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Morning Commentary

North Korea: Guns for Butter?

By Charles Payne, CEO & Principal Analyst
6/11/2018 9:02 AM
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While more and more folks in media and government around the world openly cheer for a recession or admit they can cause economic harm to quell the rise of self-determination in western nations that threaten the elite Establishment, it should be noted the U.S. economy is firing on all cylinders.  

US Household Wealth

First Quarter

Assets

Liabilities

Net worth

2013

$92.6

$14.0

$78.5

2014

$93.9

$14.0

$79.8

2015

$99.5

$14.3

$85.3

2016

$102.0

$14.5

$87.1

2017

$109.0

$15.0

$94.7

2018

$116.0

$15.6

$101.0

Assets:

Bailing Out the World

Now is the time to address imbalances in trade and other relationships that have chipped away at the economic distance Americans enjoy. The United States peaked as the largest percentage of global Gross Domestic Product (GDP) in the 1950's. Part of the reason is the amount of money spread around the world to help our friends and even non-friends climb back from the ashes.  

The irony is after World War I and II, European nations insisted on curbing the mighty German industrial machine under the guise of stopping it from creating war machines, but the U.S.never put those restrictions on other nations.   

These days, we are told the support and lopsided arrangements designed to assist our allies are entitlements that can’t be adjusted.  

That Was Then, This is Now

The fiasco in Canada is even more of a delicious irony considering how Trudeau hijacked the Trans- Pacific Partnership after the United States bolted and made protectionist demands to preserve “cultural industries.”

And it’s not just Canada. 

The European Union has stated it’s ready to hit American industries with $7.0 billion in additional levies with a focus on peanut butter, motorbikes, whiskey, orange juice, and cranberries. It’s obvious these items were picked specially to target states President Trump won after many of them flipped in 2016.  

However, the European Union (EU) has made the mistake of also revealing its hypocrisy because of current tariffs on these products. 

European Union Tariffs

Product

State

22%

Cranberries

Wisconsin

22.9%

Orange Juice

Florida

11.0%

Whiskey

Tennessee

6%

Motorbikes

Wisconsin

 

• Milk production is down 25% from 1996 to 2016. Not only are these potential actions politically motivated, but in the case of orange juice with the EU and those massive tariffs on dairy in Canada, these vulnerable industries are already suffering.

• Orange juice production has swooned to 215 metric tons in 2017 from 761 metric tons in 2008

As for the Group of Seven (G-7) meeting, and how angry our allies are and the potential for kicking America out of the organization, it would be the same as kicking Steph Curry, Kevin Durant, and Klay Thompson off the Golden State Warriors.  

America Shouldn’t be Bullied

I have a nephew who has always been the biggest kid in his class, so he was taught to never bully anyone or take advantage of his size. The sad irony is now he is often bullied and refuses to fight back.  It’s admirable on the one hand, but at some point, he has to stand his ground and remind others he isn’t a troublemaker. And he shouldn’t be victimized because of that. 

The Market 

It’s not that often the market rallies into the close, especially on a Friday summer day with so many unknowns floating around,but that’s what happened last week. And the strength was even more robust when you look at market breadth; between the NYSE and NASDAQ, there were 272 new highs against only 42 new lows. 

The market loves to rally in stealth mode along with the current news cycle; the fixation over Trump’s antics and all the open-rooting for him to fail have provided the perfect cover.

The Message of the Session

Last week, we have learned the answer to the question that many wondered but feared to contemplate: can the stock market rally without technology leadership?

The answer was a resounding yes. What was more intriguing, however, was the leadership and where it came from -the consumer is back, and if you have been listening to me for months, you are making a lot of money and crushing the experts and naysayers.  

S&P 500 Index

 

+0.31%

Consumer Discretionary (XLY)

 

+0.21%

Consumer Staples (XLP)

 

+1.23%

Energy (XLE)

-0.19%

 

Financials (XLF)

 

+0.14%

Health Care (XLV)

 

+0.58%

Industrials (XLI)

 

+0.33%

Materials (XLB)

 

+0.28%

Real Estate (XLRE)

 

+0.34%

Technology (XLK)

-0.17%

 

Utilities (XLU)

-0.04%

 

On Friday, Consumer Staples was the best performer, and there is no doubt we will probably see more nibbling. Last week, I mentioned I liked Monster Energy (MNST) in this sector. The real action has been in consumer discretionary names, which benefited earlier in the year because Amazon (AMZN) and Netflix (NFLX) are a part of the sector as well but look at pure brick-and-mortar retail.

