A 'Change of Heart' at the Federal Reserve
The latest on the 'trade war'... Why we're still not holding our breath for a deal... A 'change of heart' at the Federal Reserve... Macy's joins the slowdown 'chorus'... Checking in on day two of the Consumer Electronics Show...
The U.S. and China wrapped up their latest rounds of trade negotiations on Wednesday...
And according to accounts from both sides, the talks went smoothly. As the Wall Street Journal reported...
During three days of talks between midlevel trade officials from Washington and Beijing in the Chinese capital that ended Wednesday, the two sides made progress on issues such as additional Chinese purchases of U.S. goods and services, as well as opening China's markets further to American capital...
The U.S. delegation, led by Deputy U.S. Trade Representative Jeffrey Gerrish, left Beijing late Wednesday afternoon... In a statement released after talks concluded, the trade representative's office said officials had discussed making any deal "subject to ongoing verification and effective enforcement." The statement added that negotiators had "conveyed President [Donald] Trump's commitment to addressing our persistent trade deficit and to resolving structural issues in order to improve trade between our countries."
In a brief statement issued Thursday morning, China's Commerce Ministry said the three-day negotiations "promoted mutual understanding and laid the foundation for solving problems of mutual interest." It also said both sides had agreed to keep close contact.
What neither side said, however, was that they were anywhere close to a true resolution in the ongoing trade war. Rather, reports indicate the U.S. and China still remain far apart on the most contentious issues, including a reduction of Chinese subsidies to its own domestic companies as well as protection of intellectual property belonging to U.S. firms operating in China.
Regular Digest readers know we've been skeptical that a legitimate and lasting deal will be reached anytime soon. That's because a true resolution would require significant compromise from both sides, something that neither side has shown any willingness to entertain. This remains the case today.
However, we'll also note that if some type of resolution isn't reached by March 1, the White House has promised to increase existing tariffs on $200 billion of Chinese imports. Chinese officials have already said this could significantly harm China's economy.
In addition, reports this week have indicated President Trump is growing increasingly worried that trade tensions are weighing on the U.S. stock market.
So don't be surprised to see new headlines trumpeting another truce or temporary resolution as this deadline grows near.
Meanwhile, the market is cheering an apparent 'change of heart' at the Federal Reserve...
As we noted following its latest policy decision last month, the market was clearly not happy with the central bank's intention to raise interest rates two more times this year. It appears the Fed has gotten the message...
In recent days we've heard from no less than six different Fed officials – including Chairman Jerome Powell – who have all sung a version of the same "dovish" tune: Additional rate hikes are no longer certain this year.
What's behind this dramatic shift? Perhaps the Fed has simply caved in to political pressure from the White House and Wall Street. Or maybe it's also seeing signs that the economy is suddenly slowing and fears it has already "overtightened."
We can't say for certain. But whatever the reason, we're willing to bet it's nowhere near as bullish as most folks appear to believe today.
Speaking of worrying signs...
Shares of department store Macy's (M) plunged nearly 18% after the company reported weaker-than-expected holiday sales and slashed its full-year earnings outlook. As financial-network CNBC reported...
While the holiday season started strong during Black Friday weekend, it "weakened in the mid-December period and did not return to expected patterns until the week of Christmas," CEO Jeff Gennette said in a statement released before the markets opened. Online sales in November and December as well as at stores operating for at least 12 months were up a combined 1.1%, the company said.
The news set off broader alarms across the retail industry as Target, Kohl's and Victoria's Secret owner L Brands also reported their holiday sales Thursday morning. All of those stocks were falling in morning trading, as were Nordstrom's and J.C. Penney's. L Brands and Kohl's were both down by about 9%, and J.C. Penney and Nordstrom fell around 7%...
Macy's revised its sales forecasts for the fiscal year 2018, saying it expects no growth in net sales, instead of its previous projection of an increase of 0.3% to 0.7%. It's now calling for diluted earnings per share to fall within a range of $3.95 to $4, compared with a prior range of $4.10 to $4.30. Analysts were calling for earnings of $4.23 a share, according to a survey by Refinitiv.
While analysts largely pointed to company-specific concerns for the weakened outlook, we'll remind you that Macy's isn't the only company to report slowing sales of late. In recent weeks, we heard similar warnings from global shipping giant FedEx, technology bellwethers Apple (AAPL) and Samsung, and American Airlines (AAL), among others.
Again, it's still early, but we'd be foolish to dismiss these warnings as isolated events. They could be the first signs that the global economy is beginning to tip into recession.
Finally, we'll close out with some more 'boots on the ground' research from our colleagues out in Las Vegas...
If you've been paying attention to this week's Digests, you know our colleague Dave Lashmet and his team of analysts are attending the renowned International Consumer Electronics Show ("CES").
You see, whether this long bull market continues… or a serious bear market begins… we expect revolutionary advances in technology will create tremendous opportunities for investors in the years ahead.
Yesterday, Dave shared some insight on the booming world of virtual reality and ultra-high-definition video. Today, tech expert Christian Olsen – who authors the Stansberry Innovations Report – wrote to us with some insights from day two of the event. In particular, he's excited about the development of "smart robots," which he believes is one of the next big tech investment opportunities. Here's Christian...
We're at the beginning of a long run which will be a revolution for the manufacturing sector. And one day soon, it could end up causing laborers to disappear from the factory floor altogether.
You see, robots can sustain repetitive motion at speeds greater than humans. We already know this, and manufacturers use robots today as cars roll off the production line. Using robots made a huge difference because it extended what a labor force could do. The robots already relieved them of some labor, which meant increased productivity. Instead of doing a task with his own hands, a worker shepherds a task next to a robot and lets the robot do the brunt of the work.
As Christian explained, smart robots are the next logical step...
And it could change the workforce as we know it. More from his e-mail...
Smart robots will make human laborers unnecessary. They can "see" with sensors... With the addition of artificial intelligence ("AI"), they can "learn" and begin to "reason." And when one Smart Robot learns, they all learn. That's the "smart" part.
Think about what happens when you don't need a factory staff of 3,000 workers at an auto plant. Now, extend that out across the entire sector. Salaries, labor unions, pensions, paid time off... You won't necessarily need all of those things.
Considering that just five years ago, the U.S. manufacturing sector employed 12 million workers – or nearly 9% of U.S. employees – this could have massive implications going forward. More from Christian...
At CES, I saw a Japanese robotics company whose smart robot learned how to play ping pong against a person in real time. It saw what the player did: what his habits were, and how he would respond to a side shot. Then, the smart robot took the information and beat him. It could see... move... and learn.
I talked to one of the company's salesmen. He said everything we saw is double what it was last year... Significantly better perception and faster learning. The trick the company is using is that all of the AI happens on location with the robot. In other words, data doesn't need to stream to the cloud since all of the learning happens on the circuit board next to the smart robot.
Of course, it's not about playing ping pong... It's about jobs disappearing as the robots work perfectly 24/7.
Again, you can go "behind the scenes" with Dave and Christian and get all the highlights from Day 2 of the event at StansberryatCES.com.
New 52-week highs (as of 1/9/19): Kirkland Lake Gold (KL).
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Regards,
Justin Brill
Baltimore, Maryland
January 10, 2019