Quote of The Week "Trading without a stop is like taking the wrong exit off the interstate... and continuing hoping the road taken will eventually turn in the direction you need to go."
-- The Trader
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| | | Traders:
Here's a look at last week and some of what's coming up next week. |
| | In Sum
While the markets pushed higher this week, it's hard to say that sentiment has changed all that much regarding the economy. The media correctly suggests that optimism around the US- China trade relations was the reason behind the move higher, but in truth that’s more rhetoric than anything and any real resolution remains quite a ways off. I'm really hard pressed to see the issue resolved before the 2020 US election. Fortunately, I'm a short term trader... That means I manage what's directly in front of me versus worrying about what happens further out.
Here's what the major US markets did...
S&P 500 +1.8%; Nasdaq +1.8% DJIA +1.5%.
Let’s start with the U.S./China kerfluffle. On September 1, the Trump administration imposed additional tariffs of 15% on thousands of goods made in China, Beijing responded with tariffs of its own on American goods and lodged a new complaint with the WTO. Okay so more of the same tit-for-tat, but let’s spend a few minutes on how this escalating trade war is affecting the U.S. and the rest of the world.
The average tariff on Chinese goods is now over 21%, compared with 3.1% in 2016, it will cost American households an average of $460 a year, according to the WSJ, and economic confidence among small U.S. companies is at its lowest level since 2012. On the global front, Japanese and South Korean manufacturing capex is falling on the back of reduced exports to China and Europe is feeling the effects as well (see below). As a result, Global industrial production is falling, as is trade flows, and a series of surveys of manufacturing companies in Asia and Europe suggests a rebound is unlikely over the coming months.
The U.S. Institute for Supply Management’s (ISM) manufacturing index fell for the first time in three years. Manufacturing accounts for about 11% of the U.S. output and this index is closely watched as it has historically shown a high correlation with economic growth.
On Friday, the U.S. jobs report showed that the economy added 130,000 jobs last month - slightly less than the 150,000 expected - however, the figure was inflated by more government hiring of workers for the 2020 census than expected. The unemployment rate remained flat at 3.7%, average weekly hours increased slightly and average hourly earnings rose 4.24% it’s fastest growth since mid-2007 (which is important to watch because it could provide a wrinkle for the Fed - inflation).
Finally, as Fed officials are gearing up to reduce interest rates in two weeks Fed Chairman Powell came out this week and said they are “not forecasting or expecting a recession” but would “act as appropriate” to sustain the U.S. economy. In layman’s terms - we will be cutting rates as many times as necessary.
On the docket next week, Congress returns to work on Monday from its August recess and will face a September 30 deadline to try and keep the government funded (but remember, they supposedly already have a deal). The European Central Bank is expected to announce on Thursday a package of measures, including a rate cut and asset purchases, to revive the region’s economy.
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| | | | - 45 reportedly had to be talked down from doubling his tariffs on Chinese goods, after he reacted furiously to China's retaliation against said tariffs. Treasury Secretary Steven Mnuchin and U.S. Trade Representative Robert Lighthizer apparently got a bunch of CEOs to call the president and tell him why such a move would be a bad idea for the economy. Makes perfect sense to me that the leader of the free world had to be convinced to not overreact to China's response to his own act...
- 45 also warned China not to stall trade negotiation in hopes of a change in negotiating partners in the 2020 election, saying a deal would only get tougher “when I win.” The fight with China is shaping up to be a central piece of the election debate. Maybe someone should tell 45 just how much of our debt and equity the Chinese own. She should probably be wearing a crop top when she does it in order to assure she has his attention, but everyone has to take one for the team at this point.
- U.S. and China announced they would hold talks in October in Washington. Deputy-level officials will work together in mid-September to lay the groundwork for the meeting. What's really important is where the Chinese delegation stays when they come to town.
- The U.S. trade gap narrowed in July as manufacturing weakness held down imports of business equipment and supplies. The figures highlight a growing split within the U.S. economy, as businesses struggle with global headwinds while upbeat consumers keep up the demand for imported products and services. Until they don't.
- Looking to further stimulate the economy, the People's Bank of China is reducing the amount of funds banks have to hold in reserve as the trade war drags on. Effective Sept. 16, the reserve requirement ratio will be cut by 50 basis points, and further reduced by 100 bps for some qualified banks. The move was the third action of its kind this year and the seventh since early 2008, releasing another 900B yuan ($126.35B) of liquidity into the world's second-largest economy.
