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Morning Commentary

Kid Gloves with Kim = Strong Rally

By Charles Payne, CEO & Principal Analyst
9/12/2017 9:33 AM
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The S&P 500 hit a new high, and other big indices aren’t far behind as the market roared back from a week of all the talk of doom and gloom.  Even I suggested yesterday morning that the bounce was a “sigh of relief,” but it was a lot more. 

Sure, the market celebrated the fact that the worst of Irma didn’t come to fruition, and that North Korea didn’t fire off another missile. However, I think the Street liked the idea of watered-down sanctions on the Hermit Kingdom rather than harsher terms initially requested by Ambassador Haley.

The UN Security Council passed increased sanctions 15 – 0 that adds to bans on coal and metals:

Nikki Haley did a great job selling the new sanctions and even praised China and the “strong relationship” between the two leaders. Experts say this isn’t nearly enough. Why did the market rally if the North Korea threat didn’t go away?

The fact is globalists don’t want war. The drumbeats of war are fine as it fuels billions in spending around the world. The impending arms race in Asia could be the biggest ever seen.  Instead of bans on Kim Jong-un’s NK national airline and all crude imports, the UN will go with watered-down sanctions. 

Sanctions Not Working

The problem is sanctions are proving to be futile.  According to South Korea’s central bank, North Korea’s economy climbed 3.9% last year. It was North Korea’s best performance in 16 years, driven by trade in mining, manufacturing, and electricity production.  However, this year, North Korea’s exports are surging, coupled with the so-called “revolutionary fund” and “royal economy” businesses, the Kim family has access to billions of dollars.

No one likes war, which is why it might take tough actions to avoid it rather than limited sanctions. It will not curb Kim’s ambitions or illusions of grandeur. The United States and the United Nations may never be on the same page, in part because China and Russia have ulterior motives with respect to North Korea. 

Meanwhile, big business would rather see the saga drawn out further than a forced showdown. So, that sigh of relief isn’t exactly what’s being reported.

Flight to Safety

We know utilities are considered the safe haven of the market these days, but I think they are getting ahead of themselves. The S&P 500 Utility Index (XLU) is outperforming the S&P 500 in 2017. In fact, it’s 31% versus 24% over the past three years. I wouldn’t talk anyone out of the sector as a hedge fund, but the 3.1% yield may not be enough to justify the move.

That move has come as a result of massive anxiety about the market. Forget the CBOE’s Volatility Index (VIX) investors. They have been able to have their cake and eat it, buying into utilities even if they might be quaking in their boots.

Best Safe Haven?

Right now, I think Apple (AAPL) is the best safe haven.  The stock is cheap by traditional metrics while the company remains steady.

Today, it’s all about the new iPhone 8.  There is speculation the company will have a $1,000 version, which I believe it could be true. During the holidays, look for the 700-dollar version to drive Apple’s profits.  Pricing power has been a hallmark for the iPhone, and that will continue to move the bottom line and share price.

Today’s Session

Equities are higher as all-time high levels are within reach for the Dow and NASDAQ. 

This morning’s release of the NFIB Small Business Optimism Survey continues to show outsized strength.  The key in the release summed up:

“Consumer demand is very strong, and the regulatory relief has been dramatic,” said NFIB President Juanita Duggan. “Small business owners still expect progress on tax reform and healthcare, and they will be watching closely.”

I’ll have more details in the afternoon note. 


Comments
A belated "welcome back to FBN!" I hope your tribulations are behind you now. I have faith in you.

Jerry McDonough on 9/12/2017 10:39:33 AM
I am a "newby" to your site and look forward to your cogent analyses.

Thomas E. Holmes on 9/12/2017 1:31:50 PM
YOUR SUMMATION ABT.WATERED DOWN N KOREA IS ON TARGET! ! WHY IN THE WORLD DOES NOT UN CONVINCE CHINA THE ONLY POWER TO HALTER KIM J. THE LITTLE IDIOT DICTATOR////A NUKE WAR WOULD OBVIATE NEIGHBOR CHINA FROM RADIOACTIVE FALLOUT! CAN CHINA NOT SEE THE FOREST FOR THE TREES???

DON MC NAIR on 9/12/2017 3:27:55 PM
So glad you are back. You were missed! Just started these newsletters and find they have opened my eyes and broadened my scope in my investments. You are the best!

Robert R on 9/12/2017 5:27:49 PM
 

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