• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Bruce Kamich
    • Doug Kass
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • TheStreet Smarts
  1. Home
  2. / Markets
  3. / China

Trade War! Game On: Market Recon

If you went to bed net long the stock market, there's a pretty good chance you're going to wake up deep in a hole.
By STEPHEN GUILFOYLE
Apr 04, 2018 | 06:48 AM EDT
Stocks quotes in this article: VNM, INTC, MU, AAPL, NVDA, AMAT, BA, NFLX, GOOGL, FB, AMZN, BABA, TGT, AYI, KMX, LEN, OLLI

"Just because you do not take an interest in politics doesn't mean politics won't take an interest in you."

- Pericles

Trade War !

Just posturing? US President Trump, and Chinese President Xi are playing a high-stakes game of chicken this morning. Obviously, these two leaders play the game like they fear nothing. NOTHING. I learned about guys who fear nothing at a very young age. I learned that the people around them usually get hurt. Late Monday, as equity markets were selling off hard, I realized that I had not been much of a buyer on the dip, with the exception of VanEck Vectors Vietnam ETF (VNM) . Has "buy the dip" become "sell the pop?" It also dawned on me that I had been methodically letting some of the air out of the tires (so to speak) in some of my very favorite long positions. By favorite I mean tech names that have a solid story in place, but carry too much Chinese exposure.

I still like the demand story that supports Micron (MU) , but 51.1% of the firm's sales are exposed to China. That's not good. Among some of my faves, Intel (INTC) , Apple (AAPL) , Nvidia (NVDA) , and Applied Materials (AMAT) may not be exposed to that same degree, but all have more than enough cards on that table (18% or more). It is said that defense wins championships. Watch Gold. No one cares if you're good at making money when it's easy. NO ONE. Can you defend your own turf when it gets tough?

Last night, the Trump administration laid put plans to hit Beijing with 25% tariffs on $50B worth of goods unless the Chinese government concedes in certain areas regarding trade, and foreign investment. While many of you were sleeping, China responded. The Chinese Ministry of Commerce would slap their own 25% tariff on more than 100 goods impacting...wait for it... $50B worth of US imports. Included on the list were aircraft, which will directly impact Boeing (BA) this morning. This was, in my opinion...not completely priced in, as we know China's demand in this space to be keen.

The good news? US companies still have until May 22 to make comment. The public hearing is currently scheduled for May 15th. The Chinese Ministry of Commerce did not publicly state when their tariffs would commence either. Hmm. This ballgame sounds like it may be in the first or second inning. As this game progresses, the evolving headline risk will very likely cause overreaction in both directions at different times by market driving high-speed algorithmic traders. That should be a real blast. In the meantime, if you went to bed net long the stock market, there's a pretty good chance you're going to wake up deep in a hole.

The Death Star

As many of you know, I have been out of Netflix (NFLX) and Alphabet (GOOGL) for a little while. Admittedly, I took my NFLX off of the table too early, and I usually never do more than rent (GOOGL) overnight in either direction. As for Facebook (FB) , I'm just not a fan. Never was. Think the leadership is poor.

Amazon (AMZN) is different. Yes, I sold AMZN early in this "Tech Wreck." I have also started buying it back small on this discount. The prospects of a trade war will not overtly impact these FANG names as for the most part they have little exposure. Alibaba (BABA) is the Amazon (in a way) of China. The President of the United States can, in my opinion hurt AMZN more than can the President of China.

That doesn't mean that I love the stock. My net basis remains well south of here. I understand the risk associated with being long a highly expensive name. I can tolerate that associated risk as long as the name does not approach my breakeven point. Then, I'll carve this name from my book without a hint of remorse. Now I'll tell you why this stock is so dangerous. The slayer of retail, also has the potential to slay your portfolio.

1) The Dividend. There isn't one. That's right. You, the shareholder take on outsized risk, and Jeff Bezos pays you exactly zero dollars and zero cents as a fellow owner of the business.

