New Buying Opportunities

Market Corrections Give Investors New Buying Opportunities

by Louis Navellier

May 14, 2019

United States and China Trade War Image

After setting a new all-time high on April 30, the S&P 500 suffered some tough days but is still down only 4.5% from its peak. The stock market initially got up on the wrong side of bed last week when fears emerged that the Chinese trade negotiations may be breaking down. However, China sent a very large team to negotiate trade deal enforcement details, so the stock market recovered somewhat on Friday.

In the heat of last week’s market action, I recorded three podcasts. Here’s my latest podcast (yesterday).

Interestingly, the fear that the trade talks with China might be derailed, lowered Treasury yields, which in turn just makes stocks all the more attractive, especially as the post-earnings-season stock buyback surge heats up. As I have repeatedly said, I expect another big wave of stock buybacks in the upcoming weeks.

In This Issue

Most of our analysts weigh in on the sudden eruption of renewed trade tariffs on Chinese goods. Bryan Perry focuses on the dangers to the Chinese housing bubble if this trade rift is not mended soon. Ivan Martchev agrees, since China can’t keep ignoring its epic debt bubble (300% of GDP) by one artificial intervention after another. Jason Bodner weighs in on how bugs in the China trade deal interrupted a fine earnings season (and Trump’s legal challenges). Meanwhile, Gary Alexander continues his series on how to interpret economic statistics from a variety of angles for better understanding, while I concentrate on two other major geopolitical hot spots – Iran and Venezuela – as well as the Chinese trade situation.

Income Mail:
Trade War Threatens to Pop China’s Housing Bubble
by Bryan Perry
Expect No Gain on Trade without Real Pain

Growth Mail:
Media Myths Fuel Widespread Ignorance
by Gary Alexander
Examples of “Alternative Facts” (or Alternative Explanations)

Global Mail:
A Sino Trade Curveball
by Ivan Martchev
A Hard Landing in China is a Matter of When, Not If

Sector Spotlight:
Trade Conflicts Amid Earnings Season Disrupt Markets
by Jason Bodner
Five Reasons for Buying Good Stocks on Dips

A Look Ahead:
Geopolitics (in Iran and Venezuela) Dominate the News Again
by Louis Navellier
Trade Talks Escalate to Cover Intellectual Property Protection

Income Mail:

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

Trade War Threatens to Pop China’s Housing Bubble

by Bryan Perry

Coming off last week’s white-knuckle ride in the stock market – thanks to China reneging on the terms of the trade deal – market tension surrounding the “deal or no deal” situation with China has warmed up a few notches. China’s poker face isn’t working. Any idea of taking President Trump to task on the eve of the deadline date, in hopes of the U.S. conceding to China’s “new terms”, was badly misconceived.

While the higher 25% level of tariffs will be applied to $200 billion of Chinese imports and, at a later (so far unset) date, on the approximately $325 billion of all other Chinese imports, the Chinese government expressed “deep regret over the development” and pledged to take “necessary countermeasures.”

I’ve never been convinced that China would disarm its government-backed espionage and its widespread practice of IP theft. In China, there are more military-uniformed hackers working 24/7 to steal U.S. technology than there are in the entire U.S. Marine Corps. And clearly, the lack of innovation in China means that agreeing to stop stealing U.S. technology and agreeing to eliminate the forced transfer of our technology to gain access to their market is to totally compromise their ability to keep up with the U.S.

To this point, it’s my view that there will be no transparent deal, where terms and conditions are verifiable and violations are held to account. If this is the harsh reality of what lies ahead, then there are few choices other than to apply heavy pressure to China’s economic and financial system. China could manipulate the Yuan lower, but that could precipitate a massive flight of capital out of China, as was the case in 2015.

Biggest Increase in Debt Chart

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

According to the Institute of International Finance (IIF), China’s debt-to-GDP ratio is over 300%, highest in the world, even though this figure is hard to quantify due to the opacity of the data. It is estimated that about one-quarter of this debt is tied to real estate. The IMF noted in an April 2018 report that “a crisis in China’s housing market would be of considerable global concern.”

I think this is where the real trouble lies for China, if the tariffs remain in place over the long term.]

