On Monday, the market bounced around like a ball inside a pinball machine, ricocheting back and forth between three bumpers. It made a lot of noise, it was even exciting, but when it was said and done, the session was a gutter ball. 

The market breadth exposed a session much tougher than just a 96-point decline in the Dow Jones Industrial Average.

NYSE

• Advancing: 1,093
• Decliners: 1,821
• Up Volume: 1.046 billion
• Down Volume: 1.927 billion
• New Highs: 77
• New Lows: 36

NASDAQ

• Advancing Issues:1,313
• Declining Issues: 1,801
• Up Volume: 749.8 million
• Down Volume: 1.006 billion
• New Highs: 28
• New Lows 87

Inclination Definition

(noun): a person's natural tendency or urge to act or feel in a way; a disposition or propensity.

After the close, President Trump told reporters his “inclination” is for a large and complete deal, rather than a piecemealed deal in negotiations with China that were suggested as ‘more of a reality’ by many people.  Equity futures didn’t react, even though they seem to open the door for a mini deal as part of a series of additional deal milestones.

Yesterday, the market perfectly reflected the angst of trade negotiations, coupled with the angst of potentially missing a big upside reaction at the conclusion.

Has the Tanker Ship Come In?

Has the shipping industry ship finally come in?  It’s been a long time since we’ve talked about the tanker industry, which is enjoying a massive spurt in excitement and opportunity. Yesterday, shares of Teekay Tankers (TK) rallied 17.2% to $1.70, as rates to ship American crude to Asia continue to surge.

South Korea’s top refiner, SK Energy booked the Pacific M supertanker to ship U.S. crude to the country at $12.35 million, eclipsing the prior record of $10.0 million for charting the Maxim just one week earlier.

Dry Bulk Bulks Up

All the attention on oil tanker fees has put the spotlight on dry bulk shipping, which has been in a very powerful, yet stealthy in the rally this year. Twenty years ago, there was a time when the Baltic Dry Index (BDI) became all the rage, and many talked of it replacing the Dow Jones Transportation Index (DJT) as a better gauge of the industrial economy.

The overcapacity (the world’s fleet doubled from 2010 to 2013).

A lot of that was purchased on credit, and it eventually drove the index to the bottom of the ocean, but is it time to take a second look?

BDI Composition

• 30% Panamax (sized to transverse the Panama Canal)
• 30% Supramax
• 40% Capesize (mostly too large for the Panama Canal), so they must navigate the globe via Cape of Good Hope and Cape Horn

The BDI closed at 1,767 yesterday; up 37% for the year, down from September 9^th high of 2,457.  We are looking deeper into the new shipping story, as there could be amazing opportunities. After a couple of decades of trying to pick the bounce only to see positions sink, I’m going to be very careful.

Portfolio Approach

Communication Services	Consumer Discretionary	Consumer Staples
1	3	1
Energy	Financials	Healthcare
1	1	2
Industrial	Materials	Real Estate
3	2	1
Technology	Utilities	Cash
3	0	2

Today’s Session

Saber-rattling has gotten more intense ahead of the trade talks, but there has been action too reflecting the administrations belief in maximum pressure.

China Trade Talks Plot Thickets

Words

Remarks by President Trump at Signing of the U.S.-Japan Trade Agreement and U.S.-Japan Digital Trade Agreement

Q    On Hong Kong, sir, are the Hong Kong protests linked, in your view, to the China trade negotiations in any way?

THE PRESIDENT:  Well, we’d like to see a very humane solution to that.  I hope that’s going to happen.  And, you know, Hong Kong is very important as a world hub — not just for China, but for the world.  And you have great people over there.

I see they’re flying the American flags.  They even have signs: “Make China Great Again.”  “Make Hong Kong Great Again.”  (Laughter.)

And I’m saying, “Get those signs.”  But they have, you know, tremendous signage and tremendous — they have a tremendous spirit for our country.  They have a lot of American flags, a lot of Trump signs.

I’d just like to see a humane deal be worked out.  And I think President Xi has the ability to do it.

Q    Did you tell Xi Jinping in any way that you would be quiet about Hong Kong protests during the course of these negotiations?

THE PRESIDENT:  No, I didn’t.  But I do say that we are negotiating.  If anything happened bad, I think that would be a very bad for the negotiation.  I think, politically, it would be very tough maybe for us, and maybe for some others, and maybe for him.

Q    Mr. President, would you accept a partial trade deal with China?  There has been some talk today about whether or not it could be headed in that direction.

THE PRESIDENT:  Well, it’s a very good question.  I think it’s not what we prefer at all.  They are starting to buy a lot of our agricultural products.  You see that.  They’re coming in very strong on pork, also — very, very strong — and in particular.  But on other products, that — so, I don’t know if you call that a “partial.”  We don’t have an agreement.

My inclination is to get a big deal.  We’ve come this far.  We’re doing well.  Again, the fact that they’ve done what they’ve done with their currency — the devaluation — it really has not increased prices.  And now we’re talking China.  It doesn’t mean that in all cases that happens; other countries prices increase, but in the case of China that hasn’t happened.  And they put a lot of money into their goods.  They want to keep their people working.  I understand that very well.

But I think that we’ll just have to see what happens.  I would much prefer a big deal.  And I think that’s what we’re shooting for.  Can something happen?  I guess, maybe.  Who knows?  But I think it’s probably unlikely.  Okay?

Deeds

U.S. Department of Commerce Adds 28 Chinese Organizations to its Entity List

https://www.commerce.gov/news/press-releases/2019/10/us-department-commerce-adds-28-chinese-organizations-its-entity-list

Today, the Bureau of Industry and Security of the Department of Commerce announced that it will add 28 Chinese governmental and commercial organizations to the Entity List for engaging in or enabling activities contrary to the foreign policy interests of the United States. This action constricts the export of items subject to the Export Administration Regulations (EAR) to entities that have been implicated in human rights violations and abuses in China’s campaign targeting Uighurs and other predominantly Muslim ethnic minorities in the Xinjiang Uighur Autonomous Region (XUAR).

“The U.S. Government and Department of Commerce cannot and will not tolerate the brutal suppression of ethnic minorities within China,” said Secretary of Commerce Wilbur Ross. “This action will ensure that our technologies, fostered in an environment of individual liberty and free enterprise, are not used to repress defenseless minority populations.”

Stocks to Watch include AMBA.

Paging Powell

Jay Powell speaks today at NABE

NABE statement has set up an intriguing chance for Powell to articulate more rate cuts in front of an audience that has gone against Wall Street’s conventional wisdom (these are economists, so they aren't as worried about the market and their opinions are more rooted in pure number crunching than intangibles like the emotional swoons the street has to deal with see summary below).

If Powell goes out of his way to refute this, it would be huge news for the market and would be good to hear.  If he is nebulous, then it could be a non-factor, although a slight disappointing.

SUMMARY: “NABE Outlook Survey panelists believe the U.S. economy will continue to expand into 2020, but they anticipate GDP growth will fall below 2% next year for the first time since 2016,” said NABE President Constance Hunter, CBE, chief economist, KPMG.

GDP Estimates

• 2018 2.9%
• 2019 2.3%
• 2020 1.8%
  • The rise in protectionism
  • Pervasive trade policy uncertainty
  • Slower global growth

Fed Rate Action

2019

•             60% no additional cuts

•             40% see one more cut

2020

•             75% one rate cut

•             35% two rate cuts

Powell must also grapple with the PPI, which came in at -0.3, even core was -0.3. I keep saying, the Fed should fight deflation now. 

 

 

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