Great Stuff 8-16-2019

Friday Four Play: GEnron, Nvidia’s New Normal and Buying Greenland

The word on the Street today is that the market’s rallying because of strong consumer spending.

Well, rallying is a strong word. Bouncing, maybe?

Pretty much any positive news is going to lift spirits at this point, and Wall Street is clinging tightly to any bit of bullish data that comes out. Take yesterday’s July U.S. retail sales report, for example.

Retail sales rose 0.7% last month, nearly doubling economist expectations. Combine that with the world’s largest retailer, Walmart Inc. (NYSE: WMT), reporting better-than-expected earnings, and we have quite the bullish narrative, don’t we?

President Trump even crowed: “Consumers are in the best shape ever, plenty of cash.”

Plenty of cash? Plenty of debt, you mean. U.S. consumer debt is now at an all-time high of $13.86 trillion — that’s higher than it was just before the 2008 financial crisis. (Well, that’s what all-time high means, duh.)

What’s more, consumers appear to be doing well because they haven’t had to directly deal with Chinese tariffs yet. That would have changed next month if the White House hadn’t delayed the 10% tariffs on toys, electronics and clothing until after the holiday shopping season.

I’ll let you in on a little secret.

Strength in the U.S. consumer isn’t why the market is up today. The real reason is that bond buyers are taking a breather. They’ve been gobbling up Treasurys all week … they needed a break sooner or later.

There’s still more selling to come for the market before recession fears fully subside and the market adjusts.

All you can do is be prepared. Click here to find out how.

And now for something completely different … here’s your Friday Four Play:

No. 1: GEe, This Looks Fishy

Great Stuff 8-16-2019

A fraud case bigger than Enron and WorldCom combined? Say it ain’t so, General Electric Co. (NYSE: GE). And just when it looked like you were beginning to turn things around, too.

GE shares are bouncing back today after suffering their biggest one-day plunge in 11 years — a plunge driven by a building accounting scandal.

“GE’s $38 billion in accounting fraud amounts to over 40% of GE’s market capitalization,” says forensic accountant Harry Markopolos.

Harry is the guy who blew the whistle on Bernie Madoff’s Ponzi scheme years before the rest of the world caught on. He’s like the original hipster of forensic accountancy … if there is such a thing. I’m certain there’s a Monty Python sketch about it somewhere.

GE responded to the allegations by denying them, of course. “GE will always take any allegation of financial misconduct seriously. But this is market manipulation — pure and simple,” said CEO Larry Culp.

The Takeaway:

Wait … market manipulation? The thing is, Markopolos shared his scathing report on GE with a third party before releasing it. As compensation for this information, the third party promised to pay good ol’ Harry and his team a percentage of the profits resulting from positions betting on a drop in GE’s share price.

Profits accomplished.

I’m not saying GE doesn’t have a massive accounting problem, but this reeks of market manipulation. For now, investors should probably stay far away from GE stock. Harry can’t be the only short-motivated insider out there right now.

No. 2: Nvidia’s Back to Normal

Great Stuff 8-16-2019

It’s all clear at Nvidia Corp. (Nasdaq: NVDA) today. The company’s second-quarter report has assuaged fears of a slowdown. (Assuaged … I like that word, it’s satisfying.)

“Essentially our business is normalized,” Nvidia CFO Colette Kress told analysts in a conference call.

So, what is normal for Nvidia? Earnings that fell 41% to $552 million, or $0.90 per share, revenue that dropped 17% to $2.58 billion and missing analyst expectations. That, apparently, is what’s normal.

For the record, analysts were expecting earnings of $1.15 per share and revenue of $2.55 billion.

Digging deeper, the situation was even more “normal” than the headline numbers. Gaming revenue fell 27% and data-center revenue dropped 14%. What’s more, Nvidia placed third-quarter revenue guidance at $2.84 billion to $2.96 billion — below the consensus target of $2.98 billion.

The Takeaway:

Nvidia missed on nearly every key financial metric Wall Street laid out, and NVDA shares are up more than 5% as a result.

Yes, revenue was $30 million ahead of the consensus. Yes, gaming revenue was $10 million ahead of the consensus. But a 5% rally on those minor points?

That’s it. I’m done.

I’ll give Nvidia this, though: It has a good PR team.

CFO Kress said: “We feel really good about sequential growth, we have sequential growth across all of our platforms.”

No. 3: The U.S. Is Going Green

Great Stuff 8-16-2019

President Trump is an islander … a New York islander, that is.

Trump made his name in real estate by putting his name on real estate. So why not continue that success while president?

According to The Wall Street Journal’s “people familiar with the discussions,” Trump is considering taking his island and real estate expertise to the next level by buying the biggest island in the world: Greenland.

Trump has reportedly discussed the idea repeatedly in meetings, at dinners and in conversations with his advisors.

At times he’s been quite serious. At others, not so much. That seems to be Trump’s modus operandi. (Look at Great Stuff breaking out the big words today!)

Greenland has a wealth of natural resources, a population just shy of 60,000 and is a self-ruling part of Denmark.

The Takeaway:

Just when you think things can’t get any weirder…

You wake up and hear that a U.S. president is considering buying Greenland. But the idea isn’t as crazy as it sounds. The U.S. has tried to acquire Greenland before, once in 1867 and once in 1946. Obviously, neither of those deals went through.

Trump is scheduled to visit Denmark next month, but the infamous “people familiar with the discussions” said the trip is unrelated. Those same people also noted that “since Mr. Trump hadn’t floated the idea at a campaign rally yet, he probably isn’t seriously considering it.”

Or on Twitter … don’t forget Twitter.

So, Greenland, you’re safe … for now.

No. 4: You’re My Only Hope

Great Stuff 8-16-2019

There’s a new hope for Star Wars fans!

The Walt Disney Co. (NYSE: DIS) is in talks with Ewan McGregor to reprise his role as Obi-Wan Kenobi on Disney+.

McGregor played the iconic Jedi in the three Star Wars prequel films. Fans (myself included) were heartbroken when Disney dropped the planned Obi-Wan Kenobi movie after the box-office failure of Solo: A Star Wars Story.

To this day, I still can’t figure out how they messed that movie up so badly.

There’s no timeline for the Obi-Wan project on Disney+, but it is part of a growing Star Wars presence on Disney’s new streaming service.

No, there is another…

The Mouse’s House is already making The Mandalorian — a series about Star Wars bounty hunters defined by fan favorite Boba Fett.

Disney+ launches on November 12.

The Takeaway:

Disney … shut up and take my money!

I don’t know how it is in your household, but in my house, we have Netflix, Hulu, Amazon Prime and Crunchyroll … and cable TV. One or more of these things will have to go once Disney+ launches. A certain someone in this house will likely have to make do without cable TV.

That’s the choice facing many in this overloaded content-streaming environment. Disney’s new service is just that good … and the bundle includes sports via ESPN+. It remains to be seen if the online streaming market will feel a great disturbance in the Force, as if millions of voices suddenly cried out in terror and were suddenly silenced.

But Netflix Inc. (Nasdaq: NFLX) will feel the impact. I have foreseen it.

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Joseph Hargett

Great Stuff Managing Editor, Banyan Hill Publishing