Expect No Gain on Trade without Real Pain

Chinese investors in domestic real estate have been on a buying spree, with 69% of buyers in 2018 purchasing their second or third home, with over 50% of those purchases being bought for investment purposes. Trade tensions and capital outflows are already having an impact. In Beijing, the vacancy rate for investment properties is approaching 20%. Home price-to-income ratios are way out of whack. In Shenzhen, the home price per square foot (PSF) is around $760 vs. $636 in Silicon Valley, one of America’s priciest markets. The big difference is that the average salary in Silicon Valley is about $84,000, whereas the average salary in Shenzhen is just over $15,000. Housing bubble, anyone?

Home Sales in China Bar Chart

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

It’s difficult to get one’s arms around China’s real estate market in that not only is 25% of the country’s GDP tied to construction but 80% of the nation’s wealth is invested in domestic property holdings at a time when it is estimated there are 65 million vacancies. From the chart above, real estate sales tanked 44% in early January. That was met with local governments removing some restrictions and relaxing requirements. Normally, this would look like a red flag – and sound like a canary in the coal mine.

However, the latest read on home prices in China show that average prices of homes in 70 cities increased by 10.6% year-on-year through March 2019, up from a 10.4% rate in February. This marked the 47th straight month of Chinese real estate price increases, and the strongest annual gain since April 2017.

Chinese Home Binge Buying Bar Chart

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

Some analysts argue that the binge real estate buying of the past three months was in anticipation of a U.S./China trade deal being consummated. Buyers leveraged heavily into what was perceived to be a re-acceleration of the Chinese economy. That may still be the case if a deal comes together in due course, but there seems to be some conflicting data at work here. Consider the ratings on their real estate debt.

The average rating for the debt of China’s largest real estate developers has been downgraded to CCC, with Moody’s rating the debt of 51 out of 61 Chinese property companies rated as “junk.” While many investors follow the Shanghai Composite Index as a measure of China’s economy, it might prove more insightful to keep an eye on the China Real Estate Invesco ETF (TAO) as a more accurate barometer.

China Real Estate Invesco Exchange Traded Fund Chart

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

President Trump has had plenty of experience with junk debt and bankrupt real estate and has a pretty good understanding of how punishing a leveraged real estate portfolio can terrify overleveraged investors!

If the trade war lowers China’s GDP growth rate from 6.4% to 5% (or below) and their real estate market undergoes a 2008-2009 reset, similar to what occurred in the U.S., then (and maybe only then) will the pain be sufficient to force long-term and constructive change with China at the negotiating table. 

Growth Mail:

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

Media Myths Fuel Widespread Ignorance

by Gary Alexander

“It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.”

– A quote attributed (in the movie “The Big Short”) to Mark Twain

The folksy “Mark Twain” quote (above) seemed like a perfect lead-in to the great film of Michael Lewis’s great book, “The Big Short,” which centered on the kinky derivatives that led to the worst financial crisis since the 1930s. The problem is, the quote itself is spurious. It does not appear in any of Mark Twain’s books, essays, letters or speeches. Apparently, Mark Twain never wrote it or said it, or anything like it.

By contrast, The Big Short (book) opened with a real quote by Leo Tolstoy (from an 1894 religious tract):

“The most difficult subjects can be explained to the most slow-witted man if he has not formed any idea of them already; but the simplest thing cannot be made clear to the most intelligent man if he is firmly persuaded that he knows already, without a shadow of a doubt, what is laid before him.”

Here are a few examples:

Examples of “Alternative Facts” (or Alternative Explanations)

We’re at “full employment.” With the unemployment rate at a near-50-year low of 3.6%, we are in the traditional “full employment” area (generally, below 4%), since some unemployment is always inevitable due to job-changing and other technical reasons. However, 1 in 9 able-bodied men in their peak working years have dropped out of the labor market. That has turned around, slowly, in the Trump era, but 11% of prime-age males are not working or looking for work (“in the labor force”). This is not full employment.

Men Leaving the Job Market Bar Chart

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

Capitalism is dead (or dying): The fact that a majority of young people say they favor socialism over capitalism may be attributable to a lack of education about what each term means. Perhaps “socialism” sounds like “social media,” which they like. Capitalism isn’t dead when the vast majority of humans on earth are struggling daily to make their lives better and billions are escaping poverty in the process. Our innate drive toward creating wealth is part of our human nature. It cannot be legislated out of existence.