- The Pentagon's Defense Advanced Research Projects Agency (DARPA) says it is looking for a private underground tunnel system in which it can train autonomous drones and robots.
- Following months of protests, Fitch has become the first ratings agency to downgrade Hong Kong as an issuer of long-term, foreign currency debt, lowering its ranking from AA+ to AA with a negative outlook. Just as with the Great Recession in the US, the ratings agencies have been asleep at the wheel up until this point... the bonds have already seen dramatic moves.
- The spiraling economic crisis in Argentina has prompted the central bank to slap capital controls on businesses as the peso lost more than a quarter of its value since primary elections last month.
- A Wall Street Journal survey shows economic confidence among small U.S. businesses is at its lowest level in almost seven years, thanks to the trade war. A rising proportion of respondents—two-fifths—expect the economy to worsen over the next year. This is a big part of what drives interest rates folks... Low demand for loans means banks lower the price of money (interest rates) to try to induce borrowers to borrow.
- Truck makers are logging sharply lower orders, adding another stress point for a decelerating U.S. manufacturing sector. The U.S. trucking industry had one of its strongest years ever in 2018, as high demand for freight encouraged transportation companies to expand their fleets. Now, trade tensions and slower global growth are depressing freight volumes. Trucking companies, in turn, are ordering fewer trucks.
- Over the past decade, American schools have spent heavily on devices and apps, betting on technology’s disruptive power to help children learn faster, stay in school and prepare for a competitive economy. But while it has made communication and collaboration easier and allowed students to learn at their own pace, researchers say there is no clear evidence showing which approaches work. The uncertainty is feeding alarm among parents and teachers already worried about how much time children spend with digital devices. Add me to that list of concerned parents...
- Traders are piling into precious metals at the fastest clip in years, driven by a plunge in global bond yields that has fueled a search for assets that can hold their value during troubled times. Gold purchases by everyone from central banks to retail buyers have boosted the metal to its highest level in six years, with a coterie of famous investors now touting its role as a haven from market turmoil. Silver and platinum have outpaced all other major asset classes so far in the third quarter, while palladium is up about 30% year-to-date. I've been talking about this for awhile... I think China is very active in the metals... specifically Gold.
- State and federal officials are urgently tackling a new public health crisis in America: What’s causing a surge in vaping-related lung illnesses? In recent month, 450 people have been sickened by a severe lung illness linked to e-cigarettes across 33 states and one U.S. territory, and five have died, according to public health officials. This is very sad for those affected... but not hard to understand... You put pollutants in your lungs... and you have problems. Given the popularity of vaping, I'm surprised the numbers aren't higher.
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| | | | - Taking advantage of the steep decline in benchmark interest rates, Apple is joining U.S. companies including Deere and Disney by launching its first bond deal since 2017 and selling $7B of debt. All three companies issued 30-year bonds with yields below 3%, a first for the corporate debt market. Cheap money moves people and companies...
- Huawei accuses the U.S. of cyberattacks. The tech giant accused the U.S. of “using every tool at its disposal” to disrupt its business, including cyberattacks and instructing law enforcement to “menace” its employees. Well, that's rich...
- Online sports wagers bring big states payoffs. Bets placed via smartphones have rapidly brought New Jersey neck-and-neck with Nevada, but limits in other states could hamper the nascent industry’s growth. Online gamblers now account for about 80% of all legal wagers on games in New Jersey, which surpassed Nevada for the first time in May in monthly sports bets. But as other states have waded into sports gambling, some are restricting it to physical locations like casinos, hesitating on mobile betting.
- Publishers sue Audible over A.I.-powered subtitles. Seven U.S. publishing housing are suing audio book company Audible over its plan to use machine learning to automatically transcribe audiobooks into text, according to the Associated Press.
- A neural network can predict your biological age and your sex from your heartbeat. Just don't ask why. Researchers at the Mayo Clinic College of Medicine and Science, based in Minnesota, found they could train a neural network to predict a person's biological age with 90% accuracy and their sex with 72% accuracy, by analyzing an electrocardiogram.
- CVS is launching a new $50 million campaign to help stop teen vaping, and create the first tobacco-free generation. The rise of teen vaping “is something I am personally very worried about,” CEO Larry Merlo said on Friday. He cited a study showing “78% of school age kids who are vaping are likely to begin smoking before they finish high school.” We need to hook Merlo up with the information from above re vaping.
