next year, the S&P 500 increased on average 11.3%, with stocks rallying in six out of 10 years. But get this: We raised taxes 13 times -- with a subsequent return of 12.5% with the S&P increasing in value nine out of 13 times.
How about personal taxes? Fisher informs that there have been 15 tax cuts since 1927, and the S&P has gained 8% on average in the next year. Yet on the 13 times that taxes were increased, we got an average of 15.7% gain and stocks rose 10 times and fell three.
Now we all know that this market isn't set-up for Rubio to derail the whole darned deal. But let's just say Fisher's evidence shows pretty conclusively that tax cuts aren't the be all and end all of the stock market. In fact, you could say that they don't even matter -- or worse, that they can be negative for the market.
What matters -- what always matters -- are the aging of the business cycle, too much euphoria, a dramatic increase in the value of other assets -- and most important for me, things that companies do to help themselves. Which brings me to the biggest story of the day, Disney's (DIS) $52 billion offer for critical assets of Fox (FOXA) .
This deal will make Disney the preeminent sports-and-entertainment company worldwide. How important is this deal? Let's just say that the thing that has dogged Disney's stock for ages is the declining viewership for ESPN. But with this deal, that's simply not even part of the conversation.
Disney can talk about worldwide subscriber growth that includes ESPN and we will lap the stock up rather than sell it down -- which is why not only is Fox's stock rallying, but Disney's stock is way up. That's the classic kind of deal that I'm talking about -- one that makes so much sense and is so good that investors can't resist buying stock in one of the premier companies, even though it was more synonymous with the doghouse rather than the mouse house.
If the deal gets regulatory approval -- and that's a big if -- then I believe Disney's stock is headed to new highs. And you want to own the remaining part of Fox, too, because it will be a huge bargain given that CNBC's David Faber reported that it could pay a big dividend and will have a very good balance sheet.
Now, a really cynical person would say that the Justice Department's antitrust division will bless this deal because it's good for Rupert Murdoch, who got a call from President Trump wishing him congratulations on the transaction. That same kind of cynical person would say that the Justice Department is seeking to block another transaction involving entertainment assets -- ATT's (T) attempt to buy Time Warner (TWX) -- because Trump railed against the deal before he was elected. And that he did so because he hates Time Warner-owned CNN.
But again, that's a really cynical view and I am not that cynical.
So, should I not buy the stock of Disney? Don't be silly. I've long held that it's too cheap and the franchise is too great to ignore. I actually am not even sure it needs to buy Fox's assets to have the stock ultimately go higher.
That said, I do love this deal. I like it even more so because of a story that David Faber broke that Comcast (CMCSA) was willing to pay more for Fox and Fox turned it down because it wanted to sell to Disney. Talk about validation. You don't get any better than that, and I say that as a humble employee of Comcast (which owns CNBC).
Just yesterday I said, though, that Disney needs more scale (meaning it needs to be even bigger) to take on Facebook (FB) , Amazon.com (AMZN) , Netflix (NFLX) and Alphabet (GOOGL) . And there's no doubt about it, this deal gives Disney all the scale it needs.
But let me go back to the first point I made, that you buy stocks because of the big picture -- and because of what the companies are doing to help themselves, not just because of tax reform.
CEOs like Disney's Bob Iger do not like to see their stocks do nothing, and that's not just because they may be compensated by how much their stock goes up. The fact of the matter is Iger has pride, and even though I've said that its acquisition of BAMtech is the ideal platform to give ESPN more scale, the truth is that if Disney were just to buy the Fox regional sports network that would get me off the fence to buy Disney's stock. But to get the control of Hulu, to get coveted international assets, including juicy subscription revenue? That's icing on the "I don't care any more about ESPN subscriber losses" cake.
Now, once again, I caution you, I am not saying that Disney's attempted acquisition of some Fox assets is reason enough to go buy stocks. But I am saying that when you consider mergers, when you consider activists, when you consider buybacks, when you consider dividends there is still, even after this huge move in stocks, a lot to like regardless of Senator Rubio's blocking action.
That's why I always say that if the overall market is being brought down by an exogenous cause like what I think is the temporary tax-reform derailment, you need to have that proverbial shopping list ready.
Always remember that when you buy S&P 500 stocks, you aren't buying an index of corn or wheat or soy or lumber -- some commodity with no real ability to help itself. You are buying an index filled with CEOs who can do something to improve the value of their enterprises with the stroke of a pen and either some stock or some cheap, borrowed money. And on Thursday, Bob Iger did just that for Disney, one of the most obvious and well-known companies in the world. Who knows what the other 499 CEOs are going to do to help enrich shareholders tomorrow?