Delivers Spectacular Gains

Earnings Season Delivers Second-Straight Spectacular (24%+) Gains

by Louis Navellier

August 21, 2018

Bronze Bull Statue Image

This week basically wraps up earnings season and it looks like it will be the second straight quarter of 24%+ earnings growth. On Thursday, NVIDIA (NVDA) announced better-than-expected second-quarter sales (up 39.9%) and earnings (up 91.3%!).  NVDA is my largest holding and it has now exceeded analyst expectations for 12 straight quarters, which is truly amazing. Unfortunately, the company lowered third-quarter sales guidance to $3.19 billion, down from $3.32 billion previously estimated due largely to the fact that its crypto data mining sales are now immaterial. Although NVIDIA beat analysts’ estimates in all other sales categories, there was an adverse reaction to the crypto news.  Frankly, I never invested in NVIDIA for its ancillary crypto data mining sales so in my opinion the stock remains an outstanding buy!

NVIDIA’s stock should firm up fast, just like Home Depot (HD) did after briefly consolidating after its better-than-expected second-quarter results. Home Depot on Tuesday announced better-than-expected second-quarter sales (up 8.4%) and earnings (up 31%) while raising its 2018 guidance.  Initially, Home Depot stock consolidated, but then it firmed up in subsequent days.  The moral of this story is that better-than-expected sales, earnings, and guidance are working, even though it sometimes happens with a delay.

The dollar is strong while the Turkish lira is collapsing, and the Chinese yuan continues to decline.  In the past three months, the yuan is down 8% to the U.S. dollar. This has been unfortunate for the Chinese ADRs that I had recommended, so I have sold most of them, despite their continued strong sales and earnings.

(Navellier & Associates owns Home Depot & NVIDIA in both managed accounts, a sub-advised mutual fund and in family accounts.)

In This Issue

Thursday is an important day, with U.S./China trade talks, the last large list of second-quarter earnings releases, and the Kansas City Fed’s annual meeting in Jackson Hole, Wyoming. First, Bryan Perry digs deep into the “end game” strategies of the coming U.S./China trade talks, while Gary Alexander looks at history for clues that may emerge from the Jackson Hole talks. Ivan Martchev turns his attention to gold, in light of the negative correlation between gold and the strong U.S. dollar. Jason Bodner addresses the all-important question of price: Should we look for low-priced bargains or winners on the rise? In the end, I’ll return to look at the China trade talks and the global economic outlook in light of the Turkey crisis.

Income Mail:
Trump’s Constrictor Strategy Begins to Pay Off
by Bryan Perry
Trump’s Master Plan – Destabilize and Weaken China?

Growth Mail:
Market Clues Point to a Strong “Final Third” of 2018
by Gary Alexander
Watch China Trade Talks and Jackson Hole for Major Market Cues

Global Mail:
What’s Behind Gold’s Dip to $1,160?
by Ivan Martchev
The Broad Dollar Index is Much Stronger

Sector Spotlight:
Does a Higher Price Deliver Higher Value?
by Jason Bodner
Weekly Winners Vary, But Long-Term Winners are Consistent

A Look Ahead:
China May “Blink” First in Trade War Talks
by Louis Navellier
Germany and the U.S. Seem Untouched by Turkish Crisis

Income Mail:

*All content of "Income Mail" represents the opinion of Bryan Perry*

Trump’s Constrictor Strategy Begins to Pay Off

by Bryan Perry

This past week, the stock market breathed a sigh of relief as some clarity came into focus regarding the highly-fluid geopolitics of tariffs and sanctions and the net-net progress these tactics are starting to produce. Specifically, China now wants to come to the table, a deal on NAFTA is making good progress, and Qatar is providing a $15 billion lifeline to Turkey to help steady the lira.

While I support the first two trends, keeping pressure on Turkey for the release of American pastor Andrew Brunson is justified. After Turkey tried to negotiate clearance for a Turkish bank that has been under investigation by the U.S. for violating sanctions against Iran as conditions for his release, National Security Advisor John Bolton told the Turkish ambassador “No deal,” leaving the situation in a stalemate.

With five of six trading sessions from August 8 to 15 being lower for the S&P 500, Thursday’s headline “China and U.S. to Resume Low-Level Talks in Bid to Resolve Trade War” came as a breath of fresh air. The market had been suffocating on the notion of further tariffs being triggered, but on Thursday China's Ministry of Commerce announced that vice commerce minister Wang Shouwen will visit the United States (likely later this week) to discuss trade with U.S. Treasury Under Secretary David Malpass. 