The wealth gap is increasing. This is true, but all groups are rising in income – poor to rich. The rich are growing wealthier faster. That’s a sign of hope, not despair. Most billionaires earned their wealth through innovation rather than inheritance, and we need these rich taxpayers to get even richer, since many major capitalist icons (starting with prompts from Warren Buffett and Bill Gates) are giving away the bulk of their multi-billions to charities in life or at death. We should hope they earn more, so they can give more.

The middle class is shrinking. Political candidates endlessly play the misery card, saying “the middle class is dying” (or shrinking). It’s shrinking because the middle class has gotten richer. The upper-middle class has grown from 12.9% of Americans in 1979 to 29.4% as of 2014. There are more rich, fewer poor:

Middle Class Breakdown Bar Chart

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

Racial divisions are worse than ever. This is a relatively new myth. From 2001 to 2013, race relations were good by any measure. In 2013, 66% of black Americans and 72% of white Americans thought race relations were “good.” By 2016, those numbers were 20% lower, yet this pessimism is unjustified by the facts. In 1958, for instance, only 4% of Americans approved of black-white intermarriage, while 87% approved of such marriages in 2013. As we become more aware of past injustices, we do more to alter our views. Ironically, we think the situation is “worse” when our growing awareness reduces racist behavior.

The Economist this week (“Everyone’s a little less racist,” May 11-17, 2019) showed how measures of “implicit bias” have declined markedly since 2012, even as polls reflected rising racial tension. The Economist quoted a Harvard study of 4.4 million Americans, which showed that implicit bias based on race fell by 17% in the last decade, while “explicit biases have declined by an even-larger 37%.”

America is more divided than ever. Almost 80% of Americans polled last November said America was “more divided than ever.”  May I suggest that we’re not close to being the “most divided” America ever. For the top three spots in the “divided America” derby, I would nominate (1) a Civil War that killed over 600,000 in the 1860s, (2) crippling Jim Crow laws for nearly a century thereafter in the South (and parts of the north) and (3) hundreds of bombings per year by anti-war domestic terrorists in the early 1970s.

“Alternative facts” are important – they provide a different camera angle and an alternative explanation.

Global Mail:

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

A Sino Trade Curveball

by Ivan Martchev

I do not believe the stock market expected the recent reneging of the trade deal by the Chinese, due to the overselling of progress in the trade deal by president Trump and some of his administration officials. That the Chinese would come back in late April to renegotiate terms that they had agreed to in January and February is not surprising. It is the number of terms that they wanted to renegotiate that raises eyebrows. Virtually every major concession they had made for the previous three months was suddenly off the table: Forced transfer of technology, changing of Chinese laws to protect foreign intellectual property and the increased purchases by Chinese state buyers to be sourced from the U.S. – all are suddenly in limbo.

The conclusion one could draw from this is that the Chinese never wanted to make a trade deal but only buy time while they dealt with their domestic economic problems. Or, as Mr. Trump so eloquently put it in his relentless Twitter diatribes: “I think that China felt they were being beaten so badly in the recent negotiation that they may as well wait around for the next election, 2020, to see if they could get lucky & have a Democrat win, in which case they would continue to rip-off the USA for $500 Billion a year…”

To be fair, both Democratic and Republican administrations are to blame for letting China play this clever game of purposefully buying more from their neighbors and key trading partners, to increase political influence, while buying less from the United States – because they could get away with it. That game is up as there is a new sheriff in town and he is not respecting old arrangements. His name is Donald Trump.

United States Crude Oil versus United States 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.

The biggest current account deficit as a percentage of GDP that we have seen in recent years is 6% during the George W. Bush administration. That coincided with oil going to $150 and U.S. crude oil production at multi-decade lows. Back then, if the U.S. economy grew and crude oil production fell, the trade deficit grew, as we had to import the oil. But crude oil production has tripled since 2008 due to the shale boom, so the overall trade deficit has shrunk from 6% of GDP to 2.4%, but oil is only part of the problem.

United States Trade Deficit with China Chart

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

As the overall trade deficit has shrunk as a percentage of GDP, the U.S. bilateral trade deficit with China has exploded. China is the biggest driver of the overall U.S. trade deficit as the U.S. economy grows – GDP is up 50% since 2008. Many electronic goods, like HDTVs and iPhones, are no longer made in the U.S., so our imports from China grow. If China does not divert their army of state buyers to buy more from the U.S., as they have been doing for at least 15-20 years, the trade deficit is guaranteed to expand.