2) Debt. Yes, the firm has plenty of assets, and plenty of cash on hand. Total debt has ballooned from $20.4B at the end of Q4 2016 to $44.1B at the end of Q4 2017. Can the firm meet short to medium term obligations? Yes, the Current Ratio stands at 1.04. Strip out inventories you say? For the new kids, that called the Quick Ratio, and it's an item that you must understand. Hmm, suddenly a much uglier 0.7 appears on the screen. Would one invest in any other name with a number like that? Maybe, but only with the understanding that the investment was speculative in nature.

3) Operating Margin. At the end of last year, the firm's Operating Margin printed at 3.62%. Hoo-ray. 3%. For comparison's sake, for the same period, Target's (TGT) operating margin is above 5%. Really? Is that true? You can look it up sport.

We could go on. There are positives to be sure. There are also more negatives. For me this remains a spec play, and not at all a core position.

Economics (All Times Eastern)

08:15 - ADP Employment Report (March): Expecting 198K, Last 235K.

09:45 - Markit Services PMI (March-f)): Flashed 54.1.

09:45 - Fed Speaker: St. Louis Fed Pres. James Bullard.

10:00 - ISM Non-Manufacturing Index (March): Expecting 59.1, Last 59.5.

10:00 - Factory Orders (February): Expecting 1.8% m/m, Last -1.4% m/m.

10:00 - Ex-Transportation (February): Expecting 0.4% m/m, Last 0.4% m/m.

10:30 - Oil Inventories (Weekly): Expecting +1.4M, Last +1.643M.

10:30 - Gasoline Stocks (Weekly): Expecting -1.5M, Last -3.472M.

11:00 - Fed Speaker: Cleveland Fed Pres. Loretta Mester.

Today's Earnings Highlights (Consensus EPS Expectations)

Before the Open: (AYI) (2.11), (KMX) (.87), (LEN) (.87)

After the Close: (OLLI) (.50)

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.

At the time of publication, Stephen Guilfoyle was Long VNM, INTC, AAPL, AMAT, AMZN equity. Short INTC call options.

TAGS: Investing | U.S. Equity | China | Markets | E-Commerce | Politics | Stocks

More from China

Fossil Fuel Production Still Has a Long Way to Go

Maleeha Bengali
Aug 19, 2022 1:30 PM EDT

A complete transition to clean energy is years if not decades away.

Europe's Recession Is All About Gas

Maleeha Bengali
Aug 18, 2022 1:30 PM EDT

Prices could very well stay elevated for a long time despite the economy going into a manufacturing recession.

So, Just How Bad Is China Right Now, Really?

Maleeha Bengali
Aug 15, 2022 9:00 AM EDT

Its economy isn't as robust as thought and its housing market is under duress.

Hot Markets, China's Economy, Busy Week Ahead, Retail Earnings, Trading Lockheed

Stephen Guilfoyle
Aug 15, 2022 7:15 AM EDT

If the economy does happen to contract for a third consecutive quarter, will anyone in Washington call that a "recession"?

End to China's Recovery Shows Policymakers 'Care About Growth, Just Not Much'

Alex Frew McMillan
Aug 15, 2022 6:12 AM EDT

Poor July numbers erase hopes of a strong second half to the year, where lockdowns and the 'zero-Covid' policy have undermined confidence and activity.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 02:23 PM EDT STEPHEN GUILFOYLE

    We're Cleaning Out This Retailer From the Bullpen

    Check out the latest moves in TheStreet's Stocks U...
  • 10:24 AM EDT JAMES "REV SHARK" DEPORRE

    This Weekend on Real Money

    To Improve Your Trading and Investing, Spend More ...
  • 08:44 AM EDT PETER TCHIR

    CPI Beats Expectations, But Maybe Not the 'Whisper'?

    Slightly better-than-expected inflation across the...
  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2022 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login