Key trade topics on the the table will be (1) opening foreign investment in Chinese companies, (2) reworking the terms of transferring technology, (3) increasing exports to China, and (4) reducing the trade deficit. It is also notable that China's National Development and Reform Commission acknowledged that bankruptcy filings in China are on the rise this year. This might well be a larger catalyst than is being reported. Additionally, two of China’s major consumer companies, Tencent and JD.com, both missed their profit forecasts this week, sending the Shanghai Composite Index to a new two-year low.

More trade-related headlines crossed the tape, as it was reported that President Trump’s Chief Economic Advisor Larry Kudlow in a Fox News interview stated that the U.S. is making headway in Europe and Mexico regarding NAFTA. He said the new trade deal will be great for all three countries. He also said that the current economic boom is far from over, which was taken to heart by investors after much hand wringing about a potential slowdown of domestic growth due to a threat of trade war on many fronts. Although much work has yet to be done, this string of hopeful news sparked a big relief rally Thursday.

What’s at work here is the Trump administration stepping on the oxygen hose of what makes these trading partners’ economies tick – namely, access to U.S. markets. Selling products and services to the largest economy in the world – one that accounts for 25% of total global GDP, at a time when that economy is running hot on all eight cylinders – is the life blood of economic prosperity for all our trading partners: China, the EU, Japan, Canada, and Mexico. The message is resoundingly clear: It’s time to reconcile trading terms with our trading partners that produce a mutually beneficial fair-trade atmosphere.

As expected, there is plenty of kicking and screaming along the way, but the U.S. trade delegation is taking the road that Teddy Roosevelt paved a long time ago – “Walk softly and carry a big stick” – not in a military sense, but in a global commercial sense. “Big stick” diplomacy was designed to showcase not only America’s military strength, but to make international contacts accountable, establish good will, and to perform humanitarian roles where possible. America currently wields the most economic power in the world, so Trump & Co. are flexing that power and striking while the iron is hot, and it’s working.

Trump’s Master Plan – Destabilize and Weaken China?

Taming the trade deficit is important, but I believe there is a larger China strategy at work in the Trump administration. China’s “Belt and Road Initiative” and “Made in China 2025” serve as huge red flags for the U.S. and the rest of the world. These strategic plans are designed to dominate over 60% of global trade and to create a high-tech powerhouse that dominates all advanced industries. China’s intention is not so much to join the ranks of other leading high-tech economies as to eclipse them altogether.

Under Pressure Countries by Made in China 2015 Dot Plot

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

China intends to openly violate World Trade Organization rules – the very body that helped nurture China to its present #2 spot in global commerce. What is glaringly clear is that Chinese officials know they lag in the high-tech sector and hence they are pushing a strategy of promoting foreign acquisitions, forced technology transfer agreements and, in many cases, commercial cyber espionage to gain cutting-edge technologies and know-how. So, with Beijing hell bent on becoming the dominant power by any means possible, there is no time better than now for America and its allies to crush China’s grandiose intentions.

China is at present quite vulnerable to a major downturn as Chinese companies are facing a reality check after years of ramping up huge debts. The deleveraging campaign that President Xi Jinping began in 2016 to curb risks in the nation’s financial markets has cracked down on shadow financing. As a result, firms are having a tough time raising new funds to repay existing debt, leading to a record amount of bond defaults this year. And it’s a big deal; China’s $10 trillion ecosystem of unregulated lending, known as “shadow banking,” is financing a swath of failing companies.

According to data compiled by Bloomberg.com, there have been about 33.3 billion yuan ($4.9 billion) in corporate bond defaults so far this year. That already exceeds the full-year record of 30 billion yuan set in 2016. These include nine private and 25 public offerings. Strains are set to get worse if the trends of credit-rating companies are anything to go by. The average yield on dollar-based junk bonds from China has risen over four percentage points this year to 10.3%, near the highest level since February 2015.

Chinese companies face 2.5 trillion yuan of bond maturities in the remainder of 2018, their busiest redemption period. Less market demand for corporate bonds, combined with higher bond yields, means more liquidity crunches may occur. To make matters worse, many Chinese companies may be living on borrowed time, with the biggest cash flow deficit in six years. Downside momentum for the Chinese economy is building and now is the time to set China’s global ambition plans back – by about 25 years.

