| TAOST Wrap Week Ended Friday 17 January 2020 |
| Just think... "Quality is not an act, it is a habit."
-- Aristotle
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| | Greetings Traders:
I hope this update finds you well. As you likely know, US markets are closed for a holiday today. That said, we have quite a bit to cover, so let's get to it shall we?
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| In Sum
The markets traded higher this week as all three major indexes rose to record highs amid strong global economic data, a signing of what's being called a trade deal between the U.S. and China, the suggestion that Iran is standing down vs. the US and a solid start to the earnings season.
S&P 500 +1.8%, Nasdaq +2% DJIA +2.3%.
On the economic front, housing data showed that U.S. homebuilders broke ground on new homes at the highest rate in 13 years, China’s Industrial production climbed 6.9% to its fastest pace of expansion in nine months, U.S. retail sales rose 0.3% and U.S. consumer prices rose slightly as the consumer-price-index was up 2.3% yoy.
Alphabet became the fourth U.S. firm to gain a valuation of $1 trillion, after Apple, Microsoft and (briefly) Amazon achieved the feat over the last year and a half. The top five publicly traded American companies FAAAM (not FAANG) - Apple, Microsoft, Alphabet, Amazon and Facebook - now make up a record 18% share of the S&P 500 Index's capitalization. That ratio is higher than during the tech bubble, according to Morgan Stanley. That's not what's known as a good thing. The market is basically 1 big business... and just like a business, you never want things to be too concentrated.
America’s largest banks were in the spotlight reporting fourth quarter earnings. Results were mixed, but overall sentiment remained positive as consumer borrowing and a rebound in investment-banking revenues propelled JPMorgan Chase and Citigroup to double-digit earnings growth. JPMorgan reported its most profitable year ever, while Citigroup beat expectations. Wells Fargo, on the other hand, reported a 53% drop in Q4 profit after setting aside a further $1.5 billion to cover costs related to its 2016 fake-account scandal.
On the trade front, despite the signing of a “Phase One” trade deal this week, existing tariffs on Chinese imports will remain until the completion of a second phase trade agreement, meaning the duties are likely to stay in place until after the American presidential election in November. The period of review is intended to give 45's administration time to verify China's adherence to the terms of the pact, which will likely require Beijing to buy at least $200B of goods and services over two years, and to go beyond prior commitments made on IP and technology theft.
Next week, beyond earnings season continuing to kick into gear, Davos will host political, academic and business leaders, including 45, from Tuesday to Friday for the World Economic Forum (as the his impeachment trial gets under way). Climate change is likely to be the main focus.
One question I continue to get is "how will I know when to sell." The short answer to that question? You won't. That's because I don't... and I'm really good at my job. What should you do then? Watch the FOMC of course. You can expect price to change course as soon as the fed begins to raise rates again. As long as the fed keeps the liquidity faucet turned up don't expect equity markets to turn down. |
| | | | | Davis Daily Trading Sentiment |
| | | - The U.S. and China signed a trade deal, calling a cease-fire in a two-year trade war (has it been 2 years?). Officials said the eight-part agreement will lead to an increase in sales of U.S. goods and services to China, further open Chinese markets to foreign firms— especially in financial services—and provide strong new protections for trade secrets and intellectual property. But it leaves in place U.S. tariffs on about $370 billion in Chinese goods, and possible tariff reductions will be left to later negotiations that will also cover a host of difficult issues. U.S. business leaders generally applauded the pact, but stressed the need to keep negotiations going.
- The "Phase One" U.S.-China trade agreement could violate WTO rules, according to EU Trade Commissioner Phil Hogan, whose team will "analyze the document in detail." At issue is whether China's pledge to increase purchases of U.S. goods and services by at least $200B over the next two years is WTO-compatible. "We're not trigger-happy about taking cases to the WTO - we don't want to create that impression. But we'll stand up for our own economic interests.”
- 45's administration reportedly threatened to impose a 25 percent tariff on European automobiles if Germany, France and Britain did not warn Iran of breaches in the nuclear deal. Within days of the threat, all three countries formally accused the country of violating the deal, which triggered a provision that could reimpose U.N. sanctions on Iran.
- Although the year-end cash squeeze passed without any jump in borrowing costs, the New York Fed plans to maintain its interventions in short-term funding markets at an elevated level. On Tuesday, banks gobbled up $82B in temporary liquidity in the form of overnight and two-week repo loans. "History has shown us that whenever these sorts of programs are introduced, they tend to last longer than what the Fed expects," said Nick Maroutsos, co-head of global bonds at Janus Henderson, comparing the case to the unwinding of QE.
- 45's administration plans to restrict the news media's ability to prepare advance stories on sensitive U.S. economic data such as inflation and employment, Bloomberg reports. "Lockups" lasting 30 to 60 minutes are currently hosted in Washington for major reports, where journalists receive data in a secure room and transmit them when connections are restored at release time. The change, which could remove computers from the lockup room, would transform how critical market-moving information is distributed to investors and the public. This could get interesting...
