Yesterday, 12/6/16, at the CFA Chicago luncheon, Dan Clifton of Strategas Partners gave a great presentation on the coming fiscal stimulus and what it might look like and what it might mean for the US economy in 2017.

The inevitable question about cash repatriation came up and Dan gave a lengthy and thoughtful response, but he eventually got down to the numbers: Dan thought that as much as $1 trillion could be brought back to the US as repatriated cash, and granted investors will hear the standard hue-and-cry about using the repatriated cash to repurchase stock, Clifton thought that $300 – $400 billion of the repatriated cash could be spent directly on buybacks.

Looking at the numbers:

- The current market cap of the SP 500 is roughly $19 trillion, so roughly 5% of the SP 500 market cap could be repatriated;
- In terms of the “index divisor” (per Thomson Reuters data) there are 8.6386 billion shares used in the SP 500 EPS calculation.
- Using Clifton’s numbers, if $300 – $400 billion of the $1 trillion is used directly on shares repurchases, then roughly 1.5%, 2%, 2.5% of the SP 500’s market cap could be repurchased JUST from overseas cash repatriation in 2017.

This obviously doesn’t include any cash generated from a reduction in effective tax rates, faster revenue growth or cash generated normally from operations, resulting in free-cash-flow.

Given current Thomson Reuters estimates, the SP 500 is already expecting 12% EPS growth in 2017, so investors could be looking at a 10% increase in that number to 13% – 15% again just from the cash repatriation, and this assumes no handcuff’s are put on repatriated funds.

The one person I talked to about this thought it was very bullish, and that it wasn’t in the market yet.

In year-end meetings with clients, i’m telling clients from both sides of the aisle that the SP 500 could be up 20% next year. Prior to the election and since last Spring ’16, the SP 500 was already looking at its best year of expected earnings growth in 5 years. The proposed President-elect and Congressional fiscal policy could be another level of earnings growth above what was already built into the numbers, before November 8th.

Personally, the $1 trillion repatriation estimate that Dan Clifton threw out seemed on the lighter side to me. Apple alone has $250 billion sitting on its own balance sheet, which is 1/4 of the expected total.

The more info I get on the topic and to the extent I can provide more color, it will be discussed here.

Simply throwing this out – thanks for reading.