Round up the usual suspects. There's a line we often associate with Casablanca, as Captain Renault kicks off a desultory investigation of a shooting in Casablanca.
But on a day like today, where the market got crushed because of President Trump's decision to review tariffs on $200 billion more of Chinese exports, I think about that iconic line spoken with perfect ennui by Claude Rains and I recognize that it might as well have been about rounding up the usual suspects in this market that get bought and sold on every new flare-up in the trade war between President Trump and China, or pretty much everyone else for that matter.
So, let's go there. Let's see what suspects Captain Renault would have rounded up to invest in and sell in a market loaded with both sides of the trade.
First, it's become obvious that you sell Caterpillar ( CAT
) and Boeing ( BA
) . I wonder if we can't just call it Boring Cat, except Cats are harder to herd.
I have studied these companies closely and I know that China needs Boeing more than Boeing needs China. That's how great the demand is for planes. In fact, I am more worried about the continuing deterioration in revenue per seat miles for the U.S. based carriers-American shaded down figures again today-in part because of sharply higher fuel costs but also because of too much supply and not enough demand. That will get you every time.
Caterpillar's about construction, which means it is about China. But here's something no one seems to consider when they sell it down five on a trade fire and then buy it back up five when the coals grow cold, Asia is only about 20% of the company's sales. Sure that's enough to cut into the numbers and I know CAT has plenty of competitors anxious to take its wares but it is a quintessential usual suspect that perhaps shouldn't be thrown out so quickly if you think that perhaps the U.S. may not have such a weak hand with China given that it exports five times the amount of goods to us that we do to them. Sure they can ban CAT but it seems unlikely.
You want usual suspects? How about United Technologies ( UTX
) with its Otis elevator division when China installs 600,000 elevators a year. But, again, there's a gigantic number of Otis elevators that have to be serviced. That business isn't going away.
Maybe the worst thing that ever happened to Honeywell ( HON
) was that the former CEO, Dave Cote, said he had developed a strong China business. Emerson's ( EMR
) David Farr made a similar mistake when he commented about how robust his China business is on Mad Money recently. If Captain Renault ran a hedge fund this would be like shooting fish in a barrel. The poor old 3M which seems to not be able to get right anything did get China right and therefore it's arrested. And now lets add some chip stocks, namely Skyworks Solutions ( SWKS
) , Micron ( MU
) which always get totaled. Perhaps Renault wasn't all that effective because today NXP Semi, the company that wants to sell itself to Qualcomm but has been held up by the Chinese authorities managed to pare its losses because of some potential good news about the way how Chinese telecom company ZTE is close to coming to an agreement with the U.S. government to be able to get crucial American parts that have been denied because of transgressions the company has committed by selling our tech to Iran.
You can never be too sure of this one though. Oh and to be sure, Broadcom ( AVGO
) got smacked but we later learned that could be all about a CA acquisition.
The dragnet did spare a few of stocks that had become snared in world trades standoff, notably the banks, perhaps because the banks have been incorrectly bought up for charges and of course because three big ones report Friday and when they get a chance to defend themselves I think the sellers will have real remorse. With JP Morgan ( JPM
) returns $21 billion to shareholders and Citi ( C
) buying back perhaps as much as 10% of its shares this year, that's right this year, they seem to be a case of mistaken identity. But I can't believe that Wells Fargo's ( WFC
) been caught up in the proverbial gin joint. It's entirely domestic!
Now, let's just say you wanted to isolate the companies that investors have identified as the anti-China trade, meaning they aren't snared by the crime of doing a lot of business in what was once considered the greatest market in the world until 2018 began. Before things turned really ugly we got a new list of companies to round up and the list is worth curating.
Let's start with the obvious. When you hear that such and such is the Amazon ( AMZN
) of China or the Google ( GOOGL
) of China or the Netflix ( NFLX
) of China or the Facebook ( FB
) of China, well, what can I say, they're rounded up and called FANG. It 's a simple fact that there couldn't be a more obvious list of usual suspects than the companies that aren't really allowed to do business in China, or have been stymied with a Chinese replacement or have simply taken themselves out of the running because of the anti-free speech nature of a Communist dictatorship.
But you know what? Today we saw some unusual suspects that have to be duly noted. Mastercard ( MA
) and Visa ( V
) have a one-two punch that's an unbeatable combination. They aren't allowed to do business in China, which makes them anti-China stocks, but they are also the best way for the Chinese to show they have blinked. A simple call to Ajay Banga over at Mastercard or Al Kelly over at Visa might actually be enough to call off the trade dogs of war. That combination is what puts you on the all-time high list on a day like today and that's just what happened to these two stocks.
I hadn't thought is possible somehow Salesforce.com ( CRM
) has become the anti-China cloud stock. With less than 10% of its entire business in Asia-and a lot of that's Japan-Marc Benioff's company has emerged as the smart way de-Fanged way to invest safely in an unsafe world. Play it again, Marc!
Oh and if you want to stick with the fabulous subscription theme that Netflix pioneered, you can go with the de-china'd Spotify ( SPOT
) , the music service that everyone except me seems to want to avoid. Okay, that's genuine Cramer hyperbole given that it did hit another all-time high today.
Now, just to deviate from Casablanca for a moment it's important to recognize that if stock market's matter, China's Shanghai Composite index fell far more than the S&P today and I believe that these two stock markets have become a handicapper's delight about who may actually be winning a trade war that way too many pundits say is unwinnable. We stock historians-shorthand for people who actually remember something that happened in the stock market more than a couple of days ago-recall that three years ago, in the last week of August, the Shanghai index took an 8% hit, a real crash, which caused our Dow to open down 1000 points, a mini-crash directly related to fears that the Chinese market was simply collapsing under its own sordid weight.
So remember that these tariffs are being reviewed and if they are put in they will go into effect in right around the anniversary of that repugnant event. Just a reminder that one stock market is inherently weaker than another even as most seem to think that we are a pitiful helpless giant in the face of the PRC.
Yep, this has become a market that's best played by Rains and Humphrey Bogart, except it's not Casablanca its Shanghai that matters. I say it's good to have both lists handy, the usual suspects that almost always seem to get crushed as well as the developing list of stocks that avoided being crushed by the Shanghai express, the most memorable movie with that venerable city in the title.