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Morning Commentary

Marco...Polo...China Cuts Own Path

By Charles Payne, CEO & Principal Analyst
5/15/2017 9:45 AM
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Question of the Week

Should America focus on exports to bolster the economy, including more investments outside the USA? Your thoughts?
No- It is globalism time to focus on America First.
Yes- It is a smart investment.

The latest provocation from North Korea and the guessing game over the next FBI director have dominated the headlines. However, the biggest long-term news began over the weekend with China moving forward with its new “Silk Road.”

This project reverse engineers Marco Polo’s route while expanding its footprint, all in the name of China’s goal to propel to the top of economic globalism at a time when the west is retreating.

The ‘Belt & Road Forum’

The roster and attendees for the Silk Road project named ‘Belt and Road Forum’ were quite impressive. Attendees included Vladimir Putin, along with twenty-eight heads of state, representation from four continents, and sixty countries.

The participating countries boast about a 55% global economic output, inhabit 70% of the world’s population, and hold an estimated 75% of known energy reserve.

The project includes 55,000 miles of high-speed rail.

China is spending billions boring tunnels and building bridges and ports in the jungles of Laos and Sri Lanka. There’s $46.0 billion for Pakistan, including the construction of new power plants. This plan is amazing; while the U.S. will play a role, I’m worried we aren’t leading the way on such an initiative. 

I understand the message in our current political environment that it would be difficult, but China’s $1.4 trillion investment around the world is a “China-First” policy.  Of course, with America’s infrastructure crumbling, there should be an effort to bring our roads, bridges, and tunnels into the future. I wonder if the richest nation on the planet can do both.

I’m a proponent of a stronger military, but we must find funds for an economic investment, mostly at home but also abroad. China has made it clear that it wants to supplant the United States as the world’s premier economy.  I understand that a lot of Americans say they aren’t concerned about an economic arms race with China, and many would rather focus on domestic issues. 

However, the benefits of the U.S. dollar being the world’s reserve currency and a never-ending demand for our debt will allow us to focus on domestic issues and survive $20 trillion in debt.                                                                                            

Herculean Deal

U.S. Commerce Secretary Wilbur Ross announced a “Herculean” accomplishment on Friday with the new United States-China trade agreement. The ten-point agreement is just the beginning with Ross promising much more that will fall in line with the administration’s reciprocal approach to trade.

Most of the $2.5 billion agreement involves greater access in key markets for both nations:

United States


Earnings Season

The earnings season wrapped up last week, and it has been better than advertised: 

In this tense period of potential trade wars and skirmishes and questions about the strength of the U.S. Dollar, it must be pointed out that companies with more than 50% of revenue outside of the United States (OUS) grew bottom lines two times faster than the others.

It’s obvious this has been a miserable earnings season for companies that missed or issued even a slight change to guidance. A part of the reason is the extent of the market rally and the herd mentality that runs amok when there is confusion or disappointment. That’s why earnings beats resulted in four-day rallies of only 1.1% versus the 1.3% five-year historical average, and misses that saw stock valuations drubbed by 3.1% instead of a historical average of -2.4%.

Right now, the forward S&P 500 price-to-earnings (P/E) is 17.5, which is two percentage points higher than the average from recent years.

Estimates for the remainder of the calendar year bode well for current and even higher valuations.

2017 Expectations





Revenue Growth





Earnings Growth





This Week’s Key Earnings Report (company and consensus)





Today's Session

The markets are all in the green this morning with cyber stocks leading the way higher following Friday's cyberattack "WannaCry" which hit at least 150 countries affecting computers in factories and hospitals. Oil is also up and WTI is trading around $52 after news that the Russians and Saudis have agreed to keep supply cuts through March of 2018.

Yes, it is a big deal and we, USA, should participate, and we will. I recently spent time in Xi'an China and it is progressing with workers working and economy active!

James on 5/15/2017 9:52:34 AM
The Chinese have been investing abroad for decades in Africa and Latin America with the help of the money they've made on trade with us. They take the long range view; we are always looking at yesterday. The one dark cloud on their horizon is the coming population decline they face thanks to their aggressive 1-child policy. They're waking up to that mistake, but more than a little too late.

Dennis Howard on 5/15/2017 2:43:09 PM
Green is the word of the Day.
Cyber blackmail must be discovered and put to dust and jail time for the offenders
Your points are super - success to your mind
With no break ins

Ramon Espinosa on 5/15/2017 2:49:31 PM
We need to work on our own crumbling infrastructure, weak schools (including liberal colleges that won't allow opposing views), and most importantly jobs in the USA.

Eddie Roop on 5/17/2017 6:51:55 PM
Today we spend most of our efforts on efficiency trying to squeeze out the last amounts of waste out of processes. This is not the way the modern world was created or the way the U.S. became a world economic power after WWII. It was the uniqueness of things we created that made a big difference in driving aggregate demand. Once you can no longer maintain uniqueness reproduction takes over where others can at low risk produce stuff we created at lower cost and sell back to us. This can be traced back to a decline in investing in expanding the boundanries of knowledge that also expands the human imagination. Coupled with risk taking and the freedom to take riisks created the modern world and the most powerful country the world has ever known. We have lost the abilityand desire to create unique things everyone wants!

John Parmentola on 5/28/2017 7:53:14 AM

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