Stock Buy-backs Rise

Corporate Stock Buy-backs Rise 59% in First Quarter

by Louis Navellier

April 16, 2019

Even though the S&P 500 is off to its strongest start in almost a decade, Lipper reported that stock mutual funds had outflows of $39.1 billion in the first quarter. Some of these outflows could have been attributable to ETFs capturing more market share, but another major reason for the market’s strength seems to be the fact that companies in the S&P 500 repurchased $227 billion of their outstanding shares in the first quarter, according to FactSet. In the first quarter of 2018, S&P 500 companies repurchased $143 billion, so stock buy-backs soared 59% last quarter, due in part to extremely low interest rates.

In this ultra-low interest rate environment, the S&P 500’s dividend yield of approximately 1.85% remains super-attractive. The S&P 500 is up strongly this year despite low earnings projections, but my favorite economist, Ed Yardeni, pointed out last week that many institutional investors may be looking beyond the first quarter’s lackluster earnings forecasts, since first-quarter sales growth is expected to be strong and earnings growth for the second-half of this year and into next year is anticipated to be relatively strong.

Frankly, the analyst community has been so aggressive in cutting their first-quarter earnings estimates that we could be on the verge of another round of positive operating earnings surprises in the coming weeks.

In This Issue

Bryan Perry opens by saying the market sees a lot of good news beyond the current growth malaise story, including strong tech growth over the next five years. Gary Alexander offers part 2 of his story on how the press misuses statistics in their effort to scare (even misinform) the general public, to increase ratings. Ivan Martchev revisits the currency markets to weigh the latest dollar strength against the euro and some submerging “emerging” market currencies. Jason Bodner covers the growth sectors that have led this recovery, with a special focus on why the Semiconductors are leading the way. Then, I’ll conclude with a look at the latest misguided QE policies in Europe and some misleading inflation statistics just released.

Income Mail:
Markets are Levitating Amid All the Static
by Bryan Perry
High-Tech REITs Offer Strong Growth and Juicy Yields

Growth Mail:
How Partisans Use Statistics to Try to Mislead Us
by Gary Alexander
Five Examples of How to Spot the Misuse of Statistics

Global Mail:
The (Trade-Weighted) U.S. Dollar is Headed to All-Time Highs
by Ivan Martchev
The Trade Deal’s Impact on the Dollar and Other Currencies

Sector Spotlight:
Tune Out the Noise, Tune into the Key Statistics
by Jason Bodner
Why Software and Semiconductors are Leading the Charge

A Look Ahead:
Negative Rates in Europe and Japan Causing Capital Flight
by Louis Navellier
Inflation Rates Seem High but are Skewed by an Energy Price Surge

Income Mail:

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

Markets are Levitating Amid All the Static

by Bryan Perry

Financial headlines continue to show a steady stream of stories about major economies struggling with negative data, despite the market’s anticipation of a second-half 2019 pickup. Interest rates have been grinding lower in Europe and Japan while holding steady in China and the U.S. This week’s release of retail sales in China and consumer prices in Europe will shed more light on the pace of economic activity.

There is no shortage of mixed signals amid the flood of data points, commodity price swings, and first-quarter earnings that will cross the tape this week and next. Investors have to contend with weakening macro data being offset by the highest prices for WTI crude oil (nearly $64) in four months.

West Texas Intermediate Crude Oil Index Chart

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

Copper prices, historically a leading indicator of future industrial production and construction growth, are also trading higher over the past six weeks. High-grade copper for October delivery is trading a shade below $3.00 per pound. Using a six-month contract lends some credence to the notion that demand for both oil and copper will be fairly decent in the fall, in light of a current shortage in copper stockpiles.

High Grade Copper Index Chart

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

Both of these price trends clearly run counter to the bearish global growth forecasts. Pure commodity plays like BHP Group (BHP) and Rio Tinto plc (RIO) are trading at 52-week highs. (I have no position in either). This is a bit of a head-scratcher because China and Japan are the two largest importers of copper, while China is the largest importer of oil and Japan is the third largest importer of oil.

