Mid-Year Review

Mid-Year Review: A “Goldilocks” Investment Environment Continues

by Louis Navellier

July 3, 2018

In my podcast last week, I pointed out that the stocks being added to the Russell 2000 index were very firm. Furthermore, I named multiple stocks that would benefit from the quarter-ending smart-Beta realignment. The bottom line is that money is not leaving the stock market, it is merely being reshuffled.

I should add that so far this year, stock buy-backs have risen 42%. In the first quarter, stock buy-backs in the S&P 500 hit an all-time record of $137 billion and I expect that the second quarter figure will be even larger. It is important to point out that the stock market has not risen as much as earnings have risen this year, so price-to-earnings ratios continue to decline. Since companies with a high return-on-equity (ROE) and low forecasted price-to-earnings ratios love to buy their shares, this buy-back trend should continue.

I was also watching the bid-to-cover ratios during last week’s Treasury auctions and there were a lot more bidders than buyers, so the bid-to-cover ratios continue to rise, and Treasury yields continue to moderate. Market rates remain soft, especially the 10-year Treasury bond. This will continue to take pressure off the FOMC to raise rates further, despite robust GDP growth. Overall, the current interest rate environment, combined with robust sales and earnings means that we remain in a Goldilocks investment environment.

In This Issue

Our authors agree that uneven trade barriers need fixing but talk of a “trade war” is overblown. Bryan Perry believes that Chinese and American leaders need to find a way to overcome their “language barrier” by next Friday or the market could undergo another “tariff tantrum.” Gary Alexander looks beyond the media headlines to find an under reported story – this time, in European immigration and GDP reduction. Ivan Martchev looks at the trade war through the measuring rod of the Chinese yuan. He also surveys China’s “ghost cities” to see where the Chinese credit bubble began. Jason Bodner’s angle on the trade war is how the algorithmic traders keep generating new buying opportunities by creating mini-market quakes after every new tariff announcement. I’ll close with a little wisdom from the auto makers I met in Alabama last week, plus late news on Sunday’s Mexican election and the latest U.S. economic barometers.

Income Mail:
Is Tough Trade Talk Risking a New “China Syndrome”?
by Bryan Perry
Comparing American Apples and Chinese Oranges

Growth Mail:
After 242 Years, America is Still the World’s #1 Safe Haven
by Gary Alexander
First Half Winners: Oil, Nasdaq & Small Stocks (Big Loser: Bitcoin)

Global Mail:
China’s Empty Cities Sure Don't Come Cheap
by Ivan Martchev
Weaponizing the Yuan

Sector Spotlight:
Don’t Mind the Small Market Quakes
by Jason Bodner
The Ups and Downs of the Trade War Story

A Look Ahead:
Alabama Sees Through the Media’s Scare Tactics
by Louis Navellier
The Other Economic News Was Not So Exciting Last Week

Income Mail:

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

Is Tough Trade Talk Risking a New “China Syndrome”?

by Bryan Perry

In the 1979 movie, “China Syndrome,” a news reporter (Jane Fonda) and her cameraman (Michael Douglas) are unintentional witnesses to a SCRAM incident, an emergency core shutdown procedure at a nuclear power plant in California. The crew prevents a catastrophe, but the plant supervisor (Jack Lemmon) begins to suspect that the plant is in violation of safety standards and tries desperately to bring it to the attention of the public, fearing that another SCRAM incident will produce an atomic disaster.

Fast forward to 2018 and we find world trade with China, Europe, Canada and Mexico in a slow-motion meltdown of sorts where the initial actions of the Trump White House to bring the U.S. trade deficit back into some semblance of balance are at risk of devolving into a ‘pride before the fall’ scenario escalating into trade war that has the potential of widespread economic impact. Trying to have a rational discussion with nations on the receiving end of favorable tariff policies for the past 30 years is like trying to convert a heroin addict to a non-opiate drug. The threshold of pain for long-term trade junkies is remarkably low.

