"Where an excess of power prevails, property of no sort is duly respected. No man is safe in his opinion, his person, his faculties, or his possessions."
-- President James Madison
While You Slept
Beijing's intense regulatory crackdown on their own companies continued on Tuesday, driving the Hang Seng Index down another 4.22%, and the Shanghai Composite down 2.49% in addition to mounting losses that have been piling up since Friday. The mainland government has now implemented aggressive reforms targeting technology, real estate and education companies, forcing not just Chinese money out of their domestic marketplace but foreign investment to flee Chinese markets, which includes ADRs of Chinese companies listed in the U.S.
To say sentiment is taking a beating would be an understatement. Who or what is next? That is the question.
While stated reasons for such a crackdown on profitability are plenty, Beijing has announced enforcement measures to "protect" public safety, financial stability, "promote" social welfare, and restrain rising home prices.
What would provoke a nation to target its own industries, or its own companies? One thing is clear. As I have stated and written for probably several years now, you own Chinese stocks at your own risk. Understand that no one owes you or even pretends to owe you a thing. There will be no respect for what you think is your property or your rights from that corner of the world.
Power will certainly be valued more highly than what we see as corporate rights. Those who appear to grow in popularity or prestige in their own spheres risk what they have. Hence, U.S. faves such as Alibaba (BABA) and Tencent Holdings (TCEHY) saw their U.S. issues sell off 11.4% and 14.2%, respectively, from their Thursday highs into Monday's close. If Asian markets are any indication, those shares will open lower still on Tuesday morning. It looks like Tencent Holdings has fallen another 9%, and Alibaba another 7% in Hong Kong.
Beijing's domestic aggression has roiled some global markets again on Tuesday. Once again, investors from outside the U.S. sought safe haven in the U.S. dollar, and the Japanese yen as well as U.S., U.K. and German sovereign debt.
Obviously, mainland Chinese businesses are not in control of their own destiny and cannot be seen as viable as their own government harpoons profitability -- unless the companies themselves are run by that government. In either case, for you and I, they are not investable. Why we in this nation ever allowed Chinese businesses to raise capital, our capital on our shores, is beyond me.
Lesson learned? One would hope. If they come back for some more dough after this, then you know that they think you and I are either stupid or greedy. Well, I know you're not stupid.
On That Note...
Paul Romer, former chief economist at the World Bank, Nobel Prize winner, and professor of business economics at the NYU Stern School spoke to Bloomberg News on Monday. Romer stated that he thinks Congress will move to pass legislation that would "rein in" big tech companies such as Facebook (FB) , Apple (AAPL) , and Alphabet (GOOGL) . Romer sees a "close parallel" between the U.S. and China in that both need to control these large companies that Romer sees as becoming "ungovernable."
Romer feels that this ongoing regulatory crackdown in mainland China is the result of the growing power of large private sector companies and a need to reassert control. Romer stated, "We haven't gotten there in the United States and I hope we get there soon." Then he added, "There are some echoes of the period of yellow journalism here, but the scale of this and the speed with which these new platforms of propaganda and disinformation can operate is just something we've never encountered before."
Wow... tell us how you really feel. As a shareholder, and as an economist, I do not see all that much of a parallel between basically banning profit, rendering the shareholder impotent and the potential of targeted antitrust regulation that might be taken to improve the overall competitive landscape. One leaves a business helpless, the other could potentially unlock shareholder value should the sum of the parts end up equalling more than the whole.
The Marketplace
One thing was clear on Monday. U.S. markets don't really want to sell off.
China had set the table overnight going into the work week. Equities opened lower, Treasuries opened higher. By day's end, most of our equity marketplace had eked out smallish gains while the U.S. 10-Year Note had made the round-trip.
Interestingly, cyclical sectors, for the most part, led U.S. markets as breadth was really not that bad, especially for NYSE-listed names (though that was on lighter trading volume). The action was certainly trickier to interpret at the Nasdaq. Up at Times Square, losers beat winners 5 to 4, while advancing volume beat declining volume by more than 4 to 3. Aggregate trading volume increased significantly enough to be noticed across Nasdaq-listed stocks.
As the sun works its way into my field of vision on Tuesday morning, China has yet again set the table for a selloff. With U.S. stocks generally at or close to all-time highs, and riding a fragile five-day winning streak, investors do seem to be slow to take profits ahead of this week's FOMC policy meeting and ahead of the idea that our legislators in D.C. might actually accomplish something, anything, before taking August off, because ya know... summer.
Here's an idea as I run off on a tangent. No more career politicians. Have we not had enough of this? No third terms for any position, and to be elected in the first place, there must be evidence of having performed in some other occupational capacity in the recent past. Can anyone really argue against such logic? By the people?