On the other hand, the yield on the German 10-year bond has fallen to 0.05% and the Japanese 10-year bond yields a negative -0.06%. Meanwhile, the U.S. 10-year Treasury is trading at a comparatively luscious 2.57% yield – and drawing foreign capital from around the world as the go-to haven for yield.

Add to this split personality of the global bond markets the record dividend increases, stock buy-backs, mergers and acquisition, a strong dollar, low inflation, and a dovish Fed – and the path of least resistance for U.S. stocks is higher. The U.S., which accounts for 25% of total global GDP, is looking like it will lead the world economy out of its soft patch, even as President Trump levels the playing field with China.

For now, China seems to be functioning just fine with the modified tariffs in place. The latest round of upbeat manufacturing data out of China was a real head-turner as global equities rallied to their highest levels in six months after a second batch of data showed that the China services sector had risen to a 14-month high in March – all during a time when tariffs continue to be fully in place.

The Shanghai Composite is up 9.3% year-to-date and the Euro Stoxx 50 Index is up 15.2% year-to-date. This is hardly the price action of two economies headed into deep recession, even though Italy is already in recession territory. But economic forecasts for GDP growth in Germany for 2020 are expected to rise from a current 0.6% to a 1.5% annual pace. This is likely the catalyst driving the Stoxx 50 Index higher.

High-Tech REITs Offer Strong Growth and Juicy Yields

As investors try to make sense of all the perplexing data that feeds the bull/bear debate on an almost hourly basis, there are some truly powerful secular trends in place that are, in my view, quite suitable for investors seeking good yields and predictable revenue and earnings growth. I’m speaking of the cloud computing market, which is expected to reach $441 billion by 2020, according to Gartner.

Worldwide Public Cloud Services Revenue Forecast Bar Chart

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

Gartner predicts that by 2021, 28% of all IT spending will be for cloud-based infrastructure, middleware, application, and business process services. A new market study, titled “Discover Global Cloud Computing Market Upcoming Trends, Growth Drivers and Challenges,” predicts that over the next five years the Cloud Computing market will register a 30.6% Compounded Annual Growth Rate (CAGR) in revenue. The global market will reach $1.82 trillion by 2024, about five-fold higher than expected 2019 revenues.

Within this megatrend lie the Data Center REITs, of which there are five distinct companies within the NAREIT All-REIT Index. As a group, they generate high single-digit revenue growth and double-digit earnings growth, with a history of strong dividend growth. If bought in equal amounts, these fab-five data center REITs sport a blended dividend yield of 3.35%, contending with utilities and consumer staples for highest defensive sector yields, but with a much higher growth rate.

So, while investors try to make heads or tails of global growth prospects, betting on the future of America’s biggest data center operators looks like a nearly-sure thing.

Growth Mail:

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

How Partisans Use Statistics to Try to Mislead Us

by Gary Alexander

Last week, I introduced “How to Lie with Statistics” (a 1954 book) as a guide for reading the daily news. The bad news bears always seem to want to make our troubles worse than they already are, so they use the power of numbers and charts to make our economic situation seem hopeless, or dangerous, or both.

Five Examples of How to Spot the Misuse of Statistics

There are so many tricks of the trade that I can hardly scratch the surface, but here are five for starters:

#1: Partisans choose time frames to suit their bias. If I want to prove that Gold beats Stocks, I start the chart in 2000, when gold was $250, and NASDAQ was 5,000. If I want to prove the opposite, I start the chart at gold’s peak of $850 in 1980, when the Dow was also about 850. People selling gold (or stocks) will pick the starting date to fit their bias. I can reduce this time-choice bias to a four-line doggerel:

Let me choose the Date to Start,
   And then the Date to End,
And I can draw a Fancy Chart
   That Proves My Favorite Trend

This is true of social statistics, too. Violent crime is way down since 1991, but it is up the last three years, so people who want to scare you say, “Crime is up,” but the “alternative” (truer) fact is: Crime is down.