These countries and many others have been on a tariff-based drip system where the calculus is skewed so heavily against the U.S. it’s laughable. For example, the standard tariff for importing cars to the U.S. is 2.5 percent of their value, while the European Union charges a flat 10% on imported automobiles. Our trade deficit with the EU last year was $151 billion, up 147% from $61 billion since 2009 (source: U.S. Census).

And that’s just the average. For hyper-ecological nations like Norway, residents of Oslo have to pay a 25% tax on top of the purchase price (and shipping costs from the U.S.) due to the U.S. car’s low fuel efficiency. A new 2019 Ford Mustang Shelby GT500 is taxed so heavily in Norway that one Mustang might cost as much as $250,000 over there vs. a list price in the U.S. of just $54,845.

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The U.S. trade imbalance with China is far worse than the U.S./Europe imbalance. In 2017, the U.S. trade deficit with China reached $375 billion in 2017, since the U.S. bought $505+ billion from China and U.S. exports to China were only $130 billion. (source: The Balance, “U.S. Trade Deficit with China and Why It’s So High,” June 14, 2018). Here is a breakdown of two-way trade, by product type, during 2017:

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Comparing American Apples and Chinese Oranges

A stickier issue, where more significant measures need to be addressed, is how China undercuts American companies by acquiring U.S. technologies. China acquires American-owned technologies too easily. President Xi and the Chinese government do not see it this way. They call the trade policy they practice a “successful policy.” China has clearly applied the doctrine of relativism – namely that knowledge, truth, and morality exist in relation to culture, society or historical context defining their idea of “fair trade.”

President Trump has already moved ahead with tariffs against the EU, Canada and Mexico, so he isn’t bluffing. U.S. equity markets are sensing that he isn’t about to blink on China, either. Canadian tariffs on U.S. goods, in response to U.S. tariffs on steel and aluminum, went into effect July 1. The initial $34 billion tariff on Chinese imports would be followed up by tariffs on another $16 billion in Chinese goods, with the potential to apply as much as $250 billion in total against China.

China plans to retaliate with tariffs of its own on $34 billion of U.S. goods and agriculture. This initial salvo has investors on high alert since the first tariffs enacted open the way for an escalation of further tariffs, assuming neither side budges. Making this situation more tenuous is that this week has the July 4th holiday coming on Wednesday, meaning that markets could endure more volatility leading up to Friday as trading volume tends to be lighter surrounding any mid-week holidays.

On the other hand, let’s assume that President Trump and President Xi don’t want to go down the road of mutual economic destruction, so they will come to terms on trade. Most Wall Street chief investment officers are in this camp and for the most part it makes incredibly more sense than the alternative.

Leading up to this past weekend, there was a prevailing tone of neutral-to-mild optimism that neither the U.S. nor China will actually allow the threatened tariffs to be triggered this Friday, July 6. But since there hasn’t been any movement by either government from their current positions, it now appears that the U.S. will go ahead and place tariffs on $34 billion of Chinese goods this Friday.

It would be a huge positive if the U.S. and China could reach a deal by Wednesday or we could see some sell first, ask questions later volatility heading into the weekend. The idea of an all-out trade war while the emerging markets indexes are correcting only exacerbates the notion of global growth slowing in the second half of 2018, while also stoking fears of inflation if we have to pay more for imported goods.

Because the U.S. and China view fair trade through two very different sets of lenses, I think the best investors can hope for are new measures that show tangible progress in lowering the deficit to alleviate the threat of a full-blown trade war. This would be in the form of lower and fewer tariffs by both sides with the mutual goal of targeting a lower U.S./China trade deficit. This is the more realistic scenario that I see unfolding, and it would be quite bullish news for stocks heading into the second quarter reporting period. Neither side has to blink first. Both can come to amenable terms so that China’s leaders can save face while the chart of the U.S. trade deficit improves dramatically over time.

Growth Mail:

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

After 242 Years, America is Still the World’s #1 Safe Haven

by Gary Alexander

“Immigrants, we get the job done.”

