New Signs of a Bottom in China
More troubles for Tesla... The U.S. Justice Department has a few questions... Jaguar and Audi enter the luxury electric-vehicle market... New signs of a bottom in China... Tencent is still buying... In the mailbag: Not everyone loves the Apple Watch...
Last month, we noted that electric-car maker Tesla (TSLA) and its erratic CEO Elon Musk could be in serious trouble...
In short, in addition to the company's ongoing business problems, Musk's ill-conceived (and according to some reports, drug-fueled) tweet that he had secured funding to take the company private had caught the attention of the U.S. Securities and Exchange Commission ("SEC"). We warned that significant penalties – and perhaps even criminal charges – were possible.
Today, it appears the worst-case scenario could become a reality: The U.S. Department of Justice has now opened a criminal investigation as well. As Bloomberg News reported this morning...
Tesla is under investigation by the Justice Department over public statements made by the company and Chief Executive Officer Elon Musk, according to two people familiar with the matter. The criminal probe is running alongside a previously reported civil inquiry by securities regulators.
Federal prosecutors opened a fraud investigation after Musk tweeted last month that he was contemplating taking Tesla private and had "funding secured" for the deal, said the people, who were granted anonymity to discuss a confidential criminal probe.
Of course, regular Digest readers know this isn't the only new threat to Tesla's business...
Earlier this month, we told you that German luxury-car maker Daimler had officially introduced its first all-electric Mercedes-Benz SUV. This morning, the Wall Street Journal reported two other luxury-car makers have now done the same...
Customers like Tom Richmond could become a problem for Elon Musk and the future of Tesla.
The Florida consultant is selling his Tesla Model 3 and replacing it with a Jaguar I-Pace, a new all-electric sport-utility vehicle arriving in a few weeks that, he said, has a romantic British sports-car heritage, luxurious interior and runs on electricity. "I mean a Jag – how could you not?" said the 60-year-old from St. Petersburg, Fla. "You sit in any one of them – it is just the lap of luxury."
The I-Pace, which starts at about $70,000 and arrives in U.S. showrooms this fall, represents the first of a long-promised assault by European luxury auto makers to challenge Tesla with their own high-end, long-range electric vehicles. They are gunning for one of America's most popular vehicle categories: SUVs.
On Monday night near San Francisco, German auto maker Audi revealed the production version of its electric SUV called the e-tron. It aims to begin selling the spacious, five-seater in the U.S. next spring starting at about $75,000, slightly less than the roughly $80,000 base price of Tesla's Model X SUV.
Tesla shares closed down more than 3% today.
In other news, President Donald Trump officially announced his latest round of Chinese tariffs last night...
The president said he had directed the United States Trade Representative ("USTR") to place 10% tariffs on an additional $200 billion of Chinese imports, effective next Monday, September 24.
He also said that these tariffs will rise to 25% effective January 1, 2019, if no deal is reached before then.
And once again, he warned that should China take retaliatory action in response, his administration would "immediately pursue phase three" of its plan, which would place tariffs on an additional $267 billion of Chinese imports.
Regular readers shouldn't be surprised to learn that China has already done just that...
Shortly after the president's statement, China's Ministry of Finance said it had no choice but to retaliate once again. It announced it would enact tariffs on another $60 billion on U.S. goods effective that same day.
In short, it's likely just a matter of time before the White House declares that "phase three" is underway.
As we've discussed, this third round of tariffs would more than exceed the total amount of U.S. imports to China each year. This means China would soon be "out of bullets" to retaliate in kind, as U.S. Secretary of Commerce Wilbur Ross so delicately put it during an interview with financial-news network CNBC this morning.
Surely, this means China will soon concede and drop all trade barriers, and the U.S. will 'win' the trade war, right?
Not so fast...
While we would love nothing more than to be proven wrong, we suspect China will not roll over so easily.
You see, the White House's hard stance and rhetoric
In other words, there's no telling just how far the Chinese government might go to "save face." And if further tariffs are impossible, it may believe it has no choice but to turn to the currency or bond markets to strike back.
In the meantime, we could be seeing an important change of character in the market...
As regular readers know, Chinese stocks have suffered the brunt of the ongoing trade war.
Since the turmoil began in earnest this spring, the S&P 500 Index has rallied more than 10%. Over that same time, the benchmark Shanghai Stock Exchange Composite Index has fallen nearly 20% to a fresh multiyear low. But that could now be changing...
Despite worsening tensions, Chinese stocks closed in the green today. The Shanghai Composite rose nearly 2%, while many other indexes and individual stocks rallied even more.
Of course, one day alone doesn't make a trend... But it's an encouraging sign nonetheless. When stocks stop falling on bad news, it's often a bullish signal.
As Steve Sjuggerud has explained, Chinese stocks are already as cheap and hated as they've been in years... And if today's rally is any indication, it may not be long before we see a new uptrend as well.
Speaking of bullish signs in Chinese stocks...
Last week, we noted that Steve's favorite "New China" recommendation Tencent (TCEHY) had recently bought back its own shares for the first time in years.
The company purchased roughly 150,000 shares worth around $6 million on September 7 and September 10. These purchases weren't especially large, but they were noteworthy. As we wrote in the September 12 Digest...
As you can see, Tencent executives have been remarkably disciplined over the past several years. While many companies have been using share buybacks to "juice" earnings growth, Tencent has repurchased shares only two other times in the last six years.
Each of these occurred following a sharp correction when shares were "on sale." And each occurred at or near a long-term bottom in the stock.
But the company didn't stop there...