Well-known hedge fund manager Kyle Bass gave a recent interview on CNBC about why he supports President Trump’s trade war on China. While protecting America’s intellectual property and reducing the trade deficit is hugely important, he laid out why destabilizing and weakening China is essential to maintaining global stability. Over one million people have been rounded up and sent to reeducation camps in China since 2014. That tops the list of many incredibly egregious humanitarian, food safety, environmental, animal cruelty, and medical atrocities, many of which are government sponsored.

Detained in China Protest and Demonstration Image

We’re dealing with an all-consuming communist party leadership with some very bad long-term intentions. When the Chinese come to Washington in the next two weeks, it will be quite interesting to see if the U.S. negotiating team steps up and sends a message that rings loud and clear that China will not succeed in its global power grab. And if that means sending them home with an empty bag…so be it.

Growth Mail:

*All content of "Growth Mail" represents the opinion of Gary Alexander*

Market Clues Point to a Strong “Final Third” of 2018

by Gary Alexander

After another supposedly “boring” mid-August market week, the S&P 500 gained 0.6%, but the Dow rose 1.4% last week after rising or falling at least 110 points each day. The previously torrid NASDAQ lost 0.3% last week but year-to-date NASDAQ is still tops at +13.2% vs. just 3.8% for the Dow.

After nine years and five months (3,448 days, to be exact), the S&P is up 328% on a raw basis and 414% in total returns, including dividends.  By some accounts, tomorrow makes this the “longest bull market ever,” but I have already shown you that we have seen two 20% declines since 2009 and we have yet to top last January’s S&P peak, so don’t pop the champagne corks on a record bull market quite yet.

Meanwhile, the trade-weighted dollar has risen 7.4% since February, when trade-war talks began. That’s because the U.S. seems to have a winning hand in this trade war-of-words, both with allies and with China. After a spring surge in rates, the 10-year U.S. Treasury bond yield has stayed below 3.0% since May 24, suggesting that the dollar is a safe haven, despite all the red ink our greenback is spilling in Washington.

Last Wednesday, July’s retail sales came in at a larger-than-expected +0.5% (a 6% annual rate), the sixth consecutive monthly gain. Core sales (excluding autos, gasoline, building materials, and food service) also rose 0.5%. The National Retail Federation (NRF) said retail sales rose 4.8% (year over year) in the first half of 2018, justifying the S&P 500 Consumer Discretionary sector being the second-best of the 11 S&P 500 sectors so far this year (at +14.7% through August 14, 2018), behind only Info Tech (+16.4%).

Retail Sales Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

From a low of $4 trillion in 2009, retail sales have risen to over $6 trillion this year; chart source: Yardeni Research

But that’s all history. Most investors look to the future for their investment decisions, so what are the key factors to watch in late August? Lord knows the media will be assaulting you with more than enough noise about the Trump tweets, but try to keep your eyes and ears on China trade talks, and Jackson Hole.

Watch China Trade Talks and Jackson Hole for Major Market Cues

The second round of China tariffs is scheduled to take effect this Thursday on $16 billion in Chinese exports. It looks like China’s leader for life Xi Jinping may soon “blink” on China’s trade policies, since China has little room to maneuver with its debt load so high and an economy reliant on export revenues. 

With so much riding on China trade talks, don’t ignore the Fed meetings in Wyoming at the same time.

Forty years ago, the grandfather of the Jackson Hole meeting was called by the Kansas City Fed in 1978. Their theme was “World Agricultural Trade,” since Kansas City is in the heart of America’s Breadbasket. The Chairman of the Federal Reserve then was an ineffectual political nominee, G. William Miller, but at the time, America faced much bigger problems than farm trade – namely inflation and stagnation, dubbed “stagflation” – so President Jimmy Carter soon nominated Paul Volcker to run the Fed in August of 1979.

After three years of Volcker’s tight-money anti-inflation medicine, Volcker finally eased the Fed Funds rate in August 1982, fueling a stock market rally. To take a victory lap of sorts, he asked the Kansas City Fed to hold its summer meeting near his favorite fishing hole in Jackson Hole, Wyoming – in the remote Northwestern corner of the Kansas City Fed’s district. By now, Volcker’s fishing haven has become an annual getaway – and a major focus for market watchers, especially since the financial crisis of 2008-09.

