'Code Red' for Tesla
The White House targets Huawei... Prepare for more 'trade war' fallout... Is Apple in the crosshairs?... 'Code Red' for Tesla... Autos loans are already in crisis... New trouble in commercial loans...
The ongoing 'trade war' took another turn for the worse this weekend...
Last Wednesday, President Donald Trump signed an executive order that allows the U.S. to ban the sale of telecommunications equipment from countries deemed "foreign adversaries."
Though the order didn't mention any countries or companies by name, media reports speculated that it was primarily meant to target Chinese telecom giant Huawei Technologies.
On Friday, the White House went even further – and removed all doubt in the process. As Bloomberg reported over the weekend...
The Trump administration on Friday blacklisted Huawei – which it accuses of aiding Beijing in espionage – and threatened to cut it off from the U.S. software and semiconductors it needs to make its products. The ban, which had been anticipated, hamstrings the world's largest provider of networking gear and No. 2 smartphone vendor.
Blocking the sale to Huawei of critical components could also disrupt the businesses of American chip giants like Micron Technology Inc. and retard the rollout of critical 5G wireless networks worldwide – including in China. That in turn could hurt U.S. companies that are increasingly reliant on the world's second largest economy for growth.
By this morning, the fallout was already roiling global markets...
Technology stocks plunged following reports that several notable U.S. firms – including Google-parent Alphabet (GOOGL), Broadcom (AVGO), Qualcomm (QCOM), Intel (INTC), and Xilinx (XLNX), among others – have already cut off most business with Huawei.
And as you might expect, it was semiconductor stocks that suffered the brunt of the damage. The benchmark Philadelphia Semiconductor Index was down more than 3.6% as of midday trading. It has now fallen more than 13% so far this month – on pace for its biggest monthly decline since the last financial crisis.
Unfortunately, as we've said all too often lately, this situation could get worse before it gets better. As our colleague C. Scott Garliss explained to Stansberry NewsWire readers this morning...
It's hard to imagine China won't respond in kind and ban the sale of Chinese manufactured goods to U.S. companies. That would be a serious near-term problem for Apple (AAPL).
Apple has been one of the companies most affected by the tariffs, because even though the company's iPhones and iPads have components that come from all over the world, many of Apple's suppliers build those parts in China.
In addition, Foxconn and Pegatron, the two companies who do much of the final assembly of the iPhone and iPad, do the work at manufacturing plants based in China.
So, if China decides that goods manufactured in their country cannot be sold to U.S. companies, this could be a major near-term hiccup for Apple's iPhone and iPad production capabilities. In 2018, the iPhone made up 62.1% of the company's revenue, while the iPad made up 6.9%...
And as Scott noted, these troubles could extend well beyond Apple alone...
Consequently, speculation regarding this issue is weighing on companies in the Apple supply chain such as Skyworks Solutions (SWKS), Xilinx (XLNX), Inphi (IPHI), Micron Technology (MU), Qualcomm (QCOM), Taiwan Semiconductor Manufacturing (TSM), Lumentum (LITE), and Fabrinet (FN) to name a few...
Speaking of trouble, our friend Whitney Tilson's bearish call on Tesla (TSLA) is playing out as expected...
As regular readers may recall, Whitney boldly predicted that Friday, March 1 marked "the beginning of the end" for the electric-car maker. As he wrote in the April 5 Digest...
Ever since I (Whitney) got burned shorting the stock in 2013 – watching it march higher from $35 to $205 a share – I've warned my readers about betting against CEO Elon Musk and his team. They've simply pulled too many rabbits out of their hat over the years.
Though Musk often behaves like a narcissistic brat, he's also an incredible entrepreneur with a remarkable track record. He has almost single-handedly pushed every major car manufacturer in the world to invest heavily in electric vehicles, and we'll all be better off for it. (The same can be said for SpaceX and the aerospace industry.)
