How far is enough? What have markets priced in? Markets eagerly, and optimistically, moved higher earlier in the week, as elite-level discussions transpired in Beijing between U.S. Trade Representative Robert Lighthizer, Treasury Secretary Steven Mnuchin, and Chinese Vice Premier Liu He. The two Americans are also expected to meet with President Xi prior to heading home later on Friday.
By all accounts, the Chinese side continues to express a willingness to increase U.S. exports to the Asian nation in such key areas as agriculture, energy and technology. In fact, the latest headlines indicate an intention to ramp imports of U.S. semiconductors to $200 billion over six years, which by the way would be a 500% increase from current levels.
The sticking point has been, and likely continues to be, structural change in the way China does business in the first place. Forced transfers of key technologies, subsidization of domestic businesses in competition with foreign entities, as well as intellectual property theft continue to be points where the two side are likely to be unable to find common ground.
What comes publicly of this event? Not abject failure. No, that's not an option, with both sides facing the reality of a global economic slowdown that will leave no one unaffected. There will be a statement of progress made, according to an early Wall Street Journal report in the form of a "memorandum of understanding" that would set the table for a later summit between the two heads of state, Presidents Trump and Xi.
How the market interprets this MOU on Friday as yet remains unclear. What is clear is that the pattern of last-hour risk-on behavior has halted over the past two sessions. Consistent support continues to be found at the 10-day simple moving average for the S&P 500 (now 2726). I don't become short-term concerned, technically, without a fail at that spot. The index closed at 2745 on Thursday, down seven points, and S&P futures have traded lower overnight. The market will react to whether or not President Trump pushes out the trade truce beyond that 12:01 a.m. ET March 2 deadline.
My thoughts on the broader market are currently this. The trend in place, barring a substantially negative reaction to trade-related news, is that the index appears headed to a collision with that 2800/2825 point that formed a triple top throughout the six weeks of late Autumn. Maybe naively, I feel that an approach to this area could be made in earnest prior to first-quarter earnings season, when a somewhat negative reality sets in.
Currently, the 50-day simple moving average stands at 2616, while a 38.2% retracement off of this week's highs sits around 2600. Obviously, these are moving targets that would be higher at the time of a risk-off move, if I am close to correct about the initial move higher into Q1 earnings. These two technical levels will be the catch-points to focus on at that time. Crazy to think that far ahead? Are we playing chess or checkers here? Crazy not to.
As a native New Yorker, this really hurts. New York City was this close ><. The borough of Queens had finally attracted the kind of business that attracts more business, that attracts an exponential number of projects requiring an increased demand for skilled and unskilled labor. When opportunity knocks, you would think that maybe you open the door.
Amazon (AMZN) had three months ago announced that the Long Island City neighborhood of Queens would be home to a new corporate satellite headquarters. With the building of this headquarters, the firm had estimated the need for 25,000 full-time employees averaging a salary of a rough $150,000 per year. I have read projections made by economists that the multiplier effect alone would create potential for around another 100,000 jobs in that area. That's a lot of lost tax revenue for those incapable of grasping what just happened. It's much more than that, however.
It becomes difficult to quantify just how profound a failure this is at the local level. It's also impossible to justify what likely just happened to real estate valuations in western Queens. Imagine the plight of the homeowner in that area. The small business owner? If one thought that maybe the lower-income population of the area were being disadvantaged, well, they now have less opportunity to move forward economically than they did twenty-four hours ago. Now, take another step.
How does Queens, in particular, or even more broadly New York City, ever attract new business again? Serious question. Obviously a crown jewel like Amazon presented the city with a once-in-an-epoch opportunity to create a new hub for technology and idea creation that could eventually rival Silicon Valley. Perhaps, but now we will never know. New York has said no thank you to opportunity. New York has decided against a potentially profound period of economic growth. New York has, in effect, told employers looking to relocate that they are not welcome here. Epic failure to lead.
Quote Of The Day
"Oil is playing a major role in the energy system out to 2040, even with renewables off the charts. The level of understanding about the arithmetic on some of this stuff is not as high as it could be."
--BP (BP) chief economist Spencer Dale (source: Financial Times)
Why does it always make me feel uncomfortable when my plan diverges from Warren Buffett's? Just maybe because the man has a track record as a value investor that the rest of us cannot touch? Buffett's conglomerate Berkshire Hathaway (BRK.B) has filed its latest 13-F with the SEC. Did I ever tell you that I once answered a telephone for someone else (a far more important individual) and found myself on the phone with the Oracle of Omaha himself? This was decades ago. I think I spoke three words to the effect of, "Right away, sir."
Anyway, it becomes immediately obvious that Berkshire is loading up on the banks at these levels. I have avoided the banks like the plague. That unsettles me a little bit. It would appear that outside of reducing exposure to Wells Fargo (WFC) , that Buffett has increased longs in Bank of America (BAC) , U.S. Bancorp (USB) , JP Morgan Chase (JPM) , PNC Financial (PNC) and The Bank of New York Mellon (BK) . I've got to say that I have thought long and hard on BAC, PNC and BK, but find it hard to pull the trigger with the 2s/10s yield spread for U.S. Treasury notes so flat. I do, however, maintain a "best of breed" long in JPM.
Also interesting, I found that BRK.B had exited Oracle (ORCL) within a month of entry, and that the firm had reduced its stake in Apple (AAPL) . I have reduce my stake there as well, but only recently -- in February. In Q4, I was adding. Then again, Buffet is the greatest investor probably of all-time, and I am a ham and egger willing to book small victories. I find it both fun and interesting to measure one's own decision making against the legends of the game. I mean, if one cannot inspect one's own process through comparison vs. a Hall of Fame caliber player, then one's ego is perhaps just a little too fragile.
That's also why I pay attention to the likes of Jim Cramer and Doug Kass. If you're here, I know you do too.
Economics (All Times Eastern)
08:30 - Empire State Manufacturing Index (Feb): Expecting 7.2, Last 3.9.
08:30 - Export Prices (Jan): Expecting 0.1% m/m, Last -0.6% m/m.
08:30 - Import Prices (Jan): Expecting 0.0% m/m, Last -1.0% m/m.
09:15 - Industrial Production (Jan): Expecting 0.1% m/m, Last 0.3% m/m.
09:15 - Capacity Utilization (Jan): Expecting 78.8%, Last 78.7%.
09:55 - Fed Speaker: Atlanta Fed Pres. Raphael Bostic.
10:00 - U of M Consumer Sentiment (Feb-adv): Expecting 93.5, Last 91.2.
13:00 - Baker Hughes Oil Rig Count (Weekly): Last 854.
16:00 - Net Long Term TIC Flows (Dec): Last $37.6B.
Today's Earnings Highlights (Consensus EPS Expectations)
After the Close: (KHC) (0.94)