Violent Crime Rate Chart

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

#2: Beware the difference between median and mean: The word “average” can be misleading. Is it the median (mid-point of all cases) or the mean (all cases added together, divided by the number of cases)?  A Texas article once claimed that the “average income of Texas business school graduates exceeds that of Harvard Business School graduates,” but the average (mean) was skewed by a few oil-field billionaires.

In the chart below, there is a huge difference between the “median household income” (orange line) and “mean household income” (red line), based on the SAME Census data, because multi-millionaires push the “mean” well above the “median,” but there is another big question posed by the three BEA statistics!

Median versus Mean Chart

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

The key to this wide array of lines is in the definition of “household income,” which leads us to point #3:

#3: Beware shifting definitions or implied (but false) definitions. The Census Data (the two lowest lines above) include cash income only, based on Census data. They do not include extra benefits and in-kind income. Pessimists who wish to say incomes have stagnated use the Census data for median income, which is up 2% from 2000 to 2017, but more comprehensive income data from the Bureau of Economic Analysis (BEA) shows that personal consumption per household rose 28% from 2000 through 2018.

#4: Falsified pictures inflate statistics in your mind. Very often, charts contain pictures which mislead the reader as to the intent of the numbers displayed on the chart. For instance, statistics about the number of “children who go to bed hungry” are based on surveys of parents who are asked if they were ever unsure at any point in the last year where the next meal would come from. That does not equate to actual hunger. Global warming advocates picture worst-case outcomes of rapidly rising ocean levels and let you assume that worst case is what “99% of climate scientists” believe. Whenever there is an appeal for funds, dramatic pictures are based on worst-case scenarios while the statistics are dominated by milder cases.

Here’s a picture showing how carpenters in America once earned twice what carpenters in Europe earned:

How to Lie with Pictures Image

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

The artist drew a bag of money twice as high, but a bag of money is three-dimensional. A real bag of money that is twice as high would also be twice as wide and deep, representing eight times as much cash.

#5: Small numbers can seem huge using percentage increases. When I had knee replacement surgery in February, my physician said I had a five times greater risk of infection due to a skin condition. I asked what the real odds were. He said the normal risk was 0.1%, but my risk was 0.5%, so I green-lighted the operation. “Five times greater risk” sounds terrible, but one chance in 200 was a risk I was willing to take, considering that infections can also be treated. Here are some similarly scary headlines, decoded:

“85,000 times as much rain fell in Palo Alto one morning as fell in the same period in the last 36 Julys” (0.19 inches in six hours compared to 0.01 total in 36 previous Julys: Do the math. It works: 85,000x.)

 “Over 14% of Radar Mechanics went crazy last month due to overwork,” so the Pentagon rushed in 35 new radar mechanics, even though the headline was based on just one mechanic out of seven (14.3%).

Overall, just realize that partisans are willing to mislead you with numbers that seem accurate but aren’t.

Global Mail:

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

The (Trade-Weighted) U.S. Dollar is Headed to All-Time Highs

by Ivan Martchev

A lot of investors are looking for the U.S. dollar to go down, with the Federal Reserve being more or less on the sidelines, but it just keeps staying very firm and refuses to decline. Most investors look at the U.S. Dollar Index, which frankly is outdated. The U.S. Dollar Index is not trade-weighted and it does not include major emerging markets, where the majority of global growth has happened in the last 20 years.

United States Trade Weighted Dollar Index versus Foreign Exchange Rate Chart

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

If one were to look at the Broad U.S. Trade-Weighted Dollar Index, one would see that the dollar is near all-time highs of just under 130 (the latest close, as reported by the St. Louis Fed, is 127.48). If one wanted to use the euro as a proxy of the old U.S. Dollar Index, since it’s the heaviest component (with over 57% weighting), one could say that the dollar today, on a trade-weighted basis, is where the euro was back in 2001, when it hit 83 cents. For comparisons, the euro closed last Friday at $1.13.

United States Central Bank Balance Sheet versus United States Fed Funds Rate Chart

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

This resilience in the dollar has happened as the Federal Reserve is not officially done tightening. The runoff of bonds from its balance sheet continues, even though the Fed Chairman himself has stated that for the time being the fed funds rate hikes are on hold.