- U.S. cities are rethinking bus service as they face increasing traffic and falling ridership. Competition ranging from electric scooters to ride-hailing services like Uber are driving people away from buses nationwide. Let's not forget the hella dust storm you endure from passing buses.
- Last year was the second-hottest on record, closing out the warmest decade on record, U.S. government researchers said. In analyses of temperature data from thousands of observing stations around the world, researchers at NASA and NOAA also concluded that 2019 was only slightly cooler than 2016, the warmest year ever measured.
- Chinese customs data showed the country had a trade surplus with the U.S. of $295.8 billion last year, compared with a record $323.3 billion in 2018. The figures represent China’s first full year of trade data since the trade war began. China’s 12.5% decline in exports to the U.S. last year would have narrowed the U.S. deficit more, but Chinese imports from the U.S. dropped even faster after Beijing imposed tariffs and directed state-owned companies to buy less from America. China’s imports from the U.S. fell nearly 21%.
- According to the latest figures from the Treasury Department, the U.S. fiscal deficit exceeded $1T in 2019, marking the first time it has passed that level in a calendar year since 2012. The future is not looking better. For the fiscal year, which began in October, the shortfall is already at $356.6B, an 11.7% increase from a year ago. As deficits have swelled, so has the national debt, which now stands at $23.2T. So much for the so called business man and his cronies putting us on better footing.
- The U.S. Treasury Department dropped its designation of China as a currency manipulator. Treasury’s semi-annual foreign-exchange report said the trade agreement’s chapter on Chinese currency practices addresses many of the concerns raised when the U.S. applied the manipulator designation in August.
- Americans bought less wine last year, the first such drop in a quarter of a century, as millennials opt for alternatives like hard seltzers, cocktails and nonalcoholic beer. The volume of wine purchased in the U.S. declined 0.9% in 2019, the first time it has fallen since 1994, according to industry tracker IWSR. Damned millennials... at it again.
- Lawmakers push for alternatives to security deposits. With low-cost housing hard to come by in many parts of the U.S., state and city lawmakers are introducing bills that would give renters the choice to replace security deposits with insurance policies or installment plans paid over time.
- Risks to oil supply have receded according to the IEA. "Today's market, where non-OPEC production is rising strongly and OECD stocks are 9M barrels above the five-year average, provides a solid base from which to react to any escalation in geopolitical tension," the IEA wrote in its monthly report. "Even if they (OPEC+) adhere strictly to the cuts, there is still likely to be a strong build in inventories during the first half of 2020," the agency declared, adding that recently signed trade deals should "support growth."
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| TNX - 10 Year Note Interest Rate |
| | GLD - Gold Trust Gold Shares Check my FB Page for an article about a world famous hedge fund manager who's suggesting that gold bullion is headed to $2,000... As the chart shows, that would be a big move from current levels. |
| | Bitcoin - USD/Bitcoin Bitcoin finally broke the down trend line and is now hovering in that area trying to make a decision. It could go either way, but looking more and more like the risk is to the upside. |
| | JNK - High Yield [Junk] Bond ETF JNK still looking for previous resistance. |
| | BRN - Brent Crude Oil Futures Crude was turned back from resistance once again. |
| | VIX - S&P 500 Volatility Index The VIX looks a bit too comfortable at these "low" levels. |
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- Spencer Dinwiddie, who plays guard for the Brooklyn Nets, wants to become the first professional athlete to “tokenize” his contract. Dinwiddie hopes that by tokenizing his three-year, $34 million contract, he will be able to collect its value up front, instead of having to wait. He plans to sell 90 tokens for $150,000 each to accredited investors. After a year, they will be tradeable. The digital security will pay out 4.95% interest on a monthly basis, and fully pay out when it matures in 2023.
- Drugmakers are experimenting with new ways to get paid for their most-expensive treatments. Now that six-figure price tags are common, drug companies are finding creative ways to get reimbursed, from installment plans and subscriptions to more complex, value-based contracts that tie payment to when a drug helps a patient.
- Comcast’s NBCUniversal becomes the fourth company in less than a year to unveil a video-streaming service to compete with Netflix. But NBCU is taking a very different approach to its service, Peacock, than the three earlier companies, Disney, Apple and WarnerMedia, did, making it more of a test case for an alternative approach to video streaming. While other services are mostly free of commercials but cost subscribers $5 to $15 a month, Peacock will rely heavily on advertising but will be free to Comcast cable subscribers and possibly other people. Secondly, Peacock will rely less on original shows and will fill its lineup with more reruns—in some cases shows that are available on other outlets—as well as news and sports. Netflix and Disney’s Disney Plus both rely heavily on originals as a way of persuading people they have programs that you can’t find elsewhere, and the services don’t carry news or sports.
- Airbus is now officially the largest plane maker in the world, after Boeing announced Tuesday that 2019 saw the lowest number of orders and deliveries since 2008, following the grounding of its 737 Max jet. In fact, cancellations resulted in negative 87 orders for the year. The figures came a day after the company's new CEO, David Calhoun, assumed the job. I've been wondering why BA won't crack and fall. I've been assuming its because of the back log of orders.