Retail (XRT) was up more than 6% last week, and more than 9%in the last three months, which crushed the less than 2% move in technology. 

Sector Performance

5 Days

3 Months

Year to Date

Technology

+0.83%

+1.66%

+12.09%

Consumer Staples

+2.36%

-6.90%

-10.65%

Consumer Discretionary 

+3.17%

+3.46%

+11.38%

Retail ETF (XRT)

+6.28%

+9.02%

+9.67%

However, there is a lot more to the market than technology.

I think you need exposure to trucks and rails, chemical stocks,and packaging, along with brick-and-mortar retailers, but I wouldn’t chase any.

I’m also looking at homebuilders where there are well-known headwinds, masking a robust demand.  

Singapore Summit

It’s all about the meeting between President Trump and Kim Jong-un. The entire world will be watching and (mostly) hoping for what was thought to be impossible. The focus is on whether North Korea can live with being a nuclear-free nation. As we head into this summit, there is greater anticipation as economics will be the biggest weapon in President Trump’s quiver.

According to The Heritage Foundation, North Korea is ranked 180 out of 180 nations in its 2018 ranking of Economic Freedom. 

The interesting thing is while North Korea is a central-command economy, there are pockets of free markets, including more than 3,000,000 mobile phones. The Hermit Kingdom may have its feet in the age of the Flintstones, but its eyes and ears know all about The Jetsons. 

Today’s Session

It’s more than Mickey Ds

The media has been having a field day with the idea that Kim Jung un is angling for fast food franchises with this summit.

This goes well beyond McDonald's.  Considering the fastest growing economies in the world are in Asia (this century is thought to be the Asia Century), the opportunities are boundless.

In 1950, there was a $110 difference in Per Capita GDP on the Korean Peninsula.  Since then, South Korea has seen remarkable growth to a $1.4 trillion a year economy versus $12.4 billion for North Korea.

Per Capita GDP 2015 (last year for NK data)

Sidestepping Arm’s Race

The foundation for global economic growth has been peace, and the only thing that threatens this in the east is the presence of nuclear weapons.  In fact, after the November launch, it was becoming harder to argue that Japan shouldn't ditch Article 9 from its constitution, which forbids the use of force as a means of settling international disputes but also forbids Japan from maintaining an army, navy or air force.  We are talking about the potential for a nuclear arms race hanging heavy in the air last year. 

 


Comments
Charles, when pres Trump, does legalize marijuana , & gives NON violent , people that served their sentence, or reduced, the right to vote, Pres Trump will also save the police,& feds billions in enforcement dollars, as well as adding MORE TRUMP VOTER'S, a complete WIN WIN WIN, DEM party will LOSE so many voters, they will be unable to fill any resistance in Congress Senate. Public opinion Pres Trump wins. USA CITIZENS have PRIDE, celebrate, and we All go back to being 1 nation , life is good, be invested.. Thank you sir, you should fill in for varney more ofeten..

J on 6/11/2018 9:34:32 AM
Good article Charles. You hit the nail on the head very well exposing the elite for what they are.

Bill on 6/11/2018 10:18:24 AM
I have such phenomenal heartful appreciation to Charles and folks for the continued appreciation for keeping me in the loop of his knowledge and letting me continue my membership. After my devastating surgery that wiped out all my retirement and finally in May I was able to pay off the final debt from the surgery. At 70 years old I can never add to any wealth management I survived the cancer and thank God I did! I align myself in his philosophy advisement! As a manager in the trucking industry when I worked for 38 years. The manufacturing in the USA was devastated! Trump is bringing it back. The Mexican immigration was needed, without it crops would not have been harvested. But it is becoming automated because second generation won't do it. Too much is not good.
Bravo Charles and folks!
Jack Girnus

Jack Girnus on 6/11/2018 10:59:38 AM
I love your story about your nephew. Amazing that the "modern elites" have lost sight of basic human truths. Nations are "BIG" people who operate in much the same fashion as we "little folks."

Jane Jimenez on 6/11/2018 3:11:05 PM
Charles I too enjoyed listening to you fill in for Varney. To be fair, I do like Varney a lot too.

Chris DeGhelder on 6/12/2018 6:03:50 AM
 

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