Pavlov’s Market
Wall Street has been conditioned.
The White House says a trade deal is practically done … the market rallies.
The very next day, the White House levies 10% tariffs on Chinese goods … the market plunges.
Ring the bell once — rally. Ring the bell twice — sell-off.
We are truly living in Pavlov’s market right now.
Today, the Dow was up more than 450 points following news of delayed Chinese tariffs. According to the United States Trade Representative, the new tariffs will be delayed until December 15. They were originally planned to go into effect on September 1.
What’s more, some items are now being removed completely from the tariff list. Products being removed include “cell phones, laptop computers, video game consoles, certain toys, computer monitors, and certain items of footwear and clothing,” all of which are apparently health, safety and national security concerns.
The Takeaway:
How many more times is the market going to dance to this tune?
There’s been no concrete headway in U.S.-China trade relations since the trade war started. The market is being led by rumors and promises — all of which have proven empty to this point.
The problem is that, while we know some resolution or sense of normalcy will eventually be reached, the market is still going to jump every time it hears the bell ring. At this point, Wall Street just can’t help itself anymore.
Maybe this time it will all work out?
Maybe we will get another tariff tweet tomorrow?
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The Good: CIT Group’s Wild Kingdom?
I grew up watching the Mutual of Omaha’s Wild Kingdom, hosted by Marlin Perkins. It was the only real wildlife show available at the time, and you had to get the rabbit ears just right for it to come in.
While I miss the show, I’m glad it’s not around anymore. CIT Group’s Wild Kingdom just doesn’t have the same ring to it … and we’d probably have some YouTube influencer hosting the thing. Eeeww.
This morning, CIT Group Inc. (NYSE: CIT) announced it was buying Mutual of Omaha Bank for $1 billion. The cash-and-stock deal is expected to add 20 basis points to CIT’s deposit costs and … well, it’s basically going to make the company more money.
CIT shares are up more than 16% this year but have fallen off lately due to falling interest rates. CIT Group could really use the boost from this acquisition.
The Bad: Tumbling Tumblr
Remember when Yahoo CEO Marissa Mayer had this genius plan to buy Tumblr for $1.1 billion and turn it into the next Facebook? Mayer even “promise[d] not to screw it up.”
Yeah … that didn’t turn out so well.
Not only did Yahoo get acquired by Verizon Communications Inc. (NYSE: VZ), but Tumblr all but died in the following five years. That’s what happens when you kill a web platform’s most popular content. (Hint: It was adult content — shhhh.)
Now, Verizon is selling Tumblr to WordPress.com operator Automattic Inc. for a song. According to reports, the asking price for Tumblr is “well below $20 million.” That’s at least a 98% loss on the original acquisition.
Tumblr still hosts around 450 million blogs and sports about 200 employees. It should be in good hands with Automattic, which might actually know what to do with it. As for Verizon, maybe it can buy a 5G transponder or two with the cash.
The Ugly: Does the Shoe Fit?
Do we really need another subscription service? Nike Inc. (NYSE: NKE) thinks so.
The company announced this week that it’s launching a sneaker subscription service for kids called “Adventure Club.” The service has three tiers: $20 per month (paid quarterly), $30 per month (paid bimonthly) and $50 per month. It serves up a new pair of Nikes four times a year for shoes that cost up to $50.
But, depending on what shoes your child wants, they could still cost you more. The average price of shoes in the target 2- to 10-year-old market is about $60 per pair.
A couple things, however. First, that’s likely too many shoes per year. Second, who has the money to buy a 2-year-old a $50 pair of Nikes, let alone shell out $20 per month for a subscription service?
I love my kids, but they don’t need $50 Nikes when they’re just going to grow out of them in three months.
Finally, I think Nike is targeting the wrong market. A subscription service to sneakerheads age 20 and over could rake in a lot more money. This whole situation will probably end up making Nike money — after all, someone is paying $50 or more for a 2-year-old’s shoes — but it just looks ugly to me.
Are you tired of the doom-and-gloom financial headlines yet? I hope not, because they’re far from over. Remember that no matter how dire the headlines, don’t panic.
You’re not going to die from a market correction — well, not unless you YOLO’d some Boeing Co. (NYSE: BA) $450 November calls … but why on earth would you do that?
In the event of a market correction, stay calm and proceed down the lighted pathways toward the exits. Or, you could prepare your portoflio ahead of time and not have to worry at all.
“How do you do that?”
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Great Stuff: Ignore the Fed, Buy Now!
Unless you’ve been living under a rock (Hey, it can be quite cozy under there!), you know that the U.S. Federal Reserve cut interest rates for the first time since 2008 last month.
It’s old news, I know. You hear about it daily in the financial media. The sky is falling! Rates are falling! The economy is falling!
But Banyan Hill expert Michael Carr would like to remind you of a couple things. First, unemployment, inflation and interest rates are at multidecade lows.
But the market says that interest rates are falling, so the Fed will follow the market.
According to Michael, there’s one serious problem that investors are overlooking: “There is just no way for trillions of dollars in pension funds to get required returns in bonds. They must buy stocks.”
For more on Michael’s analysis, read “Ignore the Fed’s Warning and Buy Stocks Now.”
Or, better yet, get his best trading advice by subscribing to Peak Velocity Trader by clicking here now!
You won’t regret it.
Until next time, good trading!
Regards,
Joseph Hargett
Great Stuff Managing Editor, Banyan Hill Publishing