More 'Fake News' on Trade
More 'fake news' on trade... We're still not holding our breath for a deal... China is growing at the slowest pace in 28 years... More signs of weakness in the global economy... Don't miss Doc's urgent briefing tomorrow night...
It's becoming a familiar story...
Last Thursday morning, the financial media trumpeted the good news: U.S. officials were considering making a huge concession in the ongoing "trade war" with China. As the Wall Street Journal reported at the time...
U.S. officials are debating ratcheting back tariffs on Chinese imports as a way to calm markets and give Beijing an incentive to make deeper concessions in a trade battle that has rattled global economies.
The idea of lifting some or all tariffs was proposed by Treasury Secretary Steven Mnuchin in a series of strategy meetings, according to people close to internal deliberations. They say the aim is to advance trade talks and win China's support for longer-term reforms.
To no one's surprise, the market immediately jumped higher on the news...
There was just one problem: It wasn't actually true. As financial-news network CNBC reported a few hours later...
A senior administration official told CNBC's Eamon Javers that "there's no discussion of lifting tariffs now." The official, who participated in a trade meeting at the White House on Wednesday, told CNBC that President Donald Trump "has no interest in making decisions now." The official also added they were "puzzled" by the Dow Jones report that the U.S. was weighing lifting China tariffs.
Now, we have no way of knowing what was actually going on here...
But we will note that unlike some of the other false trade reports we've heard in recent months, this one can't easily be explained away as a "miscommunication" between White House officials. Rather, it sure looks to us like someone was trying to push the market higher ahead of Friday's important January options expiration.
In any case, these reports certainly don't inspire confidence in the markets or the White House. And as we mentioned last time, if the Trump administration continues to "cry wolf," it's likely just a matter of time before folks stop listening.
Unfortunately, the 'real' news on trade has been anything but bullish...
On Friday evening, after the markets had closed for the long holiday weekend – coincidentally, of course – we learned the White House is preparing a new crackdown on Chinese technology firms. As Bloomberg reported...
The Trump administration is preparing an executive order that could significantly restrict Chinese state-owned telecom companies from operating in the U.S. over national security concerns, according to people familiar with the matter.
The order, which hasn't yet been presented to the president, would not mention companies such as Huawei Technologies Co. or ZTE Corp. by name and would not outright ban U.S. sales by the firms. But it would give greater authority to the Commerce Department to review products and purchases by companies connected to adversarial countries, including China, one of the people said.
This was followed by news on Monday that the U.S. Department of Justice is planning to proceed with the formal extradition of Meng Wanzhou – chief financial officer of Chinese tech firm Huawei – who was arrested in Canada last month.
Again, as we noted at the time of her arrest, this move is unlikely to improve trade tensions: Meng is not only an executive at one of the China's biggest companies, she's also the daughter of one of its wealthiest and most-connected men.
And just this morning, we learned that the White House has reportedly cancelled a trade planning meeting with Chinese officials later this week, citing "outstanding disagreements" over the enforcement of intellectual property rules. (As we go to press, White House economic advisor Larry Kudlow is now denying that any such meeting had ever been scheduled. Go figure.)
We continue to believe a legitimate trade deal is unlikely anytime soon.
In the meantime, we continue to see signs that the global economy is suddenly slowing...
Earlier this morning, the Chinese government reported its economy officially grew by just 6.6% last year.
While this was on par with analyst expectations, it also represents the weakest annual growth rate in the country since 1990. And it follows a handful of similarly disappointing reports this month, including the country's first year-over-year decline in auto sales in 20 years.
But the sudden weakness isn't limited to China alone...
As regular Digest readers know, a number of large U.S. and multinational firms – including FedEx (FDX), Apple (AAPL), and American Airlines (AAL), among others – have recently reported an unexpected slowdown in sales. Today, we can add a few more to the list...
Last week, high-end retailer Nordstrom (JWN) became the latest to warn of a slowdown, suggesting even wealthier consumers could be pulling back. As the Wall Street Journal reported on Wednesday...
