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Morning Commentary

Seeking Terra Firma

By Charles Payne, CEO & Principal Analyst
5/24/2019 9:30 AM

It was a tough session for the market that saw the best action in the last thirty minutes of trading where buyers nibbled into the close.  Still, when the closing bell rang, and the smoke cleared, it was an ugly day.

I’m still hesitant to say it was panic, but the selling broadened and the intensity grew, as both the NYSE and NASDAQ saw a higher number of shares hitting 52-week lows since December 27 or last year.



One of the reasons the market rallied into the close was off remarks from President Trump indicating Huawei could be allowed to do future business in America as part of a trade deal with China.  It’s clear to most that President Trump would allow this with certain measures and commitments to safeguard against potential China spying via 5G and other technologies. 

Cost of Tariffs

There are several works out on the cost of tariffs, but most are biased, some very biased, and none in favor of actions taken by the administration.

When those reports begin with “The Cost of Trump’s Trade War,” you can beat there will be some seriously negative assumptions used as the base case, and outcomes will be so dire as to boggle the mind.  I read them all, like I read a periodical. I know it’s biased, but it may contain kernels of facts and insight.

There are lots of entities that benefit from the status quo and others that think cheap stuff is the ultimate aim of capitalism, even justifying slave labor in the past, and indentured servitude today.

NY Fed

The tone of the warnings from several experts sounds like households will automatically be "taxed" 25% on purchases.  Of course, that's not possible, so cost spread from exporters to importers and vendors.  Yesterday, the NY Fed weighed in with cost last year and potential cost once additional tariffs go into effect.

Household Cost NY Fed

Farm Aid Facts

American farmers are getting help from the Trump administration, and I’m happy and proud because they have been targeted by a nation that is deliberately hurting them in an effort to maintain an unfair trade relationship.   Skeptics are wrong for complaining this is picking winners and losers – we are coming to the aid of fellow citizens targeted by a foreign nation.

Moreover, farmers aren’t going to game the system and plant a bunch of soybeans to rip off taxpayers as I heard suggested in the media.

USDA Announces Support for Farmers Impacted by Unjustified Retaliation and Trade Disruption

American farmers have dealt with unjustified retaliatory tariffs and years of non-tariff trade disruptions, which have curtailed U.S. exports to China. Trade damages from such retaliation and market distortions have impacted a host of U.S. commodities, including crops like soybeans, corn, wheat, cotton, rice, and sorghum; livestock products like milk and pork; and many fruits, nuts, and other crops. High tariffs disrupt normal marketing patterns, raising costs by forcing commodities to find new markets. Additionally, American goods shipped to China have been slowed from reaching market by unusually strict or cumbersome entry procedures, which affect the quality and marketability of perishable crops. These boost marketing costs and unfairly affect our producers. USDA will use the following programs to assist farmers:

Market Facilitation Program (MFP) for 2019, authorized under the Commodity Credit Corporation (CCC) Charter Act and administered by the Farm Service Agency (FSA), will provide $14.5 billion in direct payments to producers.

Producers of alfalfa hay, barley, canola, corn, crambe, dry peas, extra-long staple cotton, flaxseed, lentils, long grain and medium grain rice, mustard seed, dried beans, oats, peanuts, rapeseed, safflower, sesame seed, small and large chickpeas, sorghum, soybeans, sunflower seed, temperate japonica rice, upland cotton, and wheat will receive a payment based on a single county rate multiplied by a farm’s total plantings to those crops in aggregate in 2019. Those per acre payments are not dependent on which of those crops are planted in 2019, and therefore will not distort planting decisions. Moreover, total payment-eligible plantings cannot exceed total 2018 plantings.

Dairy producers will receive a per hundredweight payment on production history and hog producers will receive a payment based on hog and pig inventory for a later-specified time frame.

Tree nut producers, fresh sweet cherry producers, cranberry producers, and fresh grape producers will receive a payment based on 2019 acres of production.

These payments will help farmers to absorb some of the additional costs of managing disrupted markets, to deal with surplus commodities, and to expand and develop new markets at home and abroad.

