Friday Four Play
“There now, we can be friends again.” — Doc Holliday, Tombstone
It’s quite the poker game we’re watching between the U.S. and China.
One side raises with tariffs. The other side calls.
Last week, however, China raised with additional tariffs on U.S. imports. President Trump matched and raised the U.S.’s tariff bet.
China finally called. They’re not responding with additional tariffs … for now.
With relations seemingly normalized — if you can call this normal — the market rallied yesterday.
For its part, the Dow rallied 326 points, finishing just shy of 26,400. I typically don’t mention levels for the major market indexes, but this is an important milestone for the Dow. It hasn’t closed a session above 26,400 since August 2.
In fact, every time the Dow has come close to this level in August, it’s been rejected, and the market has sold off. The area has become a psychological pariah for traders. Because of this, a solid break above this area could be a short-term bullish sign for stocks.
That said, we may not see any meaningful breakout in the market until U.S.-China trade relations are truly normalized. The next chance for that could come next month, when Chinese trade officials arrive in Washington for further talks.
This poker game is far from over.
And now, here’s your Friday Four Play:
No. 1: Generally Speaking
Yet another company has proven that retail isn’t dead.
Dollar General Corp. (NYSE: DG) released a trifecta of goodness yesterday. The company beat top- and bottom-line expectations, blew past same-store sales targets and raised its 2019 guidance. And all this in the middle of a U.S.-China trade war and a fine for selling expired products.
The results prove that Dollar General’s leadership is guiding it through the market storm. Management has rolled out the DG Fresh initiative, which has Dollar General self-distributing fresh and frozen products. Meanwhile, the Fast Track initiative is focused on stock buybacks and productivity.
Investors responded by sending DG nearly 11% higher on Thursday.
Retail is far from dead. What we’re seeing right now is which retailers can adapt to the new online marketplace and which can’t. Dollar General clearly doesn’t have an online presence worth mentioning, but it’s making up for that by revolutionizing brick-and-mortar operations.
The discount model is paying off big. And, if a recession does hit the U.S., Dollar General will be the retailer to bank on.
No. 2: We Just Don’t Work
Just when you thought there was enough controversy surrounding coworking company WeWork…
It was just hit with a lawsuit from a mysterious landlord known as “120 East 16th Street Co. LLC.” The details of the suit are a bit disturbing.
The plaintiff claims that WeWork violated the terms of a lease by transferring liability for the lease from its parent company to the newly created WeWork Companies LLC.
The problem is that the landlord doesn’t believe that WeWork LLC has enough cash to fulfill the requirements of the lease — roughly $150 million.
It’s all wrapped up in legalese, and you can get the full details by clicking here. The problem is that this isn’t the first time this issue has arisen. According to Triton Research, using an LLC to sign a lease isn’t uncommon, but WeWork is holding 83% of future liabilities ($41.2 billion out of $47.2 billion) in LLCs — that’s very unusual.
There are so many red flags surrounding WeWork, it isn’t funny.
For instance, the company values itself like a tech company, despite being just a real estate firm. CEO Adam Neumann trademarked the company’s name and then sold it back to the company for millions. Neumann also cashed out $700 million in stock sales and equity-secured loans from his WeWork position ahead of its initial public offering (IPO).
And we haven’t even touched all the strange things in WeWork’s S-1 filing.
Personally, I would avoid the WeWork IPO like the plague. You’ve been warned.
No. 3: Ma Vs. Musk
Is artificial intelligence (AI) helpful or detrimental to mankind?
It’s a question that’s gained increasing importance in recent years, and it’s one that two of the major players in the AI space debated at the recent World Artificial Intelligence Conference (WAIC) in Shanghai.
“My view is that a computer may be clever. A human being is much smarter,” Ma told the audience.
But Musk quickly countered that: “Computers are much smarter than humans on so many dimensions. … The first thing you should assume is that we are very dumb, and that we can definitely make things smarter than ourselves.”
Musk really didn’t have to say anything … all we need to do is look at his history on Twitter.
But at least Musk is aware that he makes dumb mistakes from time to time. Ma’s opinion that humans will always be smarter than AI is filled with too much pride. If movies like The Matrix, Terminator and 2001: A Space Odyssey have taught me anything, it’s that pride will ultimately be our downfall.
But I digress … from an investing perspective, AI is a red-hot market right now. Both Ma and Musk are heavily invested in this technology of the future, despite being at odds over its threat to humanity.
If you want the real details on how to make tons of money investing in AI, Banyan Hill expert Paul has the inside track. Click here to find out more.
No. 4: Share a Coke With the TSA
Is that a thermal detonator in your pocket, or are you just … thirsty?
The Coca-Cola Co. (NYSE: KO) and The Walt Disney Co. (NYSE: DIS) came up with a brilliant marketing plan for Star Wars fans: Coke bottles themed like a fan-favorite weapon. Fans are going wild for the thermal-detonator themed Coke bottles, but there’s at least one government entity that isn’t happy with the development.
The Transportation Security Administration (TSA) has banned these collectable bottles from all flights on the grounds that they’re simulated weapons. In a tweet response to a fan asking about how to bring them home, the TSA said: “Replica and inert explosives aren’t allowed in either carry-on or checked bags.”
It looks like rebels and bounty hunters alike will just have to ship their Coke bottles back home.
While collectors are inconvenienced by the TSA’s hard-line stance on Coke bottles, the free marketing coverage alone is worth it for both Disney and Coke.
Both companies have cruised steadily higher this year, with KO shares up 17% year to date and DIS up 11%. Coke has benefited by reacting to a shift toward bottled water over sugary carbonated drinks, while Disney is about to become the hottest thing in online streaming since Netflix.
So, TSA or no TSA, these are the blue-chip stocks you are looking for. Now move along.
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Great Stuff Managing Editor, Banyan Hill Publishing