As our colleague Scott Garliss reported in the Stansberry NewsWire yesterday, Tencent has continued to buy back significantly more shares in the days since...
Tencent recently announced for the first time in four years that it was buying back stock... Since that time, the company has repurchased an additional 564,000 shares, including 118,000 shares today...
The company invests in startups all over the world. It is always looking for advantageous ways to spend its money.
Considering the 22% drop in the price of its shares year-to-date, the company must see something it likes. Instead of investing that cash in a start-up, it is buying back its own stock. Typically, that tells you the company is optimistic about its future business products and opportunities.
As always, the market offers no guarantees... But this is an incredibly positive sign. The last two times Tencent executives were this bullish, shares surged hundreds of percent over the next several years.
New 52-week highs (as of 9/17/18): Blackstone (BX).
In today's mailbag: More praise – and plenty of criticism – for Dave Lashmet's take on the Apple Watch... and kudos for Doc Eifrig's Retirement Millionaire service. Send your notes to feedback@stansberryresearch.com.
"Hi Dave, thanks for the Apple Watch insights. I was an early adopter of 1st gen Apple Watch. I sold it for pennies on the dollar because I was dissatisfied. Heart rate monitor was erroneous and unreliable. Sleep detection was manual, meaning you had to tell it when you were sleeping!!! The processor was slow, it wasn't waterproof, and the battery time was inconveniently poor.
"I did like the look and style and other smartwatch functions, but the many issues stated above were deal breakers. I continue to use my multitude of other Apple devices and remain a shareholder. I have been happily using Fitbit ever since." – Paid-up subscriber Zane N.
"I bought the [Apple Watch] Series 1 when it first was released, and last year I upgraded to the Series 3. I absolutely love it. The Series 1 went to my granddaughter, who uses it daily. I'll probably wait for the Series 5 before upgrading." – Paid-up subscriber Dean D.
"I've owned my Apple Watch for three years next month. I have been using the fitness part since the beginning, and my wife liked it so much I got her one 2 months later. I'm pretty rough on watches but have not had even one problem yet. My wife took a hard fall a year and a half ago and cracked the screen very slightly but still works fine. We love the fitness ability and use it religiously every day. It's helped us to lose weight and get daily exercise. We can also check our heart rate. There's so much we like about it and will buy new ones when these 3-year olds stop working..." – Paid-up subscriber Howard L.
"Looking forward to
"
"While I own a
"I very purposefully carry a flip phone on my person in case I need it and I don't feel the least bit deprived. If
"But sorry Dave, you haven't made the sale with me. Its gonna take a lot more selling before I become convinced that I am gonna 'i-Die' if I don't rush out and spend $1,000 to buy an [Apple Watch]. Three years from now when Dave's kid's gen-1 watches are on sale at DiscountElectronics.com for $50, I might be tempted just out of curiosity, but only mild curiosity.
"Until then I will invest that $1,000 on Stansberry recommendations so when the time comes I can buy that watch with OPM (other people's money – investment gains) and in the meantime I will just have to avoid riding my bicycle into the river, like I did 'back in the olden days.'" – Paid-up subscriber and "tech skeptic" William C.
"In his enumeration of stages, Dave Lashmet left out one category: 'Luddite.' I do not now own, and never have owned, a cell phone of any generation or brand. And I have used a paper map within the past week, and found what we were looking for faster and more easily than my son did
"That same watch with a GPS is nothing more than a locator devise that the deep state wants everyone to have! Eventually, the spying Software in computers and phones, TV, DVD, DVR, ISP, and OnStar etc, will know exactly where you are, what you are talking about, and like the movie The Net, will be able to stop your financial life, control your every move, stop your vehicle, possible stun you with your own Health watch, pick you up and put you in a box with the other patriots. Why would any thinking knowledgeable person voluntarily wear a spy device?????" – Paid-up subscriber P.B.
"I've gotten LOTS of newsletters thru the years... but Doc's Retirement Millionaire is the best! A great combination of investment advice, practical living and health tips, etc. He is extremely gifted as a writer... knows how to explain things in simple ways we can all understand and has a way about him that is easy to follow and so thorough... It was a 'God thing' that my husband was just diagnosed with CLL cancer, and today's issue addressed that cancer and the new immunotherapy... Stansberry is so fortunate to have him, with all his life experiences, knowledge, and dedication to helping people. Would love to know more about him... married, significant other, kids, etc.?? Thank you, Dr. Eifrig! (and thanks for the referral for annuity info to a great guy right here in the Phoenix area that I spoke to, and told him you sent me)." – Paid-up subscriber Michelle P.
Doc Eifrig comment: Thanks for your kind words. Actually, I've assembled an incredible team of people that make me seem much better than I am... Amanda, Jeff, Laura, Matt, Carli, and Steven very directly add value that makes our writing useful and readable. And so many other folks around me add spice and keep this place going, I couldn't mention them all.
I'm sorry to hear about your husband... There's a fantastic lymphoma expert at Roswell Park Cancer Institute in Buffalo, New York – Dr. Paco Hernandez – if you need another opinion.
As for my personal life... I'm blessed with many friends and family members all over the world. In fact, I'm in Cortona, Italy today but heading to visit a cousin in Lisbon, Portugal tomorrow. And then hosting my nephew next week in Buffalo and shortly thereafter having dinner in Baltimore with Retirement Millionaire lifetime subscribers.
And yes... Dave in Arizona is a very good guy! But again... that's my key... find good people and then ask for help. Same with my
Regards,
Justin Brill
Baltimore, Maryland
September 18, 2018