The Trade War Cycle Is About to Break
It’s getting scary
Canary in a coal mine
Don’t wait ’til it’s dead
By: Ken K.
Ken is a bit late to the Great Stuff haiku contest, but I couldn’t resist including it today. His haiku was just so fitting.
I hope your expectations for the U.S.-China trade talks aren’t too high. Even if they aren’t, you’re likely to be disappointed.
The 13th round of U.S.-China trade talks is expected to begin this week, and China is already downplaying expectations. Specifically, the Chinese delegate, Vice Premier Liu He, does not carry the “special envoy” title. This means that the premier hasn’t been given any direct instructions on trade talks from the Chinese president. (Hint: That’s bad.)
What’s more, Chinese officials are indicating that a broad trade deal is off the table. However, President Donald Trump continues to insist that any trade deal must be “100% for us.”
We’re not off to a great start here.
But if you thought that was the end of it … oh, boy.
Last night, the U.S. added 28 Chinese entities to the export blacklist. The U.S. cites the role of these entities in China’s repression of Muslim minorities. But while this move is technically outside the scope of the current trade negotiations, it will cast a pall on trade talks.
China has already promised retaliation for the move.
I’m not going to lie to you: Market conditions are deteriorating. If you’re a Great Stuff reader, you already know this.
The last time I updated the “Trade War Cycle” chart, we were in the “market rallies temporarily on news” phase. It was the weakest rally since I started tracking the cycle.
Now we are in the “market sells off on trade war fears” phase. I’m dying to see what the administration hints at for a resolution this time around. We could be headed for a breakdown in the cycle if something positive doesn’t come out of this week.
We are already seeing weakening economic conditions around the globe. Many economists and stock market analysts are banking on a U.S.-China trade resolution to improve these conditions.
If these expectations are shattered by another failed round of talks and empty rhetoric about a solution … look out below.
But what kind of Great Stuff provider would I be if I didn’t give you an option on how to avoid this looming market catastrophe?
To find out how to protect your family and your finances, click here now (before it’s too late)!
The Good: Stock Buyback Magic
I really need another header for days like today, when finding something “good” in the market is near impossible.
No matter how you spin it, Domino’s Pizza Inc. (NYSE: DPZ) is bad. Third-quarter earnings arrived in line with expectations. Same-store sales missed expectations, and the company lowered its two- to three-year outlook for sales growth.
Early in today’s trading, DPZ stock was down sharply on the news … and why wouldn’t it be? But Domino’s Chief Financial Officer Jeff Lawrence came to the rescue on the company’s earnings call. Domino’s announced a new plan to buy back $1 billion of shares.
That sounds wonderful for investors, right? DPZ shares rallied on the news and, at the time of this writing, were up nearly 5%.
But think about that for a moment. Domino’s decided that the best thing to do for the company was to spend $1 billion on buying back stock. Does that address falling global same-store sales? Does that move address any of the company’s core issues?
No, it does not. It makes you feel better as an investor. But what Domino’s is essentially saying is that it has no idea how to address those issues … even by spending $1 billion … so it’s buying back stock.
Nothing to see here, investor. Move along.
The Bad: Frozen
How do you know a company is in trouble? When it goes after employees to pay down debt.
General Electric Co. (NYSE: GE) announced yesterday that it’s freezing pensions for 20,000 employees in a bid to pay down debt. After January 1, 2021, those 20,000 workers will no longer accrue additional benefits. Instead, GE is moving toward self-directed retirement plans, such as 401(k)s.
Additionally, GE will offer a lump-sum payment to about 100,000 retired employees who have not officially started their pension payments. Those already drawing on their pensions won’t be affected.
So, how much debt will GE free up with this move? About $8 billion in its pension deficit and roughly $6 billion in net operational debt.
While that sounds good and all, let’s be honest. This move does not spark joy. In fact, it’s a sign that GE’s problems are likely bigger than it lets on. After all, you don’t pursue a move with as much bad PR as freezing pensions unless you really have to.
Apparently, GE really has to.
The Ugly: Blacklisted
What could be worse than Domino’s and GE?
How about the derailment of a $1 billion initial public offering (IPO) and limits on U.S. investment capital?
Megvii Technology Ltd., an artificial intelligence (AI) startup backed by Alibaba Group Holding Ltd. (NYSE: BABA), is facing new hurdles to its IPO. President Trump blacklisted the Chinese AI firm, putting a hurt on the company’s pre-IPO capital-raising efforts.
Furthermore, Trump is reportedly weighing a move to block government pension funds from investing in Chinese companies.
It’s a double-whammy for Alibaba. The Chinese conglomerate didn’t really need access to the U.S. market to continue its rapid growth, but it did need help from foreign capital. Both the blacklisting and the pension moves hit hard on that front.
What’s more, there’s a massive sentiment cost to both of these news items. “This will make people think twice about working with these companies even if there are no legal reasons preventing them from doing so,” said Isaac Stone Fish — I wish I was making that name up — a senior member of the Asia Society’s Center on U.S.-China Relations.
I’ve been a BABA fan despite the U.S.-China trade war for some time now. But today’s flurry of anti-China data gives me reason to reevaluate that bullish stance. For now, let’s just wait and see.
Think what you may of Trump, but the evidence is overwhelming that he is a brilliant market timer. In my 30-plus years in the markets, I have never seen anybody else as good at market timing as Trump.
— Nigam Arora, MarketWatch Analyst
This quote comes courtesy of the MarketWatch article “Opinion: President Trump might just be the best stock market timer ever.”
I have just one response to this: If I moved markets every time I tweeted, I’d be a genius market timer as well. I’m sorry, Mr. Arora, but market timing and market manipulation are not the same thing.
Great Stuff: Wall Street Is Broke
The truth hurts, doesn’t it, Hapsburg. Oh sure, maybe not as much as jumping on a bicycle with the seat missing, but it hurts.
— Lt. Frank Drebin, The Naked Gun 2½
We’re going full-on bear mode today in Great Stuff.
Today, wealth preservation expert Ted Bauman drilled down the problems facing the repo market. You may remember the financial media glossing over the repo market a couple weeks ago. You know, when the Federal Reserve had to pump literally billions of dollars into the market just to solve liquidity problems?
Back then, market analysts blamed the problem on corporate taxes, end-of-quarter repositioning and quadruple witching — the day when stock options, index options, single-stock futures and index futures all expire at the same time.
As Ted explains, the Fed is prepared to keep bailing out the repo market through the end of the year. Once again, this may seem like a good thing, but it may be a sign of a much weaker U.S. financial system.
If you want the real details direct from the expert, read Ted’s article: “Wall Street Is Broke: Prepare for the Next Financial Crisis.”
But, if you want to really be prepared for market turmoil and uncover the keys to endless income in the process, click here.
Until next time, good trading!
Great Stuff Managing Editor, Banyan Hill Publishing