United States and China Trade Standoff Bar Chart

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

I think that the trade deal can still be saved, but I also believe that the Trump administration oversold its progress. Up until a couple of weeks ago, officials described it as “90% done,” or “on the 5-yard line.” On the other hand, I also believe it is plausible that they were misled by China, who agreed on a number of key concessions and in a calculated manner reneged on them in order to see if they can get away with it.

Not with a President like Donald Trump, they can’t.

A Hard Landing in China is a Matter of When, Not If

I have been amazed at the ability of Chinese authorities to arrest any economic downturn. I am beginning to think the Chinese government thinks that they can eliminate the economic cycle and fuel a perpetual economic expansion. I do not believe that they can do that, but I do believe they believe they can do it.

Every time the Chinese economy weakens, Beijing injects new loans via lending quotas, reserve ratio cuts for banks and other interventions. (In late 1993, they devalued the yuan to the tune of 34% in one move.)

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.

These aggressive monetarist interventions in the Chinese economy have helped create one of the biggest credit bubbles the world has ever seen. As the Chinese economy has grown from a little over $1 trillion in the year 2000 to over $13 trillion in 2018, the total value of credit in the Chinese financial system has increased over 40-fold (to 300%+ of GDP), if one counts their infamous shadow banking system.

Amid this high level of indebtedness, a major trade war can cause their credit bubble to burst. This is why I believe the Chinese have every incentive to make a trade deal. Watch the value of the Chinese yuan, which weakened notably to close at 6.84 last Friday, and the level of foreign exchange reserve outflows, which resumed in April. A major escalation in trade-talk rhetoric can turn this trade conflict into a major economic event for China. It’s not too late to save the deal, but a lot can change in the next six months.

Sector Spotlight:

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

Trade Conflicts Amid Earnings Season Disrupt Markets

by Jason Bodner

Did you know that half of the world’s pigs live in China? President Trump did, so he decided to vent.

Number of Pigs Worldwide Bar Chart

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

Let me explain…

Last Friday, the market closed at all-time highs. Coincidentally, headlines were heating up about Trump’s tax filings and his stated $1.17 billion losses spanning a decade between 1985 and 1994. At some point, Trump claimed more losses than any other individual taxpayer. Love him or hate him, this is guy knows how to work the system. Here’s my point: When the screws tighten on Trump, he’s a master deflector.

Last week found Trump in the crosshairs for massive tax losses. His Attorney General was being held in contempt, and his son was being subpoenaed. What to do? Insert some inflammatory trade war tweet and you get a perfect shift of focus… and boom! We get a market reaction.

Our new market norm (for now) is a period of low volatility – followed by excessive volatility. The VIX index is not perfect, but it can illustrate my point. Typically, when the VIX bottoms out, it coincides with market highs. When the VIX spikes, it coincides with sharp market drops, like this chart demonstrates:

Volatiltiy Index Chart

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

On April 18th, the VIX hit a near-term low of 12.09. Earnings season kicked up the volatility, and then Trump’s trade tweet-a-thon sent the VIX surging to a May 7th spike at 19.32. This is where the media loves to cite big numbers. This is when you’ll see a headline like this: “VIX spikes 60% as trade worries roil markets!” Snappy headline, right?  I made it up myself. Technically it’s true (19.32 is 60% higher than 12.09) and it coincided with a fall in the S&P of -3.74% for the week. That’s ugly in isolation, but the S&P 500 peaked at a +25.3% rally from its December 24 lows. It now sits 22.6% higher than on Christmas Eve. Some giveback is expected, especially when earnings season is agitated by trade rhetoric.

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.

Note: This is the first week we’ve seen some decent selling since January. The selling was even across the sectors and sells outnumbered buys by more than 2 to 1. If the market weren’t near highs, this might be troublesome, but with so many stocks extended, drifting lower on any spike in volume is not hard to do.