But Tesla has almost done too good of a job. Now, it faces a massive wave of competition. Electric cars from high-end European manufacturers Audi and Jaguar are already vastly outselling Tesla's Model S and Model X cars in Europe. Meanwhile... Toyota, Kia, Hyundai, Volkswagen, Nissan, and Renault are developing their own lower-priced electric vehicles.
As a result of this new competition, I told readers of my free daily e-letter last month that Musk has no more rabbits to pull out of his hat.
I believe Tesla's stock – which closed yesterday around $268 a share – will be trading below $100 by the end of 2019.
Whitney's timing was nearly perfect...
Shares peaked on February 28 – one day prior – at $316. And they've been falling almost ever since.
On Friday, shares plunged nearly 8% following news that the company's financial health could be even worse than believed. As financial news network CNBC reported...
Tesla CEO Elon Musk told employees in a companywide email Thursday that $2 billion in new funds raised this month is enough to get through only 10 months if Tesla keeps spending as it did in the first quarter of 2019. He requested that everyone at the company take "hardcore" measures to pull back on spending.
Musk wrote in the email to employees, which was obtained by CNBC, that he will take extreme action to control spending. He said Tesla's CFO will review and sign every expense going forward. Musk said he personally will sign off on every tenth page of expenses.
Incredibly, the news got even worse this morning...
Shares fell as much as 8% more after one of Wall Street's biggest Tesla bulls issued an unusually bearish warning.
In a note on Sunday, analyst Dan Ives from financial-services firm Wedbush Securities said the company is in a "code-red situation." He cited "major concerns" about both Tesla's growth prospects and actual demand for its Model 3 sedan. And he believes the company faces a "Kilimanjaro-like uphill climb" to reach Musk's absurd profitability targets for the second half of 2019.
Ives cut his price target from $275 to just $230, after previously slashing it from $365 last month.
Shares closed at a little more than $205 today, after dipping below $200 for the first time since 2016. They're now down more than 30% since Whitney issued his bearish call in March.
Finally, regular readers know we've been keeping a close eye on the credit markets...
Similar to the 2008 financial crisis, that's where the next bear market is likely to begin.
As we've discussed, none of our most trusted indicators are signaling danger right now. But we are beginning to see some early signs of potential trouble...
For example, two weeks ago, we noted that credit card "charge-offs" had quietly soared to seven-year highs. And just last week, we showed you the U.S. Treasury yield curve was threatening to "invert" for the third time in six months.
Today, we can add two more to the list...
According to the Federal Reserve Bank of New York, serious auto-loan delinquencies – those that are 90 days or more past due – jumped to 4.69% of outstanding loans and leases in the first quarter.
To put this figure in perspective, this is the exact same level seen in the third quarter of 2009. And it's just 58 basis points below the peak delinquency rate seen in the fourth quarter of 2010.
In other words, despite relatively low interest rates and an officially healthy economy, auto loans are already going bad at a financial-crisis pace.
But it's not just consumers...
We're also seeing signs that corporate borrowers are beginning to fall behind as well. As the Financial Times reported this morning...
The quality of big U.S. banks' commercial lending portfolios is deteriorating for the first time in nearly three years, leaving investors to wonder whether there is worse to come should the ebullient economy slow.
Non-performing loans at the 10 largest commercial lenders rose 20 percent, or $1.6 [billion], in the first quarter, according to an analysis by the Financial Times. That reversed a steady improvement in credit quality dating back to 2016, when a wave of borrowers fell into default after oil prices crashed.
To be clear, the total level of these bad loans remains historically low. But the speed of the increase is concerning. And unlike the last period of corporate credit stress in 2016 – which mostly weighed on energy companies – this one isn't centered on any single industry so far.
Again, we don't expect a crisis to begin tomorrow...
But make no mistake, a crisis is coming... And the time to prepare is now.
That's why we held our first-ever Bear Market Survival Event last week. If you missed it, it's not too late... For just a few more days, you can watch a free replay of the event right here.
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May 20, 2019