WASHINGTON
— The trade war between the United States and China entered a more dangerous
phase on Monday, as Beijing allowed its currency to weaken, Chinese enterprises
stopped making new purchases of American farm goods and President Trump
indicated he would look for ways to retaliate.
The
escalation shook world markets on Monday, as nervous investors looked for safe
places to park their money. Wall Street suffered its worst day of the year,
with the S&P 500 closing down nearly 3 percent. Selling was especially
heavy in the trade-sensitive technology, consumer discretionary and industrial
sectors. Yields on United States Treasuries, which fall as prices rise, dropped
as investors sought safety in government-backed bonds. Benchmark indexes in
Asia and Europe also fell.
On
Sunday, the People’s Bank of China, the country’s central bank, allowed its
currency to weaken past the psychologically important point of 7 to the
American dollar for the first time in more than a decade. In an unusually blunt
statement, the bank blamed the currency fall on Mr. Trump’s “unilateralism and
trade protectionism measures and the imposition of increased tariffs on China.”
Mr. Trump’s decision to impose additional tariffs
on Chinese goods also prompted Chinese enterprises to halt purchases of
American agricultural goods, according to China’s state-run Xinhua News Agency,
which called the president’s proposed tariffs a “serious violation” of an agreement
reached in June with Chinese President Xi Jinping.
1.Software ETF a Double in 3 Years with Many Names Trading at
20x Sales vs. S&P 2x Sales.
The exchange-traded fund (ticker: IGV) is up 32% this year and
100% over the past three years. Many software companies are now valued at
more than 20 times projected 2019 sales—and without any earnings. No major
industry has a higher valuation. The S&P 500 index is valued at about two
times sales
Sky-High Software Stocks Are
Beginning to Look Like They’re Forming a Bubble–Andrew Bary
And Tech shorts have capitulated. Usually
sign of top, says the always negative Zero Hedge – Growth Tech was shredded yesterday
From Dave Lutz at Jones Trading
3.Rate Cuts
Near Equity Highs…Historically Positive.
While they are not an explicit component of its mandate, changes in the
Fed’s monetary policy often have an observable effect on US securities markets.
Rate decisions are often discussed as they relate to fixed income markets, as
rate movements have a direct and inverse relationship to bond prices. However,
as we saw earlier this year when dovish comments from Chair Powell led to an
equity rally, fed rate policy can have also have important implications for the
US stocks. So, what’s in store for the US equity market should the Fed cut
rates next week as anticipated?
The expected rate reduction from the Fed comes against the backdrop of a
US equity market that has seen each of the major large cap benchmarks hit new
all-time highs within the last week. Based on research by John Lewis, Senior
Portfolio Manager at Nasdaq Dorsey Wright, since 1990, when the Fed has
initiated a rate cut when the S&P 500 SPX was
within 5% of its high, on average, the index has posted positive returns over
the next one-, three-, six-, nine-, and 12-month period; with an average
12-month gain of almost 11%. In fact, the only two occasions when we saw
negative 12-month returns following a rate cut when SPX was within 5% of its
high were the two successive cuts in September and October 2007, which preceded
the global financial crisis. On the other hand, when a rate cut has been initiated
when the S&P 500 is more than 15% below its high, on average, the index has
posted negative returns over the next one-, three-, six-, nine-, and 12-month
period.
4.As Tech
Explodes in U.S. ….China Sets Up New Market to Compete with Nasdaq for
IPOs.
China Star
Market.
What is China’s
STAR Market?BY MARK
KOLAKOWSKIThe Shanghai Stock Exchange has created a hot
new market showcasing some of China’s most promising tech companies, all with
the goal of catching up to America’s Nasdaq, the birthplace of many of the
world’s legendary and pathbreaking tech giants. The Shanghai Stock Exchange
Science and Technology Innovation Board is being called the STAR Market for
short by Chinese authorities, and began trading on Monday with 25 listed
companies. These stocks ended the opening day with sizzling gains ranging from
84% to 400%, The Wall Street Journalreports.