European Union Central Bank Balance Sheet versus European Union Central Bank Interest Rate Chart

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

Keep in mind that the only other major reserve currency – the euro – is under full “QE assault” from the ECB. Short-term policy rates in Europe are negative while the ECB balance sheet has resumed growing. This is bound to put further pressure on the euro, particularly if this belated fits-and-starts ECB brand of QE continues to be ineffective. Euro parity to the dollar under such a scenario is only a matter of time, particularly if the delayed Brexit does not happen smoothly.

The Trade Deal’s Impact on the Dollar and Other Currencies

The biggest trade deal is the one with China, which is 90% done as per the Trump Administration's own admission. I have long maintained here that the Chinese had every incentive to make a trade deal with the U.S., as the lack of such a deal would complicate their domestic situation tremendously at a time when the Chinese economy was slowing down under heavy debt loads and government sponsored deleveraging. 

The Chinese previously had taken advantage of the United States by directing their army of state buyers to buy more from their key trading partners in the region so that they can increase their political influence. There are plenty of things the Chinese could have bought from the U.S. in the last 15 years, but they didn’t. It took an unconventional man like President Trump to arrest their clever trade strategy – worthy of true Sun Tzu disciples. If the U.S. trade deficit begins to shrink notably, courtesy of aggressive Trump trade policies, this is decidedly dollar-bullish, and it would have a long-term impact on currency markets.

Turkish Lira versus Argentinean Peso Chart

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

Finally, there are a number of emerging market currencies that are in a very precarious situation, namely the Argentine peso and the Turkish lira. Both depreciated dramatically in 2018 and have again come under pressure. This month, the Argentine peso made an all-time low near 44 to the dollar, while Turkish 5-year credit default swaps began to blow out, suggesting that institutional investors may be positioning themselves for a further Turkish devaluation and/or default. Currency crises and defaults in one or both of those countries cannot be ruled out at a time when the global economy is much weaker outside of the United States and both have inadequate foreign exchange reserves to maintain their exchange rates.

Turkey, Argentina, and China were singled out in May of last year as the most likely places to see exchange rate and/or sovereign debt trouble. Given what has happened in Argentina and Turkey so far, they have seen a lot of trouble since then and it is likely that they will see more trouble in 2019.

China has been relatively calm as – yet again, to my disbelief – they arrested their economic decline with their infamous lending quotas and aggressive government intervention, the likes of which the world has never seen in an economy of China’s size. If there were to be a second Asian Crisis (similar to 1997-98) because of China’s credit bubble, it likely won’t be this year. Still, this is precisely where China is headed with its massive indebtedness and extreme government intervention in the economy, which results in GDP growth but no commensurate growth in aggregate profits.

As to Turkey and Argentina, I think there is a lot more bad news to come, which should put upward pressure on the U.S. dollar and downward pressure on Treasury yields in their capacity as safe haven.

Sector Spotlight:

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

Tune Out the Noise, Tune into the Key Statistics

by Jason Bodner

Sometimes crucial information gets left out. Check this out: In the first (1908) publication of the Boy Scout’s Handbook, the original Boy Scouts’ Motto ‘Be Prepared’ was followed by the words “to die for your country if need be…” Somewhere along the way, someone (brightly so) decided that telling young boys to prepare for death wasn’t as appropriate as the simple two-word motto: “Be Prepared.”

Boy Scout Be Prepared Motto Image

I was in the Boy Scouts, and I think making pine-box derby cars would have been less fun thinking that I was rehearsing for a patriotic death. I don’t think my 11-year-old brain would have handled that well.

I think similar information exclusion is happening in how markets listen to the noise and ignore key facts.

I think the main leave-out is a focus on what professional investors – like hedge funds and institutions – are doing. But to be fair, they work hard to keep their activities quiet. It doesn’t help them if too many people know what they are buying, until they are done buying it! But this is where I focus my research. I believe secretive unusual institutional buying or selling can help us decipher market movement.

The market recovery since December 24th has been incredible. At the time, I wrote that the immense selling of late 2018 was caused by forced ETF selling. Here is the exhaustive detailed white paper (“What Really Caused the Market Meltdown in 2018?”) which outlines that case in detail.