–  Alexander Hamilton in a song from “Hamilton,” a Broadway musical

In all the noisy headlines over U.S. immigration, you may have missed the fact that Europe’s leaders last Friday agreed to start holding migrants in detention camps, as Europe’s leaders – including Germany’s once open-armed Angela Merkel – faced backlash over opening the continent to anyone fleeing conflicts.

British historian Niall Ferguson labeled today’s Europe more of a “Meltdown Pot” than a melting pot. He referred to their widespread recent immigration as the “fatal solvent” of the EU. There is far more anti-immigrant fervor now brewing in Europe than in the US, with anti-immigrant political parties arising in most European nations, especially those on the Mediterranean front lines, like Italy, Spain and Greece. Even in Scandinavia, the Swedish Democrats have been surging in the polls and have vowed to bring down any government that doesn’t take a hard line on immigration in their September 9 elections.

In a confrontation similar to America’s southern border, Italy’s Interior Minister Matteo Salvini—head of the anti-immigrant League party—denied entry earlier this month to the Aquarius, a ship carrying 629 immigrants rescued off the coast of Libya. He called them “fake refugees,” according to a June 17 article in the New York Times. Salvini also vowed to block other rescue ships coming from Libya to Italian ports.

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Among Europe’s Big three, Germany’s M-PMI is down from 63.3 in December 2017 to an 18-month low of 55.9 in June. France’s M-PMI also peaked at 58.8 in December 2017 and is now down to a 16-month low of 53.1 for June, while Italy’s M-PMI is down from a recent peak of 59 in January to 52.7 last month.

Longer-term, Europe will have to come to terms with the fact that the U.S. underwrites most of their defense and some of their high labor costs. Last week, Eurostat, the European statistics office, reported that the U.S. imported cars amounting to 254 billion euros ($296.12 billion) in 2016, while Europe imported only 77 billion euros. The EU places a 10% tax on auto imports, while the U.S. places a 2.5% duty. Eurozone nations fund six weeks of vacation, high pay and early retirement, partly at the expense of American customers, workers and taxpayers. This inequity of Euro-worker protectionism must end.

While Europe is stepping on the brakes in their economic recovery, America is stepping on the gas.

FirstHalf Winners: Crude Oil, Nasdaq & Small Stocks (Big Loser: Bitcoin)

On July 3, 1884, journalists Charles Dow and Edward Jones published their first stock price index, mostly composed of railroad stocks, the dominant sector at the time. (The first industrial index was launched in 1896.) Also in 1884, Dow and Jones first reported on the stock market in The Customer’s Afternoon Stock Letter, which later became The Wall Street Journal. The Journal has been keeping score ever since.

Here are the 2018 first-half winners, according to the Wall Street Journal Weekend Edition and Yahoo Finance.

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We’ll see what the second half brings, but it looks like Bitcoin is already halfway to zero.

The Great American Songbook – Written by Immigrants

Speaking of immigration, allow me this 4th of July tangent to honor America’s immigrant songwriters.

After the Statue of Liberty was erected in 1886, the next 30 years brought a wave of European immigrants to Ellis Island and America. Young Israel Baline was just five when he first saw Lady Liberty in 1893. He later set the poem at her feet to music (“Give me your tired, your poor”) under the name Irving Berlin. Of course, he also wrote “God Bless America.” Irish-American George M. Cohan was born July 3, 1878 but his all-American songs claimed he was a “Yankee Doodle Dandy, born on the Fourth of July.”

Here are some more examples of how foreign-born lyricists used American geography in their song titles:

Gus Kahn (born in Koblenz, Germany, in 1886) emigrated to Chicago in 1890, aged four. He mastered American geography with Carolina in the Morning, On the Alamo, My Ohio Home and two songs about Kentucky. He also captured the American vernacular of the Roaring ‘20s in songs like Ain’t We Got Fun, I’ll See You in My Dreams, It Had to Be You, Love Me or Leave Me, and Makin’ Whoopee.