The retailer, which had been a bright spot in the retail sector, with customers flocking to both its luxury and discount divisions, unveiled disappointing holiday sales late on Tuesday. The company said it now projects diluted earnings per share for fiscal 2018 to fall at the lower end of its previously forecast range of $3.27 to $3.37.
Nordstrom saw weakness specifically in its full-price stores, where same-store sales rose by 0.3%. It will resort to promotions to unload the excess inventory...
A 3.9% rise in same-store sales in Nordstrom's off-price stores, on par with performance earlier in the year, didn't provide much postholiday cheer. There are good reasons for this: Last year, retailers were able to hide excess inventory in their off-price divisions, says Simeon Siegel, a retail analyst at Nomura Securities. Now all that inventory that was diverted to off-price channel is catching up with them.
The bad news continued this morning with a pair of similarly disappointing reports...
Shares of giant toolmaker Stanley Black & Decker (SWK) plunged as much as 15% – their biggest decline in more than five years – after the company slashed its growth forecast for the year. It cited issues in both the U.S. and China for its negative outlook.
Health care giant Johnson & Johnson (JNJ) also warned of significantly slower sales in the coming year. As Bloomberg reported...
Investors look to Johnson & Johnson, the world's largest health-care company, as something of a bellwether. The firm combines a huge pharmaceutical unit with consumer and medical-device businesses, so its performance gives a broad sense of the industry's well-being. What's the prognosis now?
On Tuesday morning, J&J announced fourth-quarter sales and profit that beat analysts' estimates. But it also projected sales growth of just zero to 1% in 2019, its most sluggish rate rate since 2015.
This may be attributable to issues that are specific to J&J, including generic competition for a blockbuster, and hundreds of lawsuits claiming that its talc products have caused cancer. But to the extent that the company's relative pessimism is a sign of more widespread industry malaise, investors should brace for a rough 2019.
Again, as the article noted, it would be easy to write off any one of these companies' concerns as business or company-specific. But we're now seeing the same warnings popping up across a wide range of industries around the world. We would be foolish not to take them seriously.
Of course, as our colleague Dr. David Eifrig explained on Friday, none of this guarantees a recession is imminent…
But like us, Doc believes the risk of a serious market pullback has risen significantly in recent months. If you're nearing retirement or already retired, he recommends getting "defensive" immediately.
Again, he's holding an online briefing tomorrow night, Wednesday, January 23 at 8 p.m. Eastern to explain exactly how to do so. Click here to learn more and reserve your spot now.
New 52-week highs (as of 1/18/19): ResMed (RMD).
In today's mailbag: Praise for Doc's Friday Digest... a reader shares some early success with his first short sale... and an important reminder about proper position sizing.
"[Friday's] Digest is one of the reasons we subscribe to Stansberry. See you Wednesday... " – Paid-up subscriber Jim F.
"Did I ever tell you about the first time I shorted a stock? It was Tesla, way back on Friday. I put in a limit order to sell around $348, went to bed, woke up Saturday morning to find my order filled and the stock at around $304. Sure, $304 might be $600 by Thursday after Elon tweets, but till then, eat your heart out Jim Chanos. Kind regards." – Paid-up subscriber Richard L.
"In a recent Digest, Justin said Steve is still betting big on a 'Melt Up.' How does recommending only 5% to 10% of your portfolio equate to 'betting big?'" – Paid-up subscriber John T.
Brill comment: As longtime subscribers know, we generally recommend putting no more than 4% of a portfolio into any one investment or idea. However, when it comes to more speculative and/or volatile recommendations, our editors will often recommend even smaller position sizes of as little as 1% or even 0.5% of a total portfolio.
So yes, risking 5% to 10% of a portfolio on high-flying Melt Up stocks – which have both tremendous upside potential and tremendous downside potential – is absolutely "betting big." On the other hand, going "all in" – putting 50% or more of portfolio into a single idea – is little more than gambling... And it's a surefire way to wipe yourself out.
Regards,
Justin Brill
Baltimore, Maryland
January 22, 2019