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Morning Commentary

Trade War to Cold War?

By Charles Payne, CEO & Principal Analyst
12/6/2018 9:44 AM
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The wild ride continues with the arrest of the CFO of Huawei, Meng Wanzhou, who also happens to be the founder’s daughter.  Prior to the news breaking, there was a good chance for a strong start after China officials and important agencies acknowledged the 90-day extension of trade talks and indicated they would resume immediate purchases of LNG and soybeans.

Of course, one of the greater worries about the trade battle was it morphing into something akin to a cold war with China.  That said, Huawei has long been suspected of double dealing with Iran and potentially being an agent for the China government and military.  In other words, maybe the pieces of a cold war were already in place.

Canada is expected to extradite Meng to the United States over objections from the Chinese government.

Huawei is the largest telecommunications equipment company in China and the world’s second largest seller of smart phones.  Apparently, Meng held the position that there are times and conditions that actually justified the company not complying with US sanctions and other regulations.  Her father complained that US companies were too compliant and in some circumstances,  Huawei would violate them and simply treat fines as part of the costs of doing business.

Interestingly the arrest happened in Vancouver on Sunday, which means officials in China and the United States knew about this, as positive news has since come out from both sides on the trade front.

Now the world knows about the news (there is no doubt in retrospect, that someone on Wall Street knew on Tuesday when everyone was playing the selloff guessing game).

Where’s the Economy

The other guessing game is how strong is the US economy?

There continues to be mixed signals on the economy with all the news in housing disappointing and signs of other parts slowing.  Within that discussion the more important question on how the Federal Reserve sees the economy and its approach to interest rate hikes.

John Williams, New York Fed president, added fuel to the fire suggesting more rate hikes are in the pipeline than Wall Street is modelling for.  Maybe that changes with new data, including tomorrow’s jobs report.

ADP Jobs Report

At 179,000, the number is well-below consensus of 195,000.   We’ll have greater details on the note, but the news actually had a mooted impact on futures trading, equities slightly improving.

https://www.adpemploymentreport.com/2018/November/NER/images/charts/Change-in-Nonfarm-Private-Employment-November-2018.gif

This morning also saw the Challenger Gray and Christmas read on layoffs for November, the trend of major year to year increases.  Aug +14%, Sep +71%, Oct +154% and Nov +52%

I’m watching banks, which continue to get hammered. This isn't about tariffs or even the Fed, there seems to be other issues.  I suspect the connection is corporate debt. 

Regional Banks

https://www.tradingview.com/x/FYvkylsb/

National Banks

https://www.tradingview.com/x/XOj04O6y/

Current WSS Portfolio Approach Portfolio Distribution

We asked subscribers to take profits on Restoration Hardware (RH) on Tuesday.  Like Workday (WDAY), these ideas were going to be held for three to six months, but the gains were too large to ignore.  Moreover, since they aren’t big dividend payers it was wiser to ring the register and have cash on hand.

Communication Services

Consumer Discretionary

Consumer Staples

Energy

Financials

Health Care

2

1

1

1

1

1

Industrials

Materials

Real Estate

Technology

Utilities

Cash

2

4

0

2

0

5

 

I have to say these kind of markets create the most amazing buying opportunities.  The idea isn’t to pick bottoms or try to but take advantage of great news and developments masked by widespread selling.  

We’ll keep refining the buy list and look forward to taking advantage of this wave of selling that is overwhelming based on speculation, rather than fundamentals.


Comments
NEVER STAND IN FRONT OF AN ONCOMING TRAIN
AS THE GREAT KENNY ROGERS SANG
YOU GOTTA KNOW WHEN TO HOLD EM KNOW WHEN TO FOLD THEM

ernest remus on 12/6/2018 2:10:12 PM
 

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