Since then, buying has been in growth-heavy indexes, sectors, and industries. S&P 500 Growth and Mid-Cap 400 lead value substantially. The Russell 2000 and NASDAQ significantly outperformed the DJIA. Russell Growth is crushing Russell Value. And the PHLX Semiconductors is up 40% since Christmas.

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.

Big buying since Christmas has been in Information Technology. This past week is no exception as 30% of Infotech was bought in an unusual way. Heavy growth is in favor along with Consumer Discretionary.

Selling wasn’t really anything to take note of:

MAP Signals Ratios Tables

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

Software and Semiconductors led the charge last week. Let me explain why I think that is the case:

Why Software and Semiconductors are Leading the Charge

We live in a modern world. Everyone is constantly connected to the internet. Even at home, my wife and kids are often on their phones, playing on their Xboxes, or watching Netflix. But when I settle down to work at night, I often run into internet loading issues. Sites load slowly if at all. Files syncing to my cloud storage hang up. And watching videos? Might as well not bother. The internet we all need grinds to a halt.

There’s simply not enough bandwidth for the expanding world of internet demand:

  • There are 75-billion+ devices connected to the internet.
  • Wireless customers experience calling problems and slow connections 16% of the time.
  • From 2015 to 2017, 4G mobile broadband errors were up 40%.
  • A 2017 Google study said the average load time for mobile websites is 22 seconds—but 53% of visits taking longer than three seconds to load are abandoned.

We’ve reached the technological equivalent of needing to widen highways from two lanes to four lanes.

But there’s a solution… 5G is “the next generation of mobile internet connectivity, offering faster speeds and more reliable connections on smartphones and other devices than ever before.” That’s according to the TechRadar website (which, ironically, finally loaded on the third try).

Among other things, 5G will enable:

  • New connections to Internet of Things networks (where devices like household appliances are all connected through the internet)
  • Autonomous driving
  • Faster broadband wireless speeds (10 to 20 times faster than what’s currently offered)
  • Lightning-fast downloads, smooth streaming, and lower latency (fewer delays)

The need for 5G networking is clearly here and now. Semiconductors will be in more demand than ever.

Let me reiterate my methodology on market liquidity and the ratio of unusual buying and selling: Each day I look through 5,500 stocks to see which are being traded unusually. On average I get 500 a week. That number has been dwindling recently, as the first chart (below) suggests. The second chart shows the big ETF flush-out, which paved the way for strong buying since then, which is in growth, specifically in semiconductors. But as liquidity wanes, we just need to watch how the market takes earnings season. Thin volumes and negative news can fuel volatility as algo-traders take advantage of those conditions.

Finally, the ratio has ticked back up into overbought, but on decreasing volume. I’m not sounding any alarm bells, but it’s just a market condition to note. Thinner volumes and an earnings season upon us.

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

So, the bull is back after a winter of darkness. The message has been clear: Unusual institutional buying can show us what we need to know – if we know where to look.

Henry Ossawa Tanner Image

As Henry Ossawa Tanner said, “Get it - get it better or get it worse. No middle ground of compromise.”

A Look Ahead

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

Negative Rates in Europe and Japan Causing Capital Flight

by Louis Navellier

There were virtually no surprises from the European Central Bank (ECB) meeting and the release of the Federal Open Market Committee (FOMC) minutes on Wednesday. Both the ECB and the FOMC have reaffirmed that they will hold interest rates steady in 2019 and both acknowledged that growth has slowed. Interestingly, the ECB refuses to admit that negative GDP growth may be forthcoming, despite the fact that Italy has already slipped into a recession and mighty Germany is teetering on the brink.

There is no doubt that the negative interest rates in Europe are causing international capital flight. Thanks to the ongoing Brexit chaos, which is now delayed until October 31st, interest rates continue to fall around the world and the prevailing negative interest rates in Europe continue to spread. Last week, Germany’s Federal Statistical Office reported that exports declined by 1.3% in February and imports declined 1.6%.