Knowing that their words can move markets, the Fed has gone overboard to make their annual topics non-controversial, even boring.  Here, for instance, are the yawn-inducing titles of the last three Fed confabs:

  • 2016: Designing Resilient Monetary Policy Frameworks for the Future
  • 2017: Fostering a Dynamic Global Economy
  • 2018: Changing Market Structure and Implications for Monetary Policy (zzzzzzz)

When Ben Bernanke led the Jackson Hole conferences, he often made monetary history, as in 2010-13:

  • In his August 27, 2010 Jackson Hole talk, Bernanke said that the pace of economic growth had been “less vigorous” than the Fed had expected, and the pace of the job growth was “painfully” slow, so he revived the Fed’s late-2008 “quantitative easing” scheme. The market loved QE2: The S&P rose from 1047 during Bernanke’s Jackson Hole talk to 1363 the next April: +30%.
  • During a market crisis in August 2011, Chairman Bernanke laid out the groundwork for another new Fed strategy called “Operation Twist.”  After Jackson Hole, various Fed governors hit the road to explain and defend their $400 billion operation to artificially flatten the yield curve. The stock market loved Operation Twist.  The S&P 500 rose 26% from August 2011 to April 2012.
  • The 2012 Jackson Hole conference laid the groundwork for QE3, which was officially launched on September 13. At Jackson Hole, Bernanke said the stagnant job market was a “grave concern” to the Fed.  He also called current economic growth “far from satisfactory” and even “tepid.”
  • At the 2013 Jackson Hole conference, the skies were smoky around Jackson Hole due to all of the fires in Idaho. Bernanke was a lame duck then, so he sent his replacement, Janet Yellen, but Big Ben had muddied the skies with his talks of tapering (uttered in May), spooking the markets. In the end, tapering failed to faze the market, with the S&P 500 rising 22% in the next four months.

Under Bernanke’s “shock and awe” strategies, the S&P soared after Jackson Hole, but Yellen’s tamer talks (2014-1017) delivered slower gains. Still, we saw double-digit gains in the following eight months:

Double Digit Gains of the Standard and Poor's 500 Eight Months after Jackson Hole Conference Table

My main point is “Don’t Fight the Fed.”  We now have a new, more market-friendly Fed Chairman in Jerome (Jay) Powell.  I don’t expect him to say anything to spook the markets this Thursday. Neither do I expect him to emulate Ben Bernanke and announce some new magic formula, like a QE4 or QT2.

Since the financial crisis of 2008, most central bankers have bent over backward to be accommodating, fighting the remote possibility of a return to the deflationary 1930s.  They have sort-of-succeeded, so far.  Global growth is moderate but steady and inflation has not yet risen, despite all their quantitative easing.

Global Mail:

*All content of "Global Mail" represents the opinion of Ivan Martchev*

What’s Behind Gold’s Dip to $1,160?

by Ivan Martchev

Last Wednesday, gold hit $1160.06 per ounce on the heels of fresh 52-week high for the U.S. Dollar Index and a rout in emerging markets currencies, particularly the Turkish lira. I do not believe that the rout in emerging markets currencies is over, and I do not believe that the rally in the dollar is over. That means there is more downside for gold, since the inverse correlation of gold and the dollar is well established.

Silver and Gold Price Dip Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

What is most intriguing is that the silver price has been much weaker than gold in the past two years. Last week, silver reached $14.33 per ounce, a level that is below the December 2016 low, when gold traded at $1120. Keep in mind that the two major precious metals correlate but do not track perfectly.

Still, more often than not, when the market for precious metals is hot, silver tends to outperform gold, as it did in the summer of 2016. Also, when the market for precious metals is weak, silver tends to underperform gold, as it did in the winter of 2016 and is doing at the moment.

Gold versus Dollar Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

The precious metals complex will continue to be under pressure as the dollar is not done rallying, based on the present trajectory of Federal Reserve policy moves, which still favor a tightening bias. Hiking U.S. interest rates at a time when emerging markets have been on a dollar borrowing binge for the last 10 years is a recipe for disaster for emerging markets, as they borrow in dollars but repay their debts in cheaper Argentine pesos, Turkish liras, or Chinese yuan.

Investors need to remember that dollar borrowing means dollar shorting as dollar borrowers sell those dollars to use as they please when they take the loans, but they have to buy those dollars back when they repay the loans. This situation can result in a short squeeze, particularly if the loans are large.

The U.S. Dollar Index is exhibiting a pattern that traders call an inverted “head and shoulders” bottom.   The “head” is at 88.50 and the “shoulders” are at 95.50. A breakout above the neckline that we had last week projects a 7-point move above it, or 102.50, so a break above 100 on the U.S. Dollar Index in short order is a high probability event, if you put any sort of stock in chart sorcery.