Mitchell Parish (born Michael Hyman Pashelinsky in Lithuania in 1900) came to the U.S. at age one on the SS Dresden. His family settled in Louisiana, where counties are called parishes, so they took the name Parish. His state songs are Stars Fell on Alabama and Sentimental Gentleman from Georgia, but his most beautiful efforts include classic masterpieces like Stardust, Deep Purple, and Stairway to the Stars.

Vernon Duke (born Vladimir Dukelsky in Russia in 1903) emigrated to America via Istanbul in the 1920s. He wrote classical music under his birth name Dukelsky, while writing both words and music to Autumn in New York, a mirror image of his earlier song hit, April in Paris (with words by Yip Harburg).

Mack Gordon (born Morris Gittler in Warsaw, Poland, in 1904) moved to New York City as a young boy. He memorialized two towns for Glenn Miller: Chattanooga Choo Choo and I’ve Got a Gal in Kalamazoo, sung by like Tex Beneke and the Modernaires. He also wrote At Last and You’ll Never Know.

To dramatize how amazing this is – immigrant children writing all-American songs – imagine the reverse. What if children born in America migrated to eastern Europe and learned a difficult new language – like Polish or Russian – and began writing hymns of praise to Warsaw, Poland, or Moscow, Russia?

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All hail these immigrant first-generation Americans. They found freedom and made memorable music.

Happy Fourth of July!

Global Mail:

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

China’s Empty Cities Sure Don't Come Cheap

by Ivan Martchev

As I watch the Shanghai Composite melt like spring snow, courtesy of the overdue trade tensions with the United States, I am beginning to see headlines about how President Trump's policies could cause a global recession. If this turns out to be an ugly trade war of the 1930 Smoot-Hawley Tariff Act type, those headlines may very well turn out to be warranted, but in the case of China, I don’t believe Trump’s tariffs will be the cause of China’s recession. Instead, it will be their epic credit bubble that has now popped and is deflating, as evidenced by their $1 trillion of forex outflows since 2014.

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To China, Trump's tariffs are what Lehman Brothers’ failure was to the Wall Street Crash of 2008 – the catalyst to the crash. It has been rather amusing to hear multiple times that “if Lehman had been bailed out” (a course of action I was in favor of), “Wall Street would have not crashed.” While the sell-off would not have been as quick or as sharp with such a bailout, the sell-off in the U.S. stock market would have happened, and it likely would have had a similar magnitude, but over a couple of years instead of one.

In 2008, Lehman Brothers was a gigantic band-aid on the U.S. financial system that the then-Treasury Secretary, Hank Paulson, had the fortitude to pull off rather abruptly. In other words, the Lehman Brothers’ failure was a catalyst, not a cause, of the humongous losses in the U.S. stock market, along with the worst financial crisis in 70 years. However, it was the real estate bubble, inflated by the mortgage finance bubble, that caused the recession, specifically AAA-rated subprime mortgage CDOs, some of which went to zero!

It takes a rare talent to construct a security that gets AAA ratings and ends up evaporating. As these collateralized debt obligations (CDOs) and other mortgage securities went under water, the dominoes began to fall in the U.S. financial system. Lehman Brothers simply made them fall faster. It very well may turn out that the Trump tariffs are the same band-aid whose expeditious removal will cause the air of the epic Chinese credit bubble to start going out faster. We should find out soon enough, by the end of 2018.

So, why is China in such a huge credit bubble?

I don't believe that the Chinese planned on it, but credit bubbles happen when regulators are asleep at the switch, similar to the way U.S. regulators were asleep at the switch during the AAA subprime mortgage CDO fiasco. The total leverage ratio in the Chinese economy has gone from roughly 100%, at the time of the Asian Crisis, to about 400% at present, if one counts the shadow banking that is conveniently removed from official statistics. This has happened while the Chinese economy has grown 12-fold in the meantime.