Big Buying and Selling by Market Cap Chart

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

Chinese President Xi says the trade deficit is the lowest in three years, but Trump says he wants to see more progress. I have a different view: I think this trade war is about 5G. If you want fast download over-wireless networks, then 4G won’t cut it. 5G will bring speed and usher in the next tech boost for the information age. The U.S. wants to win – or at least have favorable trade terms with China.

5G may account for the monstrous bump in Software and Semiconductors since Christmas. The market previously assumed a trade resolution. Investors piled into tech that would benefit the most from a deal. (Semis and Software enable 5G to be embraced by both superpowers.)  Even Apple (AAPL) became a believer when they set aside their difference with QCOM (QCOM) to work together to develop 5G.

(Navellier & Associates owns Apple and Qualcomm in managed accounts and our sub-advised mutual fund.  Jason Bodner has no position in Apple, but as a long position in Qualcomm in personal accounts.)

Five Reasons for Buying Good Stocks on Dips

So, am I worried about this latest market chop?

Well, the data tells me not to be worried. It also tells me to “buy the dip.” First things first: Trump and Xi may both want to look like winners, yet neither can afford to surrender national pride. Trump has a re-election campaign soon. He doesn’t want to be perceived as derailing our economy. Xi is planning a 70th anniversary celebration of the Communist Chinese victory in October 1949. He knows he needs America  as a trading partner to avoid sending China’s economic growth into a tailspin, so we need each other!

I see a resumption of the bull market soon, because:

(1) When markets freak out, interest rates trend lower as capital flees into bonds. Ironically, that makes stocks become more compelling. As I pointed out before, dividends are taxed at long-term rates of 23.8% while bond interest is taxed as ordinary income, peaking at +40.8%.

(2) Sales and earnings are beating estimates! With 78% of the S&P 500 reporting, FactSet says that 76% reported positive EPS surprises and 60% reported positive revenue surprises. Revenues are up 5.2% y/y.

(3) Stock buybacks are rising. Q1 saw $227 billion of buybacks. We should see more as earnings season ends. Remember, when a company announces a buyback, they often wait for prices to fall before buying.

(4) Market dips bring in more buyers. This is different behavior than late last year. Look at last week’s 5-day intraday price action of the S&P 500, showing the persistent re-entry of buyers:

Standard and Poor's 500 Intraday Price Action Chart

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

(5) Finally, bull markets need these periods of retreat in order to coil up, and then power higher.

Don’t give into the fear-mongering news media. Last week marked a clear congestion point, spurred by a mid-earnings-season trade-tweet. But the media will seize on any opportunity to fan the flames because they know that we humans can’t resist emotional responses over logic.

Dancing Pigs Image

As security specialist Bruce Schneier said: “The user's going to pick dancing pigs over security every time.”

A Look Ahead

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

Geopolitics (in Iran and Venezuela) Dominate the News Again

by Louis Navellier

If you are looking for some new things to worry about, the geopolitical scene is heating up, and the press is finally paying some attention, since their political posturing over the Mueller Report is getting boring.

First, Secretary of State Mike Pompeo canceled his scheduled meeting with German Chancellor Angela Merkel and instead made a surprise visit to Iraq on Tuesday, due to an “imminent” threat from Iran.

Unusually specific intelligence reports about fresh Iranian threats to American forces in the Middle East triggered Secretary of State Pompeo’s trip. Additionally, the U.S. aircraft carrier, USS Abraham Lincoln, and all its support ships are being dispatched to the Middle East in a “show of force” to Iran, in order to make them “think before they do something against U.S. forces in the region.”

This credible intelligence apparently came from Israel, which recently had to deal with approximately 690 missiles launched from Gaza in a surprise attack. According to Ha’aretz, Israel’s “Iron Dome” missile defense system only intercepted 240 (35%) of the missiles launched from Gaza. So far, the ceasefire between Israel and Hamas is holding up, but hostilities could flare up at any time. Since Hamas likes to launch missiles from residential areas to limit counterattacks, Israel cannot easily target all of the missile sites, but they did obliterate Hamas’ cyber operations and other key locations. Israeli Prime Minister Benjamin Netanyahu said the campaign against Hamas is “not over and demands patience and sagacity.”