The Broad Dollar Index is Much Stronger

Trade Weighted United States Dollar Index Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

Furthermore, there is now a very confrontational and overdue push by the Trump administration to try to balance the U.S. trade deficit. While I agree with President Trump that we have been taken advantage of in trade policy by many U.S. trade partners, I am not sure whether his confrontational approach will work. If it does, a smaller trade gap, coupled with Federal Reserve quantitative tightening, should cause a “heck of a rally” in the dollar, to use a favorite term of George W. Bush, who oversaw the largest trade gap (as a percentage of GDP) ever seen in this country.

United States Balance of Trade versus Current Account to Gross Domestic Product Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

While Mr. Trump is right to be upset about the trade imbalance, the fact remains that the U.S. current account deficit is only 2.4% of GDP under his tenure, while his Republican predecessor saw the same deficit become as large as 6%. Perhaps this is why the Broad Dollar Index is doing much better than the U.S. Dollar Index (which is not adjusted for trade numbers). I would not be surprised to see the Broad Dollar Index make an all-time high in Trump’s first term, if he can start rebalancing the trade picture.

If one looks at the Trade-Weighted Broad Dollar Index and extrapolates the numbers on the U.S. Dollar Index, the latter should be between 110 and 115. Because several emerging market currencies are from major U.S. trading partners but are not part of the U.S. Dollar Index, we get this obvious divergence.

Chinese Yuan versus China Foreign Exchange Reserves Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

The biggest part of the trade imbalance to fix is with China, since the Chinese yuan is a major contributor to the Broad Dollar Index but is not part of the U.S. Dollar Index. Most of the proposed Chinese tariffs kick in on September 5, so we are not yet past the point of no return. Still, the Chinese are a very “save-face” type of people, so I wonder what this whole Trumpian friction will end up achieving in the end.

Sector Spotlight:

*All content of "Sector Spotlight" represents the opinion of Jason Bodner*

Does a Higher Price Deliver Higher Value?

by Jason Bodner

We’ve all heard that “perception is reality.” We all know this in theory, but perceptions may not always seem so “real” when presented with the facts. Let me explain. I think everyone can generally agree that Health Care in the U.S. is not without its major flaws. The insurance situation affects just about everyone in America (unless you’re in Congress). The costs seem astronomical for limited coverage with seemingly endless payments due. The situation is so out of control that most people have just come to accept it.

Consider that hospitals in the U.S. charge up to $800 for an IV bag of sterile saltwater. The average price of manufacture is $1. An 800-fold (7,900%) markup on a sterile version of what covers 70% of the planet seems ludicrous. Yet, I don’t think hospitals would react well to a BYOB (Bring Your Own Saline Bag) program. If you’re lying in a hospital bed getting much needed hydration, the price seems unimportant.

It’s ultimately the perception of value that drives our decision making. If you need saline to live, $800 or not, most of us will be fine with seeing that itemized on the hospital bill. In fact, we often think something is better if it costs more. Ponder this study on placebos. Patients found that a $1,500 placebo was far more effective than a $100 one. Of course, they did not know that they were given placebos, but they did know the price of the pill. Each pill was the same formula, but they thought the expensive pill worked better.

Expensive Pill Worked Better Than Cheaper One Image

We perceive more expensive things to be better, be it cars, houses, food, clothes, or vacations. So why not stocks? Don’t most people want to buy cheap stocks? Someone might be eyeing a $100,000 car when a $35,000 car would do the same job, but that same person is looking at the $20 stock that has cratered 40% this year, thinking the $100 stock that’s up 40% is way too expensive! It’s funny how the mind works…

I believe in trends and looking for things trending higher.  Expensive stocks tend to get more expensive, while cheap stocks tend to get cheaper. Looking at sectors leading and lagging the market is no different. It’s human nature to want to buy the one that’s down. But when shopping, we pay for “higher quality.”

I remember when Facebook (FB) debuted at $36.53 on May 23, 2012. The market thought it was “too expensive” and it plummeted -16.53% by end of day. By August 27th it closed at $18.06, down over 50% from its IPO price and there was rampant talk about what a calamity it was. But even then, I recall talk of how it was still overvalued. FB then began to steadily climb, getting more “expensive” along the way.

I suppose some might have rejoiced in the recent disappointing earnings release which caused FB to drop roughly 20% from nearly $210 to the low $170s. But, I’d like to point out to those who thought it was too expensive even a few weeks ago, FB is still up more than 470% from its IPO price. That works out to almost 78% per year. And I guarantee, all the while, people said it was too expensive to buy…

Facebook Stock Value since Initial Public Offering Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

Whether or not I believe Facebook is a good investment or not isn’t the point here.  It’s that in the stock market, investors love to catch falling knives – er, I mean “good deals” – but when it comes to leaders that keep leading, they shy away.  This same psychology is what causes sectors to push higher or lower. 

