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Trade War Part 2: Interest-Rate Cut Boogaloo

Trade War Part 2: Interest-Rate Cut Boogaloo

The U.S.-China trade war has entered phase 2.

The first phase was hiking tariffs and trying to see who would blink first. But neither side blinked. In fact, China called the U.S. on tariffs and backed out of trade negotiations in May amid some pretty strong rhetoric.

Now, with both countries feeling the tariff effects, it’s time to double down like your grandmother arguing politics.

In order to counteract the pain inflicted by billions in tariffs, the U.S. Federal Reserve sent a “very strong signal” that it would cut interest rates — possibly as soon as this month. Fed Chairman Jerome Powell has said that the central bank “will act as appropriate to sustain the expansion.”

If May’s ADP payroll figures — coming in at a nine-year low — are any indication, Mr. Powell is bound to pull the trigger.

Not to be left out, the People’s Bank of China is also joining the interest-rate race to the bottom. According to Bank of America Merrill Lynch, China’s central bank will lower interest rates twice this year and again in 2020.

And that means that the easy-money party is back on!

Hold on to your hats, we’re going to the moon! (Unless a recession takes us all down first.)

The Takeaway:

Today’s takeaway comes courtesy of Banyan Hill guru Ted Bauman, editor of The Bauman Letter [Note: link to SVC promo]:

If both the U.S. and China are going to use interest rates as weapons in their trade war, the Chinese have the upper hand. They haven’t cut their rates since late 2015, and their benchmark rate is currently 4.35%. That gives them plenty of room to cut. 

The U.S., on the other hand, doesn’t have much room to maneuver. Rates are already low at 2.5%. Add to that the fact that, unlike the dysfunctional U.S. government, the Chinese government is freely able to use fiscal policy to goose their economy, and I’d say the Chinese are better positioned in the trade war.

Not quite the party atmosphere we were hoping for, is it?

The U.S. interest rate cuts are sure to provide a pop for the market — so be prepared to capture those short-term gains. Just be mindful of the longer-term repercussions.

Good, Better, Best

Good: Tesla’s Best Day Ever

Okay, it wasn’t the best day ever for Tesla Inc. (Nasdaq: TSLA) … but I can’t get that song out of my head after family movie night. It was, however, TSLA’s best day of the year. The stock’s more than 8% bounce added about $2 billion to Tesla’s market cap.

For Tesla investors, it was a mild salve. The stock is still down roughly 42% this year and remains the Nasdaq-100 Index’s worst stock of 2019. Tariffs are the biggest issue for Tesla, but investors weren’t too jazzed when they found out that plans to raise $2 billion would only fund the company through 10 months.

Tesla remains the leader in the electric vehicle revolution. Once these growing pains pass (seriously, Kirk Cameron, just go away), the company should be a considerable force to be reckoned with. TSLA investors should hold steady for now — as if you weren’t already doing that.

Better: Soup for You!

Remember when global biscuit and snack sales spiked 37% in the third quarter? Pepperidge Farm remembers. It was a massive gain for parent company Campbell Soup Co. (NYSE: CPB), which reported “mmm mmm, good” third-quarter earnings earlier this morning.

The sultan of soup beat earnings and revenue expectations and guided higher for the year. Campbell’s now expects sales of $9.07 billion to $9.12 billion, and earnings of $2.50 to $2.55 per share. Revenue is a bit on the light side of consensus expectations, but earnings are well above. Consumer goods are often considered a safe haven in times of economic turmoil and recession, so CPB is worth a slot in your portfolio … just in case.

Best: The Smell of Success

I love the smell of cannabis upgrades in the morning! Cronos Group Inc. (Nasdaq: CRON) and Tilray Inc. (Nasdaq: TLRY) are getting high this morning thanks to a little wake and bake from Bank of America (BOA) and Oppenheimer.

BOA lifted CRON stock to a buy rating and boosted its price target to $20 from $13 — a 39% upside. Meanwhile, Oppenheimer initiated TLRY with a perform rating.

CRON is up nearly 8% on the news, while TLRY is harshing the buzz with a 1.5% decline.

After the pounding cannabis stocks have taken in the past two weeks, investors could use a little something-something today [Note: Link to RWE pot promo].

Turn on your images.

Turn on your images.

Never mind the new $6,000 Mac Pro [Note: link to yesterday’s GS ezine] or the $5,000 Pro Display XDR (which is not included in the Mac Pro’s price) … Apple Inc. (Nasdaq: AAPL) also wants to sell you a $1,000 monitor stand!

Just think of all the things you could buy instead of a monitor stand. It’s completely ridiculous. Just how out of touch is Apple these days?

Great Stuff Rant: The New Threat to Your Digital Privacy

Turn on your images.

Big data is the currency of the new digital age.

It isn’t all that new. But our awareness of it is in its infancy. We hand out our email addresses, location data and browsing habits daily to big data firms like Alphabet Inc. (Nasdaq: GOOG), Amazon.com Inc. (Nasdaq: AMZN), Facebook Inc. (Nasdaq: FB) and Apple.

Make no mistake … these are big data firms. They monitor all your interactions, purchases and activity and use that data to sell you more, target you with more ads and sell that data to other companies.

But not handing them that information makes online shopping, internet searches and your general online experience considerably worse. Anyone using the uBlock Origin plugin to safeguard their data in the Chrome browser knows exactly what I’m talking about.

I handed over my online privacy years ago when I started writing for financial publications online. My name and information are everywhere, and no amount of ad blocking or secure email servers can change that now.

My data is out there, floating around on the internet for anyone with the right tools to access. Yours may be too, considering the data that Google, Facebook and the rest scrape from our online interactions.

It’s seriously disconcerting.

I can hear you asking: “Why, Mr. Great Stuff, are you just now worrying about this?”

Put simply, it’s the antitrust investigations.

We’ve all heard about how the Federal Trade Commission and the Department of Justice have already drawn lots over who gets to investigate whom. Tech investors are worried, and rightly so.

While the U.S. government probably won’t gain enough traction to break these big data companies up into tiny pieces … what happens to your data if they do?

Right now, Google and the like have massive funds in their antihacking war chests. What happens when the smaller, broken-up companies don’t?

Clearly, something must be done to check big data’s power. But, hopefully, the cost won’t be your digital privacy and personal information.

Until next time, good trading!

Regards,

Joseph Hargett
Great Stuff Managing Editor, Banyan Hill Publishing

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