“It’s a
bit crazy, but I think the situation will calm down a bit in the next few
days,” Jack Zhang, an analyst at BOC International, a securities brokerage and investment banking subsidiary of the Bank
of China, told the Journal. He believes that individual investors with an
appetite for risky speculation drove most of the first-day
action.
“Gains
were much stronger than expected, either due to unreasonable IPO pricing or
speculative trading,” Zhu Junchun, a Shanghai-based analyst with Lianxun
Securities Co., told Bloomberg. “It’s going
to be a liquidity game in the first half year or
one year of trading. Judging by the trading activity and gains on the board,
it’s definitely a success,” he added.
KEY
TAKEAWAYS
The STAR Market is China’s latest challenge to Nasdaq.
Its initial listings are IPOs, mainly from tech
startups.
It allows wider price swings than other Chinese
markets.
It is the only market in China where loss-making firms
can go public.
Share buybacks are expected to approach $1 trillion this year, according to Goldman Sachs.
Funding is coming from a record drawdown in cash as well as a rise in gross debt and leverage.
Buybacks have exceeded free cash flow for the first time since the financial crisis.
U.S. companies are on pace to break another record for share repurchases in
2019, using a combination of cash and debt to push the total to close to $1
trillion.
For the first time since the financial crisis, companies have given back
more to shareholders than they are making in cash net of capital expenditures
and interest payments, or free cash flow, according to Goldman Sachs
calculations.
The level of buybacks to free cash flow hit 104% for the 12 months ending
in the first quarter of 2019, the first time that number has topped 100% during
the economic recovery that started in 2009. In 2017, the level was 82%.
The
Baltic Dry Index (BDI) is a shipping and trade index created by the
London-based Baltic Exchange. It measures changes in the
cost of transporting various raw materials, such as coal and steel.
Members
of the exchange directly contact shipping brokers to assess price levelsfor given shipping paths, a
product to transport, and time to delivery or speed. The Baltic Dry Index is a
composite of three sub-indices that measure different sizes of dry bulk
carriers or merchant ships: Capesize, Panamax, and Supramax.
How the Baltic Dry Index – BDI
Works
The
Baltic Exchange calculates the index by assessing multiple shipping rates
across more than 20 routes for each of the BDI component vessels. Analyzing
multiple geographic shipping paths for each index gives depth to the index’s
composite measurement. Members contact dry bulk shippers worldwide to gather
their prices and they then calculate an average. The Baltic Exchange issues the
BDI daily.
KEY
TAKEAWAYS
The Baltic Exchange calculates the index by assessing
multiple shipping rates across more than 20 routes for each of the BDI
component ships.
Members contact dry bulk shippers worldwide to gather
their prices and they then calculate an average.
Many investors consider a rising or
contracting index to be a leading indicator of future economic
growth.
The index can experience high levels of volatility
because the supply of large carriers tends to be small with long lead
times and high production costs.
The Dutch company Port-Liner is building two giant all-electric
barges dubbed the ‘Tesla ships‘. The company announced that the vessels will be
ready by this autumn and will be inaugurated by sailing the Wilhelmina
canal in the Netherlands.
The 100 million-euro project supported by a €7m subsidy from
the European Union is expected to have a significant impact on local
transport between the ports of Amsterdam, Antwerp, and Rotterdam.
Chief executive of Port-Liner Ton van Meegen told The Loadstar:
“There are some 7,300 inland
vessels across Europe and more than 5,000 of those are owned by entrepreneurs
in Belgium and the Netherlands. We can build upwards of 500 a year, but at
that rate it would take some 50 years to get the industry operating on green
energy.”
The battery-powered barges – pictured above – are capable of
carrying 280 containers.
The first 6 barges are expected to remove 23,000 trucks from the
roads annually in the Netherlands and replace them with zero-emission
transport.
Port-Liner is developing its own vessels, but they developed a
battery pack technology that houses the batteries inside a container.