- Amazon told its merchants that they could use FedEx's ground shipping networks for orders under the Prime membership program again on Tuesday, after a month-long ban amid a standoff between the two companies.
- Waymo quietly finalized a contract with Transdev North America last summer, likely indicating that it expects to rely on backup safety drivers for the next few years. Transdev provides bus drivers and other transportation workers to cities and municipalities. The arrangement aims to end Waymo’s current practice of employing back-up safety drivers through staffing agencies, where drivers would only be employed for two years at a time to avoid potential conflicts with employment status.
- Instacart workers are organizing a national protest to reinstate a default 10 percent tip. The group, which features Instacart contract drivers and shoppers, is asking for those interested in helping the cause to use hashtag “#DeleteInstacart” on social media beginning January 19. The group also asks customers to delete the Instacart app and refrain from using the service until the default tip is restored. I don't even use Instacart, but... Really?
- Electric moped sharing service, Revel, is launching in Oakland, California. In a partnership with the city’s Department of Transportation, the company will roll out 1,000 electric mopeds throughout Oakland. Rides will cost $1 to begin and $0.29 per minute when in operation. Revel will create 30 new jobs in the city through the expansion and will also offer reduced rates to active-duty military, veterans and those on federal assistance programs. The company currently operates in New York City, Austin, Miami and Washington D.C.
- Some transportation advocates worry that changes made in California to Uber’s policies could lead to discrimination. Drivers can now see where they are transporting passengers and can decline rides without penalty. While this is good for drivers, it may also lead to some discrimination against people who are traveling to less desirable neighborhoods.
- Fiat Chrysler Automobiles (FCA) and Taiwanese electronics contract manufacturer Foxconn are teaming up to develop electric vehicles. In a Taiwanese regulatory filing, Foxconn said it was establishing a joint venture to develop and produce EVs, as well as operate internet-connected vehicles.
- A development by Virgin Trains USA to build a high-speed rail project between Las Vegas and Southern California was placed on hold. California State Treasurer Fiona Ma said the company is waiting for the “sign off, final report” from the federal government on the project. Despite the hold, the company still said the project is about three years from completion.
- Microsoft has promised to remove from the environment "all of the carbon" it has emitted during its 45-year history, by 2050. That's not just a carbon-neutral pledge—it's a carbon-negative pledge. Microsoft president Brad Smith: "When it comes to carbon, neutrality is not enough." Environmental campaigners are delighted.
- In an effort to position itself as a leader in sustainable investing, BlackRock has unveiled sweeping changes that will double the number of sustainability-focused ETFs it offers to 150. The world's largest fund manager will also cut companies that derive a quarter or more of their profits from thermal coal from its actively managed portfolios, and assess environmental, social and governance (ESG) "with the same rigor as traditional measures such as liquidity and credit risk." The moves will go a long way toward BlackRock's goal of increasing its sustainable assets ten-fold from $90B today to $1T within a decade.
- Walmart will add shelf-scanning robots to 650 more U.S. stores by the end of the summer, bringing its fleet to 1,000. The six-foot-tall Bossa Nova devices, equipped with 15 cameras each, can reduce tasks that once took as long as two weeks into a twice-daily routine. The world's largest retailer's increasingly automated workforce already includes bots that scrub floors, unload trucks and gather online grocery orders. Jobs, jobs, jobs right?
- Facebook is being sued by four potential competitors that accuse it of anticompetitive behavior and which asked a judge to order Mark Zuckerberg to relinquish control of the company.
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| F.A.A.M.N.G. - I know I'm just adding letters kinda willy nilly, but go with it. |
| | | Facebook looks to be just getting started. |
| | | | Amazon looks to still be in a holding pattern inside the large Bullish Triangle... I suspect the earnings report will be catalyst for a move in 1 direction or the other... Likely higher. If your account has the heft, I would consider risk adjusted 3 month At the Money Calls. |
| | | | Apple has gone parabolic, which normally results in a crash... I wouldn't count on that as long as the fed keeps providing Nitrous Oxide... |
| | | | Netflix looks very similar to Amazon in that it's in a holding period inside a weekly Bullish Triangle... Also like Amazon, I suggest short dated At the Money Calls. However, since NFLX reports earnings Tuesday 21 January 2020 after the close, the position would need to be taken Tuesday morning. |
| | | | Microsoft pushed out of multiple congestion areas, the last of which sent the price parabolic... No reason to sell, but tighten up your stops. |
| | | | Like the other horsemen, Alphabet has gone parabolic... Hold 'em if you got 'em, but be careful about trying to buy 'em here. |
| | | Select Economic Announcements: |
| | | | | As always, make up your own mind and, more important, minimize your risk no matter what you do.
KIS,
The Trader
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| | P.S. Stay tuned... I'll be publishing a video of several stocks that are benefiting in this time of heightened global tensions..
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