- Volkswagen-owned Porsche has unveiled its first all-electric sports car, the Taycan. Germany answer to Tesla's Model S will cost around $90,000 and have a range of around 310 miles.
- Walmart said it will stop selling ammunition for handguns and assault-style rifles, and stop allowing shoppers to openly carry firearms - further restricting its policies after two deadly shootings at its stores last month. The company plans to continue selling other guns.
- 45 has released a formal plan to return Fannie Mae and Freddie Mac, which back more than half of U.S. home mortgages, to private hands after more than 11 years in government conservatorship. He must have friends interested in owning Fannie Mae &/or Freddie Mac
- Apple plans to reveal three new phones with additional rear cameras this week, but the spotlight is turning to younger products such as the Apple Watch and subscription services that the company needs to galvanize growth.
- Top state law-enforcement officials from across the country are formally launching antitrust probes into Facebook and Alphabet’s Google starting next week, adding considerable heft to the investigative efforts under way in Washington.
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| | - We, the parent company of WeWork, is reportedly considering seeking a valuation of about $20 to $30 billion in its IPO. Those figures would mark a significant decline from the $47 billion valuation WeWork achieved this year thanks to an investment from SoftBank. Think UBER... See below.
- Poshmark, an online resale marketplace for second-hand and wholesale clothing, has delayed plans for an initial public offering until 2020. It has reportedly put off the potential IPO to focus on boosting sales and improving its execution.
- The National Basketball Association is reportedly mulling the creation of an investment vehicle that would enable backers to buy minority shares of individual teams.
- SmileDirectClub, a Nashville-based seller of teeth straightening products, plans to raise $1.2 billion in an IPO of 58.5 million shares priced between $19 to $22. The firm posted $423 million in revenue for 2018 and loss of $74.8 million.
- CloudFlare, a San Francisco-based web performance and security company, plans to raise $385 million in an IPO of 35 million shares priced between $10 to $12. The firm posted revenue of $192.7 million in 2018 and a loss of $87.2 million.
- Aramco is considering a plan to split its IPO into tow stages, offering a portion of its shares on the Saudi stock exchange later this year and following up with an international offering in 2020 or 2021, according to advisers and officials familiar with the plans. The company is leaning toward Tokyo as the venue for the second phase of its proposed plan, these people said, as political uncertainty in the U.K. and China reduces the appeal of markets in London and Hong Kong.
- TPG Capital is making its latest move in the realm of software by acquiring dev-ops firm CollabNet VersionOne from fellow private equity firm Vector Capital. TPG is acquiring a majority stake in CollabNet and plans to invest up to $500 million of capital into making it a flagship, integrated dev-ops platform catering to companies’ software needs.
- So far in 2019, the pace of private funding for blockchain and crypto deals lags sharply behind last year, a Crunchbase News analysis finds. The downward trajectory applies not just to initial coin offerings but also to venture rounds for companies in the space.
- Prudential Financial announced that it agreed to pay $2.35 billion for Assurance IQ, a three-year-old, Washington-based insurance company that sells life, health, Medigap and auto policies online. Prudential will also provide up to $1.15 billion in additional cash and equity if Assurance meets certain growth objectives.
- Grove Collaborative, a direct-to-consumer retailer of natural home and personal care products, raised $150 million in a Series D round. The financing sets a valuation for the San Francisco company of over $1 billion, ushering it into the unicorn club.
- Getaround, a San Francisco-based used car marketplace, is a freshly minted unicorn. The company raised approximately $200 million in funding at a valuation of $1.7 billion.
- Alibaba has agreed to buy e-commerce business Kaola from Chinese gaming company NetEase for $2B, adding a platform that specializes in supplying curated luxury goods from abroad to domestic consumers.
- Vista Equity Partners, the 19-year-old, Austin, Tex.-based gobbler of enterprise software companies, has closed its seventh flagship tech buyout fund with $16 billion in capital commitments.
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| Interesting Stock(s) From Last Week |
| Uber [UBER]:
- Uber continues to struggle... and likely will in light of it's ability to turn the corner to profitability.
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| | | | | Earnings Announcements: Relatively light on earnings front this week as we gear up for Q3 results. - Monday: Nothing especially notable...
- Tuesday: SSNLF, RH, PLAY, GME
- Wednesday: VWAGY
- Thursday: ORCL, AVGO, KR,
- Friday: Nothing notable...
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| | | | 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.P.S. If you're interested in day trading, definitely be on the look out over the next few days... I'll soon be sending out something I think you guys will be interested in...
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