Payments will be made in up to three tranches, with the second and third tranches evaluated as market conditions and trade opportunities dictate. The first tranche will begin in late July/early August as soon as practical after Farm Service Agency crop reporting is completed by July 15th. If conditions warrant, the second and third tranches will be made in November and early January.

Additionally, CCC Charter Act authority will be used to implement a $1.4 billion Food Purchase and Distribution Program (FPDP) through the Agricultural Marketing Service (AMS) to purchase surplus commodities affected by trade retaliation such as fruits, vegetables, some processed foods, beef, pork, lamb, poultry, and milk for distribution by the Food and Nutrition Service (FNS) to food banks, schools, and other outlets serving low-income individuals.

CCC will use its Charter Act authority for $100 million issued through the Agricultural Trade Promotion (ATP) administered by the Foreign Agriculture Service (FAS) assist in developing new export markets.

Portfolio Approach

We are still holding a fair amount of cash.  I am not sure I would put long term funds to work ahead of three-day weekend.  There are a lot of trading ideas as so many great names are oversold on short –term basis. To get started with Hotline today, click here.

Communication Services

Consumer Discretionary

Consumer Staples












Real Estate











Today’s Session

Equity futures have been higher all morning but fading as we get closer to the opening bell.  April Durable Goods report isn’t helping this monring, coming in worse than expected, coupled with big negative revisions.

Durable Goods

April 2019










Captial Goods





While it’s been a rough few weeks for the market, I remain very impressed key support points have held.  On that note, however, the right combination of events hasn’t materialized to force the issue.   The great news is we know what we want to buy and become more excited the lower the price(s) becomes.

Enjoy you Memory Day and remember: Freedom isn’t Free

I've had to rethink my position relative to trade tariffs since current disputes with key trading partners have been raised. Like most things, tariffs have costs and benefits, which tells me that the best answer isn't "all or nothing." In other words this is an optimization problem. The "sweet spot" is somewhere between all or nothing, the point of diminishing returns.

George Elliott on 5/24/2019 10:50:26 AM
If the alphabet news media would quit the negative articles on what Trump is doing, it would make his job of negotiating a good trade deal much easier. When they do this, they only prolong the negotiating process and hurt our great country.

William Brown on 5/24/2019 11:24:32 AM
The press have now become the official anti-America party. I wish they would be shut down. Our country would be better for it.

K Makinney on 5/24/2019 12:37:10 PM
Point 1: China doesn't abide by Western values, they doesn't respect paper. We should not negotiate. Instead we should declare our operating model ... US Tariffs on China = China Tariffs on US + Theft
Problem solved.
Point 2: Though tariffs are paid by importers the costs are born by lower China prices to stay competitive, shifted supply chains to avoid them and importers and manufacturers that drop their margins to stay competitive. Bottom line: 25% China tarrif does not = US consumer prices up 25% as the media tries to sell it.

Ken Knight on 5/24/2019 2:28:26 PM
Amen,..its nuts the media keeps saying this. Imagine if any company had 25% pricing power the Dow would be 45,000. I just hope the American people buoyed by strong jobs market and wage growth unseen in more than a decade stay the course. CP

Charles Payne on 5/24/2019 3:14:53 PM
Charles PAYNE, great to see you help Stuart varney TODAY . Thank you Charles PAYNE for being on FBN. WE thank ALL our brothers and sisters whom have fought, served in our NATION'S defense and help to protect those countries fighting against DEMS SOCIALIST COMMUNIST PARTY REGIME. Have a great memorial day Charles PAYNE. Thank you president Trump, we are ALL Proud Japan's Emperor wants to meet USA president Trump 1st. Before ALL other politicians Dems. Or countries, 200yrs Emperor is giving title to his son, Japan has a 1500 year rule, this is HISTORIC event, but doubt any propaganda fake news will report FACTS about this. THANKFULLY FOX news and FBN will report FACTS about this.

Ed on 5/24/2019 3:28:03 PM
Charles, please Thank God just as I'm doing that he provided you such an excellent outlook in times of stress like now & able to give such sound advice as to "stay the course."

Valerie Kilbourne on 5/24/2019 5:36:06 PM

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