We added Potlatch Corp. (PCH) to the Pivotal Point portfolio two weeks ago. And it has already made an impression.

As a Real Estate Investment Trust, the Spokane, Wash., company is unique. On paper, its integrated interests in resources, wood products and real estate do not seem terribly compelling. However, the business and share price have reached a pivotal point of inflection.

In other words, this stock is set to take off.

Logging is tough, demanding work. Since 1903, Potlatch has been in the business of cutting down trees, processing them and marketing timber. Its first mill, located on the banks of Idaho’s Palouse River, operated until 1981. During its lifespan it became a central part of Idaho commerce. A namesake town was born, and new roads extended throughout the Gem State.

By 2006, the business began to change. Managers restructured the company as a real estate trust, or REIT. Its manufacturing businesses became wholly owned subsidiaries. The new focus was creating a stable stream of income from its vast land holdings.

Last month, managers upped the ante. The company announced a merger with Deltic Timber Corp. (DEL), a vertically integrated natural resources company. While the Arkansas business is not a REIT, its similarity with Potlatch is striking.

The two companies operate competing resources, wood products and real estate businesses. A merger would create stunning synergies, and shareholder value.

The combined company would hold 2 million acres of timberland across six states. From the start, it would have the capacity to produce 1.2 million board feet of lumber, and 300 million square feet of wood panel products.

This would give the company the scale to compete head to head with larger players.

Michal Covey, the proposed CEO of the merged company, sees other benefits, too. He recently told analysts during the third-quarter earnings call that the current Deltic land portfolio consists of older, mature forests. The company plans to harvest those lands, plant faster-growing strains of timber and ramp up throughput at its existing sawmills is planned. These measures are expected to push total output to 375 million board feet of panel products by 2018.

Meanwhile, a financial SWAT team is already in place to wring out $50 million in operating inefficiencies.

Covey expects cash available for distribution, on a pro forma basis, to move from $133 million to $183 million in a year. In year two, the company projects a 5% dividend.

To meet REIT requirements, retained Deltic earnings and profits will need to be spun out to shareholders in advance of the new structure. This implies a special cash dividend and additional shares.

The stock spiked to a new high at $56.20 on the merger news. It has since fallen back to $52.25 to test the 50-day moving average at $51.70. I’m expecting this level to act as support and launch the next leg higher. Significant new highs are likely.

If you haven’t added shares of Potlach already, be sure to do so right away.

Turning our attention to the rest of the market …

Stocks were cruising on easy street Tuesday. That is, until news of a North Korean ballistic missile launch knocked most of the day’s gains out of the sky around midday. But when traders found that all their body parts were still intact, they celebrated by jamming their fingers on the buy button – sending all the indexes up to record highs.

It’s great to see techs and financials leading the way higher, as they are the apotheosis of bullish appetites. They are like a neon arrow blinking down from the heavens that says, “Buy here.”

Something happened Tuesday that has only happened three other times in the past 30 years: All four major indexes (S&P 500, Dow Industrials, Nasdaq Composite and Russell 2000) closed at all-time highs on the same day in late November.

The other times, according to independent researcher Jason Goepfert, were 1980, 1996 and 2016. The bad news is that there was virtually no further upside in 1980 and 1996, and in fact the maximum drawdowns in the next 30 days were a scary -9.3% and -4.8%! Last year, however, stocks continued to sizzle, rising as much as 2.5% in the next month.

My expectation is that the next month will look more like 2016 than 1996. But just be aware that further gains are not necessarily a given following a quad-headed monster session.

While we’re on the subject, here’s another surprising data morsel from Goepfert …

The SPDR S&P 500 (SPY) logged its best gain in 50 days while closing at a new high. It has done so six other times in the past 15 years, each of which led to limited upside over the next two weeks, averaging only a +0.6% reward vs. potential for a -2.2% flop. The dates were 3/4/05, 7/12/07, 3/13/12, 3/4/14, 3/1/17 and 9/11/17.

Financials fared best on Tuesday. That was in large part because Federal Reserve chair nominee Jerome Powell voiced at his confirmation hearing that banks are sufficiently regulated. Traders’ reaction suggests that the full implementation of financial services deregulation is not fully discounted into banks’ stock prices – i.e.., they can go much higher without strain.

The dollar rose vs. the yen and euro, gold was little changed, and crude oil fell 0.3% amid reports that OPEC and allied producers are poised to extend production cuts through the end of 2018, with an option to review in June.

There are still a lot of moving pieces surrounding the GOP tax push. The focus continues to be on efforts to win over Senate holdouts. Senators Corker (R-Tenn.) and Johnson (R-Wisc.) both voted for the measure after earlier expressing concerns. This move sets up a Senate vote later this week. The big areas of concern revolve around further relief for pass-through entities and the deficit impact.

It’s going to be close. There is some talk that a full Senate vote could be delayed until next week.  

Users of PredictIt, an online prediction market, are betting that Congress gets “nothing done” on tax reform by the end of the year. The crowdsource site shows the odds of a corporate tax deal at just 40%. This is not a bad bet because even if the Senate passes its version of the bill, there will be a hard lift to reconcile it with the House bill. And there are just a dozen work days left on Congress’ calendar.

Speaking of actions to take, you have two sells and three buys today in the Mastermind portfolio …

The system is currently short silver and short the S&P 500. It now makes a new recommendation:

1. Sell to Close VelocityShares 3x Inverse Silver (DSLV), +0.35% since inception 11/10. (25% position).

2. Sell to Close ProShares UltraShort S&P500 (SDS), -3.5% since inception 11/10. (25% position).

3. Buy to Open a 25%-sized position in ProShares UltraPro S&P 500 (UPRO).

4. Buy to Open a 25%-sized position in VelocityShares 3x Long Gold (UGLD).

5. Buy to Open a 25%-sized position in VelocityShares 3x Long Crude (UWT).

The Mastermind system can change its opinion as soon as a single day after a recommendation. Though typically positions are held for weeks or even months.

Thanks for reading, and see you again soon.

Jon Markman