Firewood
With Turkish markets closed much of the week due to holiday and the official kick-off of the college football season not until this Saturday, the investing public will have to look elsewhere for focus. They won't have to search very far. If the fun and games of the Kansas City Fed's economic symposium at Jackson Hole are not enough to capture trader focus, the further development of the "trade war" with China certainly will.
Markets rejoiced last week as China' s Commerce Ministry officially reached out to accept the U.S. Treasury Department's long-standing invitation to restart trade talks. So, have we won a trade war? Not even close. Are we going to win a trade war? Perhaps, we just let the game play out.
For the Chinese economy, growth appears to slow. For the U.S., an economy far more self sufficient than most, a position as the consumer market of choice, as well as the lopsided balance of trade all seem to hand the U.S. side obvious leverage in these talks. Most of us were at some time taught that "the customer is always right." Still, the night grows colder. There is so much wood to cut.
The Drive
It was 1986. The AFC Championship Game. Cleveland Municipal Stadium. John Elway's Denver Broncos took possession of the ball at their own two yard line, down by seven with time running out. You know the rest. This Wednesday and Thursday, China's Vice Commerce Minister Wang Shouwen will be in Washington, D.C. to meet with U.S. Treasury Undersecretary David Malpass and his team. So, the dance starts, with each side sending the "B Team." This overt attempt to get the ball rolling is really most likely an attempt to outline where and what is possible between the two.
The groundwork is being laid for Presidents Trump and Xi to meet twice in November, first at the Asia-Pacific Economic Cooperation forum, and then at the G-20 summit in Argentina. That's all nice, but remember that uncut wood that I just mentioned?
This Thursday, while both sides talk in D.C., that well-publicized tranche of 25% tariffs on $16 billion worth of Chinese exports to the U.S. is set for implementation. China has already stated its intention to respond to this tranche dollar for dollar. The far more important next step of adding that same 25% tariff to another $200 billion worth of goods is still in its comment period. That comes to a halt on September 5. What are the odds that actions already set for this Thursday intensify not only the talks in D.C., but the action across financial markets? I'd say pretty good.
I have already mentioned that in the U.S.'s favor is the fact that this is the home of the desired market. In any normal relationship, it is the customer that holds the cards. What stands in the way of that normal condition here is the American proclivity to short-termism, and the ability for the Chinese to play a longer game. Though President Xi is effectively "leader for life" at this point, he is up against an October 15 GDP print that could cause a loss of face. Keep GDP on track, and the game moves back to China 2025, as that nation attempts to further entrench itself as a global powerhouse.
The U.S. side may feel pressure to show a victory of some sorts either ahead of, or going into the mid-term elections. This could lend itself, in my opinion, to something partial in nature, but quantifiable. The heavy lifting on items such as technology sharing and intellectual property theft might possibly be left to both side promising to talk again soon. You didn't think it would be this easy, did you?
Just A Thought
Tesla (TSLA) sold off pretty hard on Friday, giving up nearly 9%. I'm not going to lie to you, I gave serious thought to buying the name late in the day. In fact, trying to figure on where to buy this troubled name is what I spent too much of my time on as the day expired. It was not long ago that Tesla equity holders were all over social media taunting the shorts in the wild aftermath of CEO Elon Musk's now famous tweet-storm that made headlines a couple of weeks ago. Being one who shorted the name that day (and the next), I know. Some of that hate came my way.
What the Musk-faithful do not understand is the trader only hunts. We are mercenary in nature. Just as likely to make a purchase as we are a sale. Only probabilities of risk/reward matter. Oh, do not get me wrong.... I do invest. Just not in Tesla.
By now, you've all read the horrific Elon Musk article published in the New York Times. Musk speaks of a constant state of exhaustion. His personal alarm seems multi-directional. Easy for us to dismiss. 120-hour work weeks. A 24-hour shift on his birthday. Things that we have all have to do at times, but that we also do complain about. Mental exhaustion is a very real thing. I can almost feel for Musk. Compassion, however, is not a reason to buy anything.
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On Friday morning, UBS analysts questioned the potential profitability for the firm's Model 3 at it's target price of $35,000. The versions of this vehicle currently available range in price from $49,000 to $80,000. The UBS report states that these more expensive versions do indeed make money, but at $35,000, the firm would lose $2,300 per sale. The UBS analyst who authored the note, Colin Langan, feels that Tesla may be headed for the firm's best quarter due to these factors, but that the condition is not sustainable.
Obviously, I covered that short too early. Made some lunch money, when it could have been a night (or several) on the town. Being flat, the question is now, where to, or do I get long? Maybe. The Feds are still looking at these guys.
More Bad News
News broke over the weekend that the Saudi Arabian sovereign wealth fund that Elon Musk might have been looking to for help on taking his firm private is talking to Lucid Motors, a privately held manufacturer of electric vehicles. In other words, a Tesla rival. Lucid is not yet selling its vehicles. As far as one can tell, the firm has been accepting refundable deposits and expects to start building these vehicles later this year.
The possibility of the Saudi investment is just that, a possibility. Terms have been drawn up that reportedly could have the fund investing more than $1 billion in several increments. According to Yahoo Finance, the later increments would be reliant upon certain production goals being met. Does this mean that the fund is unable or unwilling to get more deeply involved with Tesla? That is impossible for us to know at this point.
Chart Of The Day: Tesla
One thing you need to know is that you don't need to do this. In fact, I often tell you when we discuss trading that I am in the foxhole next to you. With this one, just as a heads up, I may not be.
First, let's make this clear. I don't short naked options in either direction when it comes to highly priced, money losing firms that the SEC is watching, whose most attractive asset is a large short interest. Just too dangerous.
However, as an instrument of speculation, meh. You never know. What I do know is that the trade would merely be for sport. I'm not risking the house, or even my next meal. The stock went out at $305.50. The pajama traders have knocked it down below the $300 level this morning.
The name is now a falling knife. The daily MACD went negative on Friday. Money Flow and Relative Strength will likely send negative signals once the shares open for trade. There are two levels for me to watch. The $298 level is key. That's a 61.8% retracement of the entire 2018 range. Support there would be a third consecutively higher low. Not exactly an "ascending base" for a number of reasons, but still something that could be taken as a technical positive. A crack of the $298 level would allow for the stock to approach the $284 level (The stock was hitting $294 as this article was being published). That would be a 100% retracement of the July through August ramp.
Like I said, nobody needs to do this. We took advantage of euphoria two weeks ago. Can we scrape a little something off of the bottom as well? I don't buy a share above $284, if I act at all. If the stock never gets there, I'll live. If it gets there too fast, I may just "pop smoke", and head for $250.
Keep one thing in mind, if it ain't fun, don't play.
Economics (All Times Eastern)
11:00 - Fed Speaker: Atlanta Fed Pres. Raphael Bostic.
Today's Earnings Highlights (Consensus EPS Expectations)
Before the Open: (EL) (0.56)
After the Close: (NDSN) (1.60)