(Navellier & Associates does not own a position in Facebook for managed accounts Jason Bodner does not personally own a position in Facebbok.)

Weekly Winners Vary, But Long-Term Winners are Consistent

Now, we are in the dead of summer. Volatility is usually higher; earnings season is almost over, and many professional traders are on vacation. We can see that the sector trends lately have been inconsistent with the longer-term picture. Last week was a defensive week. Leadership was in Telecom, Staples, Real Estate, and Utilities. In fact, it has been that way, off and on, for the last three months. Yet when we look longer term, Info Tech, Consumer Discretionary, Health Care, and Energy are still the 12-month winners.

I am going to focus on Tech and Discretionary for a moment.  The economic backdrop is really strong for the U.S.  The trade war rhetoric, as I have mentioned, is overblown and a way to keep viewers glued to the financial media. We have record sales, record earnings, record sales growth, record low corporate tax rates, record buy-backs, and a record high stock market. In my opinion, that’s not a market to bet against.

Standard and Poor's 500 Sector Indices Changes Tables

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

When the fall rolls around, I believe we will see resumed leadership in prior winners: Tech, Discretionary, and Health Care (despite the $800 saline bags) should see a resurgence in strength after a much-needed summer vacation. Energy has been squashed over 6% this month so far, in a time that usually is strong for energy. Summertime usually brings about big energy requirements for cooling needs and long car trips. The 1-year chart of Crude Oil still says uptrend, so I’d eye Energy for a possible resurgence as well.

West Texas Intermediate Crude Oil Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

Here’s the thing, though: When I look at the stock market, I typically don’t go “bargain hunting.” I look for the best – the leaders. They typically continue to push higher and drag entire sectors along with them. Remember that the next time you are deciding between premium gas or regular. Looking for investments, you may be drawn to the cheaper one, but in most cases it should be the other way around.

Warren Buffett, in his infinite wisdom, said, “Price is what you pay, value is what you get.”

Warren Buffett Quote Image

A Look Ahead:

*All content in this "A Look Ahead" section of Market Mail represents the opinion of Louis Navellier of Navellier & Associates, Inc.*

China May “Blink” First in Trade War Talks

by Louis Navellier

This Thursday, August 23rd, a second round of U.S. tariffs is due to take effect on $16 billion in Chinese exports.  These tariffs are in addition to the $34 billion in tariffs the U.S. imposed on China in May.

President Trump recently threatened an additional 25% tariffs on $200 billion of Chinese exports, which could lead to tariffs on nearly half the $505 billion in China exports to the U.S. each year.  This last option is essentially the “nuclear option,” which was clearly designed to force China’s trade representatives back to the bargaining table. So guess what?  The Wall Street Journal reported last Thursday that negotiations with China will resume in late August. Clearly President Trump is being heard loud and clear.

What I find especially interesting is that the weak Chinese yuan makes China even more competitive, so China continues to set record trade surpluses with the U.S. almost every month.  Furthermore, the fact that Apple (AAPL) will likely announce its new iPhones in September means that the Chinese trade surplus will continue to rise, since iPhones have historically had a major impact on the overall U.S. trade deficit.

(Navellier & Associates does not own Apple in managed accounts, or a sub-advised mutual fund or in Navellier family accounts.)

Overall, I expect that the U.S. will ultimately prevail in these trade negotiations.  With almost a 4-to-1 advantage of Chinese exports to the U.S. vs. U.S. exports to China, the U.S. has the upper hand; but until Apple and other big multinational companies divert their manufacturing away from China, the Chinese trade surplus will likely continue to set new records most months for the foreseeable future.

Germany and the U.S. Seem Untouched by Turkish Crisis

Turkey Borsa Image

Wall Street last week was stressing about Turkey imposing new trade sanctions on the U.S., even though there are not a lot of exports from Turkey to the U.S. other than “Gummy Bears,” which are predominately made in Turkey.  On a more serious note, the collapsing Turkish lira is expected to hurt European banks, which in turn will likely cause the European Central Bank (ECB) to remain accommodative.  In the end, a cautious ECB will also make our Fed be less likely to raise key interest rates beyond September.

