The Tweet Heard Around the World

Aug 10, 2018   //   by Bruce Mason   //   Weekly Market Update  //  No Comments

Earnings season is finally over and I’m happy to say the announcements were good for many if not most companies.  The ones that missed or guided lower were hit hard and you are probably already aware seeing as they made headline news, i.e. largest one-day market-cap drop by Facebook.  Investors are now turning to the third quarter and more importantly the back half of the year.  Trade tensions remain a concern as is much of the uncertainty regarding future interest rate hikes, a quickly rising budget deficit, the upcoming mid-term elections, and potentially rising inflation.  The first half of the year saw increased volatility and we anticipate the second half of the year to look the same.

Aside from earnings announcements, it was an interesting week for news.  Let’s start with Sears.  This company has been trying to remake itself for years (if not decades) into a more modern retailer to compete with the likes of Target and Kohls.  This week the company announced it will begin selling Hoover vacuum cleaners, Dockers, G.H. Bass & Co., Lucky Brands, and precious metals.  You read that right.  Precious metals.  In other news, the Wall Street Journal reported Facebook has asked big banks to share detailed financial information about customers as part of a plan to offer new services.  It talked to JP Morgan Chase, Wells Fargo, Citigroup, and U.S. Bancorp to get details including card transactions and checking account balances.  What could possibly go wrong?

Tesla made headline news this week with one tweet from Elon Musk.  Mr. Musk, the CEO of Tesla, tweeted that he has secured funding to take the company private.  Not only did this come as a surprise to investors and employees, apparently it came as a surprise to his own board of directors.  This is a very unusual situation, since there are rules and regulations regarding how material information is supposed to be disseminated, i.e. an 8K filing with the SEC.  Furthermore, Mr. Musk has yet to disclose the source of the $70 billion that will be needed to take the company private at the price of $420 per share as stated in his tweet.  As the most shorted stock, hundreds of millions of dollars, if not over a billion, was lost by investors who were squeezed when the stock price skyrocketed on this news.  If Mr. Musk was not being completely truthful in his tweet, he could be on the hook for both criminal and civil penalties.

On the subject of tariffs and the glacially moving trade war, China rattled its sabre some more this week.  One potentially large bargaining chip is Apple, which manufactures virtually all its products in the country.  Not only does Apple produce in China, but it sells a heck of a lot of phones there too.  Apple made $9.6 billion in revenue in China in just the second quarter of this year.  Another sector between a rock and a hard place is the U.S. automakers.  In a retaliatory move, China increased its tariff on U.S. automobiles to 25% while simultaneously dropping its tariff on European imports to 15%.  European manufacturers shipped 165K cars into China last month breaking the previous record of 134K set in July 2014 while U.S. manufacturers were relegated to only the wealthiest of Chinese consumers.  It’s a tough time to be Ford or General Motors.

Since having a trade war on one front isn’t enough, President Trump has increased levies on steel and aluminum imported from Turkey to 50% and 20% respectively.  The country is undergoing a slow meltdown with the value of its currency, the lira, falling over 13% in just one night to a new all-time low against the dollar.  Not unlike Greece some years ago, the European Union’s largest banks have significant exposure to Turkey and some fear Turkey’s problems could spill over into Europe.  Not to be ignored, Iran also made the news this week as sanctions are set to take effect.  The Trump Administration says it expects buyers of Iranian oil to begin winding down their purchases as of this week.  Furthermore, U.S. sanctions against Iran on sectors including automotive and aircraft returned on August 7, while oil companies have until November 4 to adjust.  Analysts say Iran’s losses could ultimately total 1 M bbl/day of oil which would presumably push up the price of both oil on the world market.

In closing, I encourage everyone to walk faster.  I came across a study this week that found that walking at an average pace was linked to a 20% reduction in the risk of mortality compared with walking at a slow pace.  Walking at a brisk or fast pace was associated with a risk reduction of 24% with similar results found for the risk of dying from cardiovascular disease.  If you’re thinking it’s too late for me, you’d be wrong.  The benefits are far more dramatic for older walkers.  Average pace walkers aged 60 years or over experienced a 46% reduction in risk of death from cardiovascular causes, and fast paced walkers a 53% risk reduction, the study found.  So, get out there and don’t dawdle.  Now you know!

August 10, 2018

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