That means total credit aggregates are up over 40-fold in the meantime. It feels like the only way to grow is to borrow aggressively, as GDP growth has not been financed nearly as much by economic profits but much more so by rising debts. In addition to the monetary policy and tariff errors, this same dynamic is what helped create the Great Depression in the U.S. in the 1930s and the Asian Crisis in 1997-1998.

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As the Chinese economic growth rate has dramatically slowed since 2010, total social financing has continued to surge. Note that the authorities are now clamping down on rampant borrowing and the building of empty cities, of which there are several dozen (for a Youtube demonstration, Google “the ghost cities of China.”) Both developments can be seen in the significant decline in the rates of fixed asset investment and outstanding yuan loan growth. Still, neither of those credit aggregates capture the shadow banking system, which remains very much in the shadows. I am aware of the very sincere attempts by the Chinese authorities to rein in shadow banking, but I have no way of gauging the level of their success.

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Weaponizing the Yuan

I believe it is ZeroHedge that called the recent sharp sell-off in the Chinese currency “weaponizing the yuan.” It looks like the Chinese are saying, “You carpet bomb us with tariffs and we will devalue the yuan like it’s December 1993,” when they devalued to the tune of 34%. It appears that the appreciation in the Chinese yuan in 2017 was a move to appease the Trump administration (seen in the chart below as a move down in the blue line), and the recent aggressive sell-off in the yuan from 6.24 per dollar ($0.16) to 6.64 ($0.15), accelerating sharply in the past month, as a retaliation for the tariff imbroglio.

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I am sure that the Chinese leadership is trying to think of what to do in the present situation – as if Sun Tzu himself were in their position – but I don’t believe that even the legendary general (were he alive today) could prevent a bad recession in China. Still, a massive devaluation cannot be ruled out if the trade war spins out of control, which will likely turn out to be deflationary for the global financial system.

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While U.S. 10-year Treasury yields have generally risen, as the Federal Reserve has been unwinding its balance sheet, accompanied by multiple fed funds rate hikes, the slope of the Treasury yield curve has dropped to 31 basis points, as measured by the 2-10 spread. One way for President Trump to gauge whether his tariff policies are backfiring dramatically is for the 10-year Treasury note yield to start dropping aggressively as the Fed is unwinding its balance sheet – or for the yield curve to invert.

That would mean a recession not only in China but in the U.S. too.

Sector Spotlight:

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

Don’t Mind the Small Market Quakes

by Jason Bodner

Earthquakes are associated with massive destruction and chaos. The word itself conjures images of flattened buildings and major damage. The common conception is that they are rare. The fact is, only the destructive ones are rare. An earthquake greater than 8 on the Richter scale happens maybe once a year, but quakes with a magnitude of 2 or lower happen hundreds of times a day, but most aren’t noticeable.

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Just as in the stock market, we don’t (or shouldn’t) pay any attention to the small tremors. There are many down days and many up days. We only pay serious attention to the REALLY BIG down days.

The stock market has been very strong in recent weeks. We have seen a wave of heavy institutional buying concentrated in Information Technology, Consumer Discretionary, and Real Estate sectors. I interpret these as very bullish for the overall market. As money flows into growth-heavy and discretionary spending sectors, the strong economic implications are obvious. And as investors plow cash into yield-intensive sectors like REITs, it signals a dovish view for the near future of interest rate policy. In short, the market action is supportive of a continued bull market in U.S. equities.

Despite all this as the backdrop, it seems investors were looking for an excuse to take some profits. The stage was set perfectly for this past week to be the time. We are at the start of summer, between earnings cycles. Liquidity is typically lower, and minds are generally focused on vacations, lazy summer days and the upcoming July 4th mid-week holiday. The market was nearing overbought territory heading into last week. All it took was some trade war rhetoric heating up over the weekend to usher in a sloppy Monday.

Monday’s market action was typical for a defensive rotation. By this, I mean growth-heavy sectors got punished while defensive sectors got rewarded. Consumer Discretionary, Energy, Tech, Financial, and Materials stocks all sagged. Utilities and Consumer Staples saw an influx of cash. Tuesday’s short-lived rebound gave way to some more weakness on Wednesday. The end of the week saw the market firm up. The talk of tariffs and trade wars make for great TV. We have pundits and news people whose job it is to keep eyeballs glued to the TV or screen. Once there is traction for a story, gas gets thrown on the fire.

