Quote of The Week "The mind is everything. What you think you become."
-- Buddha
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| | Traders:
I hope this email finds you well. I agree with The Buddha with a bit of an exception... What you believe you become.
Belief is far more powerful than mere thought.
Late look tonight because waiting for Crude Oil futures to open (see below) and AAU Basketball... Blame both.
Anyway, there's a lot to cover, so let's get to it. |
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In Sum It was a relatively busy week from a headline perspective. On the macro front, it was mostly centered around U.S.-China relations (yet again) and as expected, the European Central Bank (ECB) cut rates and restarted its QE program. In other news, vaping was a major topic as three more deaths were reported in California, Indiana and Minnesota and 45 vowed to pull most vaping products off the market in the U.S. Apple launched its new line of iPhones and announced a gaming and video-streaming service and the We Company (WeWork) announced some corporate governance changes (along with a massive loss ($900 million for the 1st 6 months of 2019) as it prepares for it’s much anticipated and controversial IPO. Speaking of IPOs, SmileDirectClub fell 28% in its initial day of trading, earning it the title as the worst market debut for a unicorn start-up this year.
As far as the markets were concerned, the major indices enjoyed a third consecutive week of gains. Optimism around easing tensions between the U.S.-China (haven’t we heard that before) and receding fears of a U.S. recession were quoted as the main drivers. I'm not sure I buy the 'no recession' talk given the fundamentals... I think that headline risks are a driver of volatility, and in the absence of any negative news, the propensity of the markets is to move higher, but not because things are necessarily getting better, but rather that unprecedented low interest rates are forcing investors into risky assets.
S&P 500 +.9%; Nasdaq +.9% DJIA +1.6%.
The good news is I really don't need to care about recession or not all that much as a price action driven day trader. Further, it's hard to rebut how the markets are moving given the fact that they are forward looking. |
| | | | - China’s economy isn’t tanking, but it is almost certainly weaker than advertised. Some economists say GDP growth could be up to 3 percentage points lower, based on analysis of corporate profits, tax revenue, rail freight, property sales and other measures that they believe are harder for the government to fudge.
- China has suspended some of its tariffs on American imports, including cancer drugs and lubricant oils. If it's a gesture of goodwill, it's a small one, as Beijing maintains hefty tariffs on major goods such as pork and soybeans.
- 45 to delay tariffs on China. The U.S. will postpone by two weeks a tariff increase that was to go into effect on roughly $250 billion in Chinese goods on Oct. 1. The move could ease chilled relations ahead of planned trade talks next month... Maybe.
- China signed a deal with Argentina to import soymeal from the South America country, which is the world’s largest exporter of the animal feed. China, the world’s largest consumer of soymeal, manufactures most of its feed at home but imports the bulk of soy it uses to do so. The trade war has limited China’s options for soybean imports, allowing Argentina an opportunity to crack into the market.
- The Pentagon is reportedly drawing up a list of Chinese firms with military ties, in order to stop them getting their hands on sensitive U.S. tech and to keep them out of American military supply chains. What's scary is that such a list doesn't exist already.
- The Chinese yuan recently hit its lowest level in more than a decade against the dollar, the euro hit a fresh two-year low last week and the British pound is at depths it hasn’t consistently plumbed since the 1980s. Out of 41 currencies tracked by the WSJ, only nine are up against the dollar in 2019. The declines highlight how fears of a global slowdown and a burgeoning trade war between the U.S. and China have converged to ripple through markets in recent months.
- Since the start of last month, investors have pulled a net $46.2 billion from stock funds, the second biggest monthly outflow this year, and added $13.5 billion to taxable bond portfolios, according to Lipper data. The move highlights tensions between stocks’ near-record highs and the economic worries behind a recent rally in bonds that has sent yields, which fall as bond prices rise, toward record lows.
- A spokesperson for the IMF said that trade tensions between China and the U.S. could shave 0.8% off of global economic growth in 2020, higher than the 0.5% decline previously predicted for next year.
- The U.S. budget deficit has crossed the $1 trillion mark for the first time in seven years. The achievement came in August, when the total deficit hit $1.07 trillion. It was $584.6 billion in 2016, before 45 cut taxes. The national debt is up 13% since he took office.
- 45 is promising a "very, very inspirational" tax cut for middle-income people next year. Details remain scarce, but here he is: "It’s going to be something that I think it’s what everyone’s really looking for…It will be a very, very substantial tax cut for middle-income folks, who work so hard.” I'm just gonna let that marinate...
- Latin America has one of the highest adoption rates of smartphones globally, yet approximately 70 percent of the population is unbanked or underbanked. That's driving a wave of fintech startups introducing tools and services to bring this informal economy online. Good luck with that...
- California state senators advanced Assembly Bill 5, a controversial initiative that would make it harder for companies to classify workers as independent contractors. However, the measure still requires passage in California’s state Assembly before the end of the week, which is when the Legislature adjourns for the year. The news is not positive for ride-hailing companies, delivery services or even scooter sharing services, considering that those companies mostly use independent contractors to largely staff their services. If the bill is passed, Uber, Lyft and DoorDash have collectively committed close to $90 million to defeat the initiative through a possible ballot initiative. I hope it fails as it's an overreach... an attempt to turn those businesses into something they are not.
- Booming shale production has allowed the U.S. to close in on, and briefly overtake, Saudi Arabia as the world's top oil exporter, the IEA said in its closely-watched monthly report. It comes at a time when the U.S. is actively pursuing "energy dominance," putting downward pressure on prices at a time when the market is already struggling to cope with too much supply. The attack in Saudi Arabia will have at least some impact here... see below.