Meegen says that it could allow them to retrofit existing barges:
“This allows us to retrofit barges
already in operation, which is a big boost for the industry’s green energy
credentials.The containers are charged onshore by carbon-free energy provider
Eneco, which sources solar power, windmills and renewables.”
The first vessels will complete their maiden voyage later
this year.
As we have often discussed in the past, all modes of
transportation are gradually being converted to electric propulsion and
that includes maritime transport.
It’s also an important mode of transportation to convert since it
produces a lot of pollution. Some of the world’s largest cargo ships emit
pollution comparable to millions of passenger cars put together.
Debt
is the cumulative effect of running budget deficits
It’s amazing
to me how often I hear folks (including our politicians…on both side of the
aisle) conflate the terms deficit and debt. The latter is the cumulative effect
of running the former. As you can see in the chart below, per Congressional
Budget Office (CBO) projections, the U.S. budget deficit is expected to exceed
$1 trillion each year starting in 2022; with deficits likely to be well above
the 50-year average. Outlays are expected to jump to 23% of GDP by 2029, from
20.8% this year due to demographics and rising health care costs.
Federal
Budget Looking Ahead
Net Interest
Payments to Swamp Everything Else
Source:
Charles Schwab, CBO (Congressional Budget Office) May 2, 2019 Report: Updated
Budget Projections: 2019 to 2029.
There are few things as American as a classic rags to riches story, and Chobani founder Hamdi Ulukaya seems
to fit this classic narrative to a T. Born into a family of nomadic sheep
herders in Turkey, he came to America with
just $3,000 in his pocket and, through hard work, vision, and a
bit of luck, managed to build a billion-dollar yogurt business.
But while Ulukaya might seem like the perfect example of
old-fashioned business success, from the TED stage in April (hat tip to Swiss Miss) he explained that his views on what it means to be
successful are wildly different from the traditional business playbook.
In fact, rather than seeing himself as the usual
pull-yourself-up-by-your-bootstraps capitalist hero, he thinks of himself as an
“anti-CEO” calling the shots at his company from the “anti-CEO
playbook.” The typical rules of business success, he
flatly declares, are stupid. Here’s what he’s replaced them with.
1. Businesses exist to maximize shareholder value? Nope.
“Today’s business books say businesses exist to maximize
profit for the shareholders. I think that’s the dumbest idea I’ve ever heard in
my life,” Ulukaya says. If businesses shouldn’t try first and foremost to
make money for their owners, what should they aim for? “Businesses should
take care of their employees first,” he insists.
In 2016 Ulukaya took the unusual step of giving his 2,000
employees shares in the company. “Some people said it’s PR. Some said it’s
a gift. I said, ‘It’s not a gift’… They earned it with their talent and their
hard work,” he explains.
2. Ask not what your community can do for you; ask what you can
do for your community.
In a veiled swipe at Amazon’s recent HQ2 beauty contest, where cities competed to
show how many tax breaks and incentives they could offer the online behemoth,
Ulukaya believes companies shouldn’t approach communities with their hand out.
Instead, businesses should go to struggling communities and ask, “How can
I help you?”
“Go search for communities that you can be part of. Ask for
permission and succeed together,” Ulukaya advises, citing the resurgence
of the community around his company’s second factory in rural Idaho to show how
this can work out for the benefit of everyone.
3. Your boss isn’t the board. It’s the consumer.
“Today’s playbook says the CEO reports to the board. In my
opinion the CEO reports to the consumer,” says Ulukaya. He takes this
point so seriously that, in the early days of Chobani, the telephone number on
each pot of yogurt was his own personal line. Customers could literally phone
up the CEO to chat.
“The consumer is in power. That’s the reason business
exists,” he reminds leaders.
All of which sounds idealistic. And it is. But Ulukaya insists
it is also a recipe for a deeper, more meaningful (and clearly still very
remunerative) kind of success.
“If you’re right with your people, if you’re right with
your community, if you’re right with your product, you’ll be more profitable,
more innovative, and you will have more passionate people working for you and a
community that supports you,” he concludes.