Turkey is not a major trading partner with Germany, so outside of some German banks, it appears that Turkey’s currency and economic crisis will not have an adverse impact on German GDP growth. Last week, we learned that Germany’s second-quarter GDP grew at a 1.8% annual pace.  Germany’s first-quarter GDP growth was also revised up to a 1.5% annual pace from the 1.2% previously estimated. 

In the U.S., the Commerce Department on Wednesday announced that retail sales rose 0.5% in July, slightly better than the economists’ consensus estimate of 0.4%.  June’s retail sales were revised down to a 0.2% increase from the 0.5% increase previously reported.  Excluding vehicles and gas station sales, retail sales in July rose at a very healthy 0.6% pace.  In fact, July’s retail sales were very healthy for all but a few categories.  In the past 12 months, retail sales have risen at a healthy 6.4% annual pace. 

The Labor Department announced on Wednesday that productivity rose to a robust 2.9% annual rate in the second quarter, the strongest annual pace in more than three years.  Ironically, in the past 12 months, productivity only grew at a 1.3% annual pace, so the second-quarter surge in productivity bodes well for possible upward GDP revisions.  Most of the productivity gains are attributable to the service sector and recent business investment to boost productivity due to a tight labor market.  Overall, the surge in second-quarter productivity is very bullish for continued strong GDP growth.

And finally, the Conference Board on Friday announced that its Leading Economic Indicators (LEI) rose 0.6% in July, slightly better than economists’ consensus expectation of a 0.5% increase.  This means that the U.S. is not headed for a recession any time soon, so the bull market remains on firm footing.


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Dividend payments are not guaranteed. The amount of a dividend payment, if any, can vary over time and issuers may reduce dividends paid on securities in the event of a recession or adverse event affecting a specific industry or issuer.

None of the stock information, data, and company information presented herein constitutes a recommendation by Navellier or a solicitation of any offer to buy or sell any securities. Any specific securities identified and described do not represent all of the securities purchased, sold, or recommended for advisory clients. The reader should not assume that investments in the securities identified and discussed were or will be profitable.

Information presented is general information that does not take into account your individual circumstances, financial situation, or needs, nor does it present a personalized recommendation to you. Individual stocks presented may not be suitable for you. Investment in securities involves significant risk and has the potential for partial or complete loss of funds invested. Investment in fixed income securities has the potential for the investment return and principal value of an investment to fluctuate so that an investor's holdings, when redeemed, may be worth less than their original cost.

One cannot invest directly in an index. Results presented include the reinvestment of all dividends and other earnings.

Past performance is no indication of future results.

FEDERAL TAX ADVICE DISCLAIMER: As required by U.S. Treasury Regulations, you are informed that, to the extent this presentation includes any federal tax advice, the presentation is not intended or written by Navellier to be used, and cannot be used, for the purpose of avoiding federal tax penalties. Navellier does not advise on any income tax requirements or issues. Use of any information presented by Navellier is for general information only and does not represent tax advice either express or implied. You are encouraged to seek professional tax advice for income tax questions and assistance.

IMPORTANT NEWSLETTER DISCLOSURE: The performance results for investment newsletters that are authored or edited by Louis Navellier, including Louis Navellier's Growth Investor, Louis Navellier's Breakthrough Stocks, Louis Navellier's Accelerated Profits, and Louis Navellier's Platinum Club, are not based on any actual securities trading, portfolio, or accounts, and the newsletters' reported performances should be considered mere "paper" or proforma performance results. Navellier & Associates, Inc. does not have any relation to or affiliation with the owner of these newsletters. There are material differences between Navellier & Associates' Investment Products and the InvestorPlace Media, LLC newsletter portfolios authored by Louis Navellier. The InvestorPlace Media, LLC newsletters and advertising materials authored by Louis Navellier typically contain performance claims that do not include transaction costs, advisory fees, or other fees a client may incur. As a result, newsletter performance should not be used to evaluate Navellier Investment Products. The owner of the newsletters is InvestorPlace Media, LLC and any questions concerning the newsletters, including any newsletter advertising or performance claims, should be referred to InvestorPlace Media, LLC at (800) 718-8289.

Please note that Navellier & Associates and the Navellier Private Client Group are managed completely independent of the newsletters owned and published by InvestorPlace Media, LLC and written and edited by Louis Navellier, and investment performance of the newsletters should in no way be considered indicative of potential future investment performance for any Navellier & Associates separately managed account portfolio. Potential investors should consult with their financial advisor before investing in any Navellier Investment Product.