Venezuelan Military Image

In our hemisphere, the attempted ousting of Venezuela President Nicolas Maduro has apparently failed. Exasperated Venezuelans have not given up on Juan Guaido becoming their next President, but his popularity has diminished after the Venezuelan military did not defect in sufficient numbers, especially the Generals that protect President Maduro. In the meantime, the U.S. announced on Tuesday that it is sending the Navy hospital ship Comfort (with 1,000 beds) to the Caribbean region in June to provide humanitarian assistance. On the same day, Acting Defense Secretary Patrick Shanahan and Colombian Vice President Marta Lucia Ramirez issued a joint statement following a meeting at the Pentagon, calling for a peaceful transition of power to Guaido. Naturally, all Navy ships have a support group, so it will be interesting to see if the U.S. also provides a show of force to accompany the Comfort hospital ship.

Combining these two threats, Vice President Mike Pence, in a State Department speech on Tuesday before the Council of the Americas, said that “The Iranian regime has been working with Venezuela’s corrupt dictatorship to establish a safe haven for its terrorist proxies.”  In his speech, Pence said, “Venezuela is a failed state” and “as history teaches, failed states know no boundaries. Drug traffickers, criminal gangs, terrorist groups seeking to destabilize the region and profit from the misery of the Venezuelan people.”

As we near mid-2019, it is clear to me that the Trump Administration has a checklist of accomplishments that it wants to talk about during the 2020 Presidential campaign. Since any military engagement is complicated and surrounded by uncertainty, I suspect that economic sanctions will remain the Trump Administration’s primary weapon of choice. Furthermore, since leading Democratic candidate Joe Biden voted for the Iraq war resolution in the Senate, I suspect President Trump wants to profile his potential Presidential opponent as being too eager to engage in military conflicts. President Trump clearly prefers economic wars over military conflicts, similar to how China has used its economic might to become much more powerful than its military, since peace and prosperity is better for continued economic growth.

Trade Talks Escalate to Cover Intellectual Property Protection

Speaking of China, its trade deficit with the U.S. has declined to its lowest level in three years. Imports of cell phones, consumer electronics and other household items from China all declined in March, so the Trump tariffs are clearly having a significant impact as U.S. imports from China continue to decline.

The Trump Administration filed paperwork on Wednesday to raise the tariffs on $200 billion of Chinese goods from 10% to 25%, effective Friday. Clearly, the Trump Administration is trying to negotiate from strength. Even though President Trump is playing hardball, I expect that these seemingly endless trade negotiations will eventually conclude on a positive note, since both Chinese President Xi and President Trump want to tell their respective constituents that they “won” or (in China’s case) at least “saved face.”

In addition to trade, President Trump is playing hardball with China regarding the theft of intellectual property. Specifically, the Justice Department charged 5G giant Huawei last week with stealing trade secrets, including a T-Mobile robotic device to test smartphones. Furthermore, the U.S. has accused Huawei of spying for the Chinese government. It is highly unlikely that the Huawei case will be resolved soon, since it is so complicated and involves national security issues. It will be a real test for the Trump Administration to increase its tariffs on Chinese goods if its many trade issues are not favorably resolved.

(Navellier & Associates does not own T-Mobile in managed accounts and our sub-advised mutual fund.  Louis Navellier and his family do not own T-Mobile in personal accounts.)

After the 25% tariffs on $200 billion in Chinese goods became effective on Friday, President Trump tweeted that “Talks with China continue in a very congenial manner – there is absolutely no need to rush.”  Clearly, President Trump is negotiating from strength, since China needs the U.S. more than the U.S. needs China. Furthermore, President Trump signaled that his administration is not bluffing, so I expect China will make some concessions to reduce the U.S. tariffs back to 10% on most of their exports.

Finally, the news on the inflation front was positive last week. On Thursday, the Labor Department announced that its Producer Price Index (PPI) rose 0.2% in April, down sharply from a 0.6% increase in March. A 0.2% decline in food prices helped. Excluding food, energy and trade services, the core PPI rose 0.4%. In the past 12 months, the PPI and core PPI have each risen 2.2%, close to the Fed’s target.

On Friday, the Labor Department announced that its Consumer Price Index (CPI) rose 0.3% in April, but the core CPI (excluding food and energy) increased only 0.1% for the third straight month. Gasoline prices rose 5.7%, accounting for two-thirds of the April increase. In the past 12 months, the CPI and core CPI have risen 2.0% and 2.1%, respectively, so the Fed can hold rates steady and remain “patient.”


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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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