- California takes aim at the NCAA pay ban. Legislators voted to require schools in the state to allow their athletes to earn endorsement money, setting up a collision with the National Collegiate Athletic Association, which limits compensation for college athletes. Free enterprise anyone?
- The number of Americans without health insurance climbed to 27.5 million in 2018, the first year-over-year increase in a decade. The increase appears to have been driven by a decline in coverage under public health programs such as Medicaid.
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| | | Crude Oil Emini Futures Contract [QM] |
| The news out of Northern Africa is having an immediate impact on crude oil futures. I hope everyone filled their gas tanks this weekend. |
| | | - Impossible Foods launches in grocery stores next week. A little chemical with your bun?
- Three more deaths linked to vaping have been reported in Indiana, California and Minnesota, bringing the total number of such U.S. deaths to five. Some type of chemical irritation is likely associated with the illnesses, but more information is needed to determine the exact cause. U.S. health officials are now investigating more than 450 cases of possible vaping-related illnesses in 33 states, while last week, the governor of Michigan announced the state will become the first to ban flavored e-cigarettes. 45 said the U.S. plans to pull most vaping products from the market, citing growing concerns about health hazards and rising use by teenagers of the alternative to cigarettes. The Food and Drug Administration intends to ban popular fruity flavors, as well as menthol and mint e-cigarettes, from stores and online sellers, leaving just tobacco-flavored products.
- E-cigarette giant Juul faces a backlash in its U.S. home market over severe health concerns, but the nicotine vapor maker has just expanded into China, opening storefronts on China’s largest e-commerce sites, Alibaba and JD.com. State-owned China Tobacco has a monopoly on the lucrative cigarette market in China but a number of prominent Juul-like competitors have popped up in recent years. E-cigarette regulations are lax but Beijing has said it might match E.U rulings on vapor pens next year.
- The advocacy group China Labor Watch has accused Apple and contractor Foxconn of multiple violations of China labor law in the production of iPhones. Apple has admitted exceeding the allowed number of contract workers (the cap is supposed to be 10%) but denies most of the allegations, which also include the exploitation of Chinese workers in order to absorb tariff-associated costs.
- For decades, banks and other financiers have relied primarily on consumers' borrowing history to make lending decisions. Now, companies are considering an array of new metrics — including whether applicants shop at discount stores, subscribe to magazines or pay their phone bills on time. Those experimenting with new metrics include both big-name banks like Goldman Sachs Group and upstart financial-technology firms. Big Brother digging deeper...
- Teen retailer Forever 21 plans to file for bankruptcy as soon as Sunday, according to people familiar with the matter, as slow sales, online rivals and changing consumer habits take a rising toll on many bricks-and-mortar chains.
- T. Boone Pickens Jr.: The oilman and pioneer in hostile takeovers whose folksy wit made him one of America's most recognizable business leaders, died at the age of 91.
- Oracle co-CEO Mark Hurd is taking a leave of absence for health reasons. Founder and CTO Larry Ellison will step in to handle his responsibilities.
- Apple showed off a bunch of revamped gadgets this week, including three new iPhones (starting with a $699 iPhone 11) and a new iPad, but also unveiled very competitive $4.99-a-month pricing for its Arcade game-streaming service and TV+ video-streaming service. What's more, people buying the new i-devices will get a year's TV+ subscription for free. Uh oh NFLX...
- Disney CEO Robert Iger has resigned from Apple’s board of directors as the two companies prepare to square off with rival streaming video services.
- Libra, the crypto currency proposed by Facebook, is seeking a payment system license under Swiss financial watchdog FINMA. France said it will block the crypto's development until consumer risk and governments' monetary sovereignty were addressed.
- Intel and the International Olympic Committee are planning an esports competition ahead of the Tokyo 2020 Olympic Games.
- While the move had been planned for more than a year, Jack Ma officially stepped down as the chairman of Alibaba's board on Tuesday. Daniel Zhang will take up the role and continue as the Chinese e-commerce giant's CEO. 2019 is a big year for Alibaba.
- MoviePass’s all-you-can-watch movie theater membership always seemed too good to be true, and it basically was. After multiple price hikes, business model changes, and temporary shutdowns and despite raising a mountain of money less than a year ago, the company is calling it quits.
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| Interesting Stocks From Last Week |
| Apple [APPL]:
The weekly chart shows Apple's run isn't necessarily over yet. Price already breached the lower high and could be headed higher.
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| | Netflix [NFLX]:
The APPL news isn't great for NFLX... and price is at a pivotal point re the rising trendline.
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| | Alibaba [BABA]:
BABA is still at a pivotal place... and could easily break down.
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| | Disney [DIS]:
DIS has had a mad run to the upside... but doesn't really share any sign of letting up. |
| | Oracle [ORCL]:
Looks like it will take a lot more than a leadership adjustment to slow ORCL's upside run.
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| | | | The focus next week is all about Wednesday's Fed announcement. The oil news, US/China trade negotiations, and interest rates will play a part... but the Fed announcement will take center stage. |
| Economic Announcements: - Monday -- Empire Mfg Survey
- Tuesday -- FOMC Mtg Starts, Redbook, Industrial Production, Housing Market Index
- Wednesday -- FOMC Mtg Announcement & Fed Chair Press Conference, Housing Starts, Petroleum Status Report
- Thursday -- Jobless Claims, Philly Fed Business Outlook Survey, Existing Home Sales, Leading Indicators, Natural Gas Report
- Friday -- Quadruple Witch Expiration, Baker Hughes Rig Count
Earnings Announcements: - Monday: Nothing notable
- Tuesday: ADBE, FSX, CHWY, CBRL
- Wednesday: VWAGY, GIS, IFNNY
- Thursday: Nothing notable
- 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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