Navellier claims compliance with Global Investment Performance Standards (GIPS). To receive a complete list and descriptions of Navellier's composites and/or a presentation that adheres to the GIPS standards, please contact Navellier or click here. It should not be assumed that any securities recommendations made by Navellier & Associates, Inc. in the future will be profitable or equal the performance of securities made in this report. Request here a list of recommendations made by Navellier & Associates, Inc. for the preceding twelve months, please contact Tim Hope at (775) 785-9416.

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It should not be assumed that recommendations made in the future will be profitable or will equal the performance of the securities in this list. Click here to see the preceding 12 month trade report.

Although information in these reports has been obtained from and is based upon sources that Navellier believes to be reliable, Navellier does not guarantee its accuracy and it may be incomplete or condensed. All opinions and estimates constitute Navellier's judgment as of the date the report was created and are subject to change without notice. These reports are for informational purposes only and are not intended as an offer or solicitation for the purchase or sale of a security. Any decision to purchase securities mentioned in these reports must take into account existing public information on such securities or any registered prospectus.

Past performance is no indication of future results. Investment in securities involves significant risk and has the potential for partial or complete loss of funds invested. It should not be assumed that any securities recommendations made by Navellier. in the future will be profitable or equal the performance of securities made in this report.

Dividend payments are not guaranteed. The amount of a dividend payment, if any, can vary over time and issuers may reduce dividends paid on securities in the event of a recession or adverse event affecting a specific industry or issuer.

None of the stock information, data, and company information presented herein constitutes a recommendation by Navellier or a solicitation of any offer to buy or sell any securities. Any specific securities identified and described do not represent all of the securities purchased, sold, or recommended for advisory clients. The reader should not assume that investments in the securities identified and discussed were or will be profitable.

Information presented is general information that does not take into account your individual circumstances, financial situation, or needs, nor does it present a personalized recommendation to you. Individual stocks presented may not be suitable for you. Investment in securities involves significant risk and has the potential for partial or complete loss of funds invested. Investment in fixed income securities has the potential for the investment return and principal value of an investment to fluctuate so that an investor's holdings, when redeemed, may be worth less than their original cost.

One cannot invest directly in an index. Results presented include the reinvestment of all dividends and other earnings.

Past performance is no indication of future results.

FEDERAL TAX ADVICE DISCLAIMER: As required by U.S. Treasury Regulations, you are informed that, to the extent this presentation includes any federal tax advice, the presentation is not intended or written by Navellier to be used, and cannot be used, for the purpose of avoiding federal tax penalties. Navellier does not advise on any income tax requirements or issues. Use of any information presented by Navellier is for general information only and does not represent tax advice either express or implied. You are encouraged to seek professional tax advice for income tax questions and assistance.

IMPORTANT NEWSLETTER DISCLOSURE: The performance results for investment newsletters that are authored or edited by Louis Navellier, including Louis Navellier's Growth Investor, Louis Navellier's Breakthrough Stocks, Louis Navellier's Accelerated Profits, and Louis Navellier's Platinum Club, are not based on any actual securities trading, portfolio, or accounts, and the newsletters' reported performances should be considered mere "paper" or proforma performance results. Navellier & Associates, Inc. does not have any relation to or affiliation with the owner of these newsletters. There are material differences between Navellier & Associates' Investment Products and the InvestorPlace Media, LLC newsletter portfolios authored by Louis Navellier. The InvestorPlace Media, LLC newsletters and advertising materials authored by Louis Navellier typically contain performance claims that do not include transaction costs, advisory fees, or other fees a client may incur. As a result, newsletter performance should not be used to evaluate Navellier Investment Products. The owner of the newsletters is InvestorPlace Media, LLC and any questions concerning the newsletters, including any newsletter advertising or performance claims, should be referred to InvestorPlace Media, LLC at (800) 718-8289.

Please note that Navellier & Associates and the Navellier Private Client Group are managed completely independent of the newsletters owned and published by InvestorPlace Media, LLC and written and edited by Louis Navellier, and investment performance of the newsletters should in no way be considered indicative of potential future investment performance for any Navellier & Associates separately managed account portfolio. Potential investors should consult with their financial advisor before investing in any Navellier Investment Product.

Navellier claims compliance with Global Investment Performance Standards (GIPS). To receive a complete list and descriptions of Navellier's composites and/or a presentation that adheres to the GIPS standards, please contact Navellier or click here. It should not be assumed that any securities recommendations made by Navellier & Associates, Inc. in the future will be profitable or equal the performance of securities made in this report. Request here a list of recommendations made by Navellier & Associates, Inc. for the preceding twelve months, please contact Tim Hope at (775) 785-9416.

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