Hmm... Maybe?
Bitcoin roared on Monday, kissing the $40,000 level after trading below $30,000 per bitcoin less than two weeks earlier. Squeeze? Sure, but it was more than that.
Amazon (AMZN) published a job posting last week seeking a "Digital Currency and Blockchain Product Lead." The posting reads,"You will leverage your domain expertise in Blockchain, Distributed Ledger, Central Bank Digital Currencies, and Cryptocurrency to develop the case for the capabilities which should be developed." There is more: "You will work closely with teams across Amazon including AWS to develop the roadmap including the customer experience, technical strategy, and capabilities as well as the launch strategy." FYI, AWS (Amazon Web Services) does sell a blockchain technology infrastructure product.
Rumor ran rampant on Wall Street on Monday that perhaps Amazon was preparing to potentially explore allowing customers to pay for goods using cryptocurrencies. Alas, the company has denied that there is anything more to these rumors than rumor itself. "Notwithstanding our interest in the space, the speculation that has ensued around our specific plans for cryptocurrencies is not true, we remain focused on exploring what this could look like for customers shopping on Amazon."
Bitcoin has only given back a small portion if Monday's gains since the Amazon denial. The last sale I saw was $37,360-ish.
Earnings
Tesla (TSLA) reported a great quarter. GAAP net income of $1.1 billion. Very comfortable top and bottom-line beats. Operating margin of 11%. Gross automotive margin of 28.4%. Cash position of $16.2 billion.
On the negative side, there was a $23 million bitcoin-related impairment, but the company had an undeniably great quarter. Every block in my neighborhood seems to have three or four Teslas. The name has almost lost its "cool" factor out here, they are so common.
There are questions, though. Questions that cannot be answered right away. What will be the impact of a prolonged semiconductor shortage? Or continued shortages of quality batteries? Should Tesla become too popular, will Communist China find a reason to crack down on the company's ability to sell there or produce at its gigafactory in Shanghai?
Oh, and about CEO Elon Musk. Certainly sounds like he wants to step back. One, can he? He seems to love being the center of attention. Two, if he does, will the cult stay as engaged as they have been? All as nearly every automobile manufacturer on the planet is either now capable or close to being capable of competing in the space?
I don't know the answer to these questions, and neither do they. I sat on my hands last night as the shares just did not show a strong enough reaction to these results for me to take the other side using my own capital.
When it comes to earnings, tonight's the night. My plan, realistic or not (you don't have to act.) goes as follows:
Apple (AAPL) : Last $148.99. Lighten up: $180. Add; $130
Advanced Micro Devices (AMD) : Last $91.82. Lighten up: $116. Add $88.
Microsoft (MSFT) : Last $289.05. Lighten up $317. Add 4250.
Economics (All Times Eastern)
08:30 - Durable Goods Orders (June): Expecting 2.1% m/m, Last 2.3% m/m.
08:30 - ex-Transportation (June): Expecting 0.8% m/m, Last 0.3% m/m.
08:30 - ex-Defense (June): Expecting 0.8% m/m, Last 1.7% m/m.
08:30 - Core Capital Goods (June): Expecting 0.0% m/m, Last -0.1% m/m.
08:55 - Redbook (Weekly): Last 15.0% y/y.
09:00 - Case-Shiller HPI (May): Expecting 16.1% y/y, Last 14.9% y/y.
09:00 - FHFA HPI (May): Expecting 1.7% m/m, Last 1.8% m/m.
08:30 - PCE Price Index (February): Expecting 1.7% y/y, Last 1.7% y/y.
08:30 - Core PCE Price Index (February): Expecting 1.6% y/y, Last 1.5% y/y.
10:00 - CB Consumer Confidence (July): Expecting 124.4, Last 127.3.
10:00 - Richmond Fed Manufacturing Index (July): Expecting 21, Last 22.
16:30 - API Oil Inventories (Weekly): Last +806K.
The Fed (All Times Eastern)
Fed Blackout Period.
Today's Earnings Highlights (Consensus EPS Expectations)
Before the Open: (MMM) (2.28), (GE) (0.03), (RTX) (.93), (ROK) (0.93), (UPS) (2.81), (WM) (1.19)
After the Close: (AMD) (0.54), (GOOGL) (19.15), (AAPL) (1.01), (CB) (3.01), (MAT) (-,06), (MSFT) (1.92), (MDLZ) (0.65), (SBUX) (0.77), (TDOC) (-0.54), (V) (1.35)
(UPS, AMD, MSFT, AAPL, and GOOGL are holdings in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells these stocks? Learn more now.)