China’s exports dropped 20.7% in February, but the Lunar New Year distorted the numbers that month. The General Administration of Customs announced last Friday that Chinese exports soared 14.2% in March. Still, in the past 12 months, China’s imports have declined 7.6% through March. There is no doubt that lackluster domestic spending continues to hinder China’s GDP growth. Overall, it appears that the Lunar New Year artificially inflated the March export report, so China will have to report both export and import growth in the upcoming few months to alleviate ongoing concerns about economic growth.

The U.S. Commerce Department also reported last week that factory orders declined 0.5% in February, the fourth decline in the past five months, so between the economic slowdown in China and Europe, orders for goods remain soft around the world, which will likely promote even lower interest rates!

When key interest rates approach 0% or become negative, like they are in the Eurozone and Japan, then quantitative easing is a sign of desperation by a central bank seeking to stimulate economic growth. The fact that the European Central Bank (ECB) is gearing up for more quantitative easing is very ominous.

President Trump’s recent call for the Fed to re-commence quantitative easing also seems like a desperate move, especially since the Fed is doing the opposite by continuing to reduce its balance sheet. There is no doubt that President Trump has been setting up the Fed and especially Chairman Jerome Powell to be a scapegoat for the current economic slowdown. In the meantime, all the quantitative easing in Europe and Japan just fuels more stock buy-backs, since interest rates remain so low around the globe.

The most significant development that I noticed last week was that the bid-to-cover ratio for the Treasury auctions last week rose to a healthy 2.55, so I am not anticipating a significant increase in Treasury yields.

Inflation Rates Seem High but are Skewed by an Energy Price Surge

The news on the inflation front last week was misleading on the headline numbers due to rising energy prices. On Wednesday, the Labor Department announced that its Consumer Price Index (CPI) rose 0.4% in March due largely to the fact that retail gasoline prices rose almost 10%. Food prices also rose 0.3% in March. However, excluding food and energy, the core CPI rose only 0.1% and has risen 2% in the past 12 months. The headline CPI rose a similar 1.9% in the past 12 months. The March CPI increase was the largest in 14 months, but since almost all the increase was due to volatile food and energy components, the Fed will likely continue to be “patient” on its inflation assessment.

On Thursday, the Labor Department announced that its Producer Price Index (PPI) surged 0.6% in March, which was substantially higher than the economists’ consensus estimate of a 0.3% increase. Wholesale gasoline prices surged 16% in March, which caused energy prices to rise 5.6%. Wholesale food prices rose 0.3% in March and the devastating floods in the Midwest put upward pressure on beef prices. The core PPI, excluding food, energy, and trade services, was unchanged and slowed to a 2% annual pace in the past 12 months. As long as the core rate of inflation is around 2%, the Fed will likely remain patient.

The rising cost of fossil fuels has made electric cars more attractive, but Tesla is now facing increasing competition from VW Group (Audi, Bentley, Lamborghini, Porsche & VW), which will be making more electric vehicles in 2020. The Audi e-tron arrives at U.S. dealers in May and the Porsche Taycan is expected to be a major success due to all the orders that have been placed. Although the Audi and Porsche electric vehicles are not cheap, they are competitively priced with equivalent Tesla models and are anticipated to systematically capture substantial market share from Tesla. Furthermore, with BMW, GM, Jaguar, Polestar (Volvo), and Mercedes all now making quality electric vehicles to compete with Tesla, the outlook for Tesla remains bleak in the upcoming years as these new competitors materialize.

(Navellier & Associates does not own Tesla or Volkswagen inmanaged accounts or our sub-advised mutual fund. Louis Navellier and his family do not own Tesla or Volkswagen in personal accounts.)

On top of this competitive landscape, there was disturbing news from Panasonic and Tesla last week that the expansion of the Gigafactory just outside of Reno, Nevada is now “on hold.”  The decision to stop expanding the Gigafactory in Reno is a clear signal of slumping sales of the Model 3 in the U.S., so Tesla’s new priority seems to be to focus on its second Gigafactory in China, in part to avoid tariffs on U.S.-made Tesla vehicles in China, so that Tesla can sell more vehicles in China without the high tariffs.

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