The Ups and Downs of the Trade War Story

I believe we are seeing continued evidence of the prominence of algorithmic trading. If you can step back, you can watch this drama unfold. When stories come out in concert through multiple media outlets, all one has to do is look at the stock prices to see if the stories cause concern or not. Earlier this year we saw the market’s disapproval of the news about trade war fears. Once the market caught its footing again, however, growth was back in favor and the broad market indexes were back on track for new highs.

What is interesting is that the news outlets kept trying to fuel the trade war story for weeks. The market kept shrugging it off and vaulting higher. If you paid attention, you could often see an initially negative reaction vaporize and reverse to positive trading. This happens because computer-driven algorithmic trading systems are focused on headlines, so we can see the action unfold. As negative news hits, these traders “test” to see the depth and liquidity of the market by shorting shares. If their offers for sale are met quickly with firm bids, there will be quick bids to cover, and sell orders covert to become net buyers for the day. The “test” failed, and small losses are taken to give way to long stock trading, looking to generate small profits to offset any losses. These types of days are not big money makers for the algorithmic firms.

Contrast this to when short sell orders are harder to fill on bad news days. Weak bids mean insufficient liquidity to absorb sell orders. Algo firms can get more aggressive and fade any bids to cover any they may have entered. Sell orders accelerate with more volume. If the market begins to free-fall, we know the algo guys are making serious money. In fact, in a conversation I had with a trader, he said “we can make our year in days like these.”  In short, algo traders wait for particularly soft markets so they can sell the stuffing out of it. For them, a few standout bloody days in the stock market can create standout years.

I think we saw a mild version of that last Monday. In summer, market liquidity is generally lower and there are fewer positive catalysts, like earnings, to bolster stocks. The right negative story came along, and bids softened. Shorting began, which propagated selling, but these were all traders. I bet that most everyday investors were not out emptying their stock portfolios at the crack of dawn on Monday morning.

Why am I telling you all this? Because the summer months are prime times for short-term traders to try to move markets based on liquidity factors like those discussed above. But the underlying theme hasn’t changed. The environment is bright for U.S. businesses. The economy is strong. Consumers have more disposable money to spend, and growth is evident in past consecutive earnings reports. Company guidance is strong, and any market pressure has been overwhelmingly positive for the past 18+ months.

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This is why market dips – like these short-lived ones we saw last week – should be viewed as buying opportunities. Until the fundamental undercurrent changes significantly, the data is bullish for U.S. stocks. This can be seen easily in the strongest sectors for the last 3 and 6 months. Consumer Discretionary, Information Technology, and Energy are sectors attracting investment capital. This is the hallmark of a strong bull market. This did not change on Monday. Nor do I envisage it changing anytime soon.

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“Ask yourself the question, ‘Will this matter a year from now?’”

– Richard Carlson, author of “Don’t Sweat the Small Stuff.”

A Look Ahead:

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

Alabama Sees Through the Media’s Scare Tactics

by Louis Navellier

I was in beautiful Alabama last week, which is in the midst of an economic boom. There are six major automotive manufacturing plants in Alabama, with Mercedes being the most prominent. Despite all the talking heads on TV gossiping about tariffs, virtually no one I ran into expects that Mercedes will divert more manufacturing to Alabama due to tariffs, since they do not believe tariffs will be increased above the current 2.5% level. The German auto manufacturers recently made it crystal clear that they are in favor of eliminating the 10% European Union’s tariff on U.S.- made autos and 25% on pickup trucks.

In other words, no one in Alabama believes the talking heads on TV and the constant commentary that the Trump Administration is increasing the cost of goods via tariffs. Naturally, Alabama is an extremely pro-Trump state and proud of its ability to compete with anyone in the world. The overwhelming feeling in Alabama is that U.S. manufacturing and exports are on the rise, which is fueling the economic boom there.

The stock market got off to a rough start last week on fears of trade, tariff and potential restrictions on foreign investment. However, these concerns were overblown, so the market quickly recovered, only to fizzle again on Wednesday. Trump’s Senior Trade Advisor Peter Navarro said on CNBC last week that there were “no plans to impose investment restrictions on any countries that are interfering in any way.”  Despite this strong statement, Wall Street continues to blow trade concerns all out of proportion.

Speaking of trade, the Commerce Department reported on Wednesday that the trade deficit declined 3.7% to $64.8 billion in May, substantially better than the economists’ consensus estimate of $69.2 billion. Exports rose 2.1% in May, while imports rose only 0.2%. In the past 12 months, exports have risen 13.4%, while imports have risen 8.4%, so the trade deficit has significantly declined and is now boosting overall GDP growth. In the wake of the lower-than-expected trade deficit, multiple economists have revised their second quarter GDP estimates higher. Some economists are now estimating as high as 5.3% annualized second quarter GDP growth while the Atlanta Fed has reduced their estimated to 3.8% growth.

The Other Economic News Was Not So Exciting Last Week

The other economic news last week slipped a notch. On Tuesday, the Conference Board reported that its consumer confidence index slipped to 126.4 in June, down from a robust 128 in May. The current conditions component remains high, while the expectations component was largely responsible for the dip in consumer confidence. It is now likely that higher energy prices are impacting consumer expectations.

On Wednesday, the Commerce Department announced that durable goods orders declined 0.6% in May, which was better than the economists’ consensus estimate of a 1.3% decline. The biggest drop in new orders for new cars and trucks since 2015 was largely responsible for the decline. Excluding vehicles, durable goods orders declined 0.3% in May. April durable goods orders were revised to a 1% decline, up from a 1.7% decline previous estimated. Overall, we have to keep a close eye on the automotive sector, since it is possible that higher gasoline prices are now impacting consumer behavior in driving and car buying.

On Friday, the Commerce Department announced that consumer spending rose 0.2% in May, well below economists’ consensus estimate of 0.4%. Personal income rose 0.4% in May, so the savings rate actually improved by 0.2%, since income exceeded consumer spending. The Personal Consumption Expenditure (PCE) index rose 0.2% in May and is now up 2.3% in the past 12 months. The core PCE, excluding food and energy, rose 2% in the past 12 months, so the Fed finally hit their 2% inflation target for the first time in several years. Since the core PCE index hit the Fed’s inflation benchmark, you might think that Fed watchers would be expecting more interest rate hikes. However, the Fed just raised key interest rates in June and said that the current wave of inflation may be temporary, so market rates remain well-behaved.

Crude oil prices are now at their highest level since 2014, so the energy sector is heating up. On Wednesday, the Energy Information Administration (EIA) announced that crude oil supplies declined 9.9 million barrels in the latest week, the largest weekly decline this year and the second week in a row with a substantial inventory decline. Naturally, the summer driving season is now in full swing and may be partly responsible for the dramatic decline in crude oil inventories. According to the EIA, gasoline inventories rose by 1.2 million barrels last week, so prices at the pump may not rise too much this week.

Finally, on Sunday, Mexico seems to have elected its own version of Donald Trump, former Mexico City mayor Andres Manuel Lopez Obrador. This is his third attempt to become President and the third time’s a charm, since Mexicans seem “mad as hell” about stagnant wages and the ongoing corruption within their country. Obrador is best described as a “leftist populist” who has discussed decriminalizing the drug gangs. According to CNN, 132 politicians have been killed in this campaign season, so the drug gangs have made a powerful statement. Naturally, if the drug gangs are decriminalized, President Trump will resume his demand for a border wall and demonize those who oppose him, including Obardor. The U.S. does a tremendous amount of trade with Mexico, especially in manufacturing regions like Monterrey, so I suspect that the outcome of this election will mean that the trade debate may escalate further, soon.


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.

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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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