Alchanati Campbell & Associates
Negotiating, cannabis and soda fighting for sales, auto financing, hedging, building, and VIXing.
Could it be? The VIX tracks fear in the market. Theres fear from the trade war with China, fear from possible tech regulation, fear from huge debt deficit, fear from bad earning reports… there is fear everywhere! But what if this fear were to be eliminated. What if the trade war saga was just a hoax and what if Tech companies didn’t have problems with hackers steeling data. Then would there be economic growth?
The Market. S&P500: (1.16%) Dow: (0.96%) Nasdaq: (1.45%) Russell: (1.29%) 10 Year: (0.14%) Oil: (0.39%) Gold: (-0.15%). As trading began, it seemed as if today would be a continuation of yesterday's bloodbath as China announced further tariffs on U.S. products. Nearly everything was plunging. However, as the second half of the day kicked off, the market bounced back nicely to see the results posted above. The majority of this can definitely be attributed to the words of Larry Kudlow, the newly appointed Chief Economic Advisor for Donald Trump. Essentially, he explained that there isn't a trade war brewing, and that there are currently negotiations taking place between the two global economic superpowers. This, of course, eased the fears held by investors who fled equities in the first half of the day. They went to investments like gold, which was up sizably during the day but ended lower amidst the stability brought by Kudlow. This stability also led to VIX posting a loss of 4.93% after being up at the front end of the day. Coupled with an expected increased inflow into equities as earnings season approaches, the market was able to end the day with a more stable outlook for the near future.
Losers. One such is Boeing (-1.02%). Boeing has been a target for speculation in regards to the tariffs. Since the U.S. announced tariffs on steel and aluminum, Boeing has been down over 9%. The newly announced Chinese tariffs on U.S. goods includes aircrafts, such as an older Boeing model. Boeing's new 737 model is not in the clear yet, as the details of the tariff and its target products are unclear. What is clear, however, is that the new model airplane for Boeing is being counted on as a major revenue generator. Should the tariff include this aircraft, Boeing and the U.S. would suffer, as our country currently is exporting about $15 billion worth of aircraft to China per year. Boeing is definitely a prominent stock to watch as the dance continues between these countries.
Panic…or fear? A survey was recently released by the Institute of International Finance which found that U.S. markets saw $40 billion in equities pulled in the end of March. This could have been due to a number of things including fear of a trade war, or newly hiked interest rates. Either way, the investors responded by pulling out of the equity market. From here, it is easy to see why and how the VIX was climbing. While not one in the same, panic and fear are similar. Fear often leads to panic, but not always. In my opinion, the fear drastically spiked amongst U.S. investors. Investors like a sense of stability, and that stability has been taken from them as new events have transpired. However, there has been little panic. Panic, in my mind, would be to sell everything and stuff your money your mattress (or in a bank account with FDIC insurance, same difference). This was more systematic. While the amount withdrawn was quite large given the magnitude of events and how it is more speculation than hard facts, this is generally what investors do. When equities are having a rough go, investors move to other products like commodities or debt (bonds). So, while there has been an increase in fear amongst investors, that fear has not necessarily led to panic; thus, the U.S. markets should be able to rest easy for now as earning season approaches and two of the global economic powerhouses are sitting down at the table together.
Negotiations? The Trump administration announced that it’s “willing” to “negotiate” with China. Early today, China disclosed an additional 25% tariff on about $50 billion of US soybeans, automobiles, chemicals, and aircrafts.
Pot vs. Pop. The US legal Cannabis Industry has been booming the past couple years with 9 states including Washington D.C. legalizing recreational marijuana use The industry is expected to reach $75 billion in sales by 2030. Soda sales were $76.4 billion last year, and $78.3 billion in 2016. The decrease in sales is caused by the increase in health-conscious consumers. With more than 1 in 5 American adults allowed to smoke and use recreational marijuana in anyway they please, the Cannabis Industry is set to rise in the coming years.
Zero to One hundred real quick. 0% auto loans were very popular in the height of the 2008-2009 recession. Now with rising interest rates, carmakers’s borrowing costs are rising as well. Total 0% auto loan offers fell to 7.4% last month from 11% the previous year. This means that less carmakers are offering 0% interest auto loans (AKA no interest on the money you borrow to buy your car). This month, the average interest rate on new car loans rose to 5.7%; the highest auto loan interest rate average since 2009. One of the most significant indicators is rising debt. Being able to buy a car with a 0% annual percentage rate is very risky for carmakers. This could lead to an increase of buyers who are not creditworthy and who have a higher probability of defaulting on their car payments. With more defaults on auto loans, the already auto-debt market bubble could burst.
Building the wall. Early this week, Trump announced that he will be deploying the military to guard the US-Mexico border. With a lack of funding for “the wall”, Trump said he would resort to the military until “the wall” is built and proper security is met.
When shit hits the fan. When the market crashes, history has taught us that Gold, emerging markets, and International equities are good investments. History says Gold is a safe haven and a hedge. When the market crashes, the US dollar loses its value from increases in money supply from monetary policy and debt expansion from fiscal policy as well as inflation increasing. Emerging markets and International equities are suppose to be a fair safe haven, but now with the trade war between China and the US, are these good hedges against our falling market? Brazil is said to benefit if the trade war continues. Their soy beans will take the markets from the US.
The VIX. The VIX is an index that shows the volatility (the movement) in the S&P 500 index. During the 2008-2009 recession, the VIX spiked about 370% from around 17.00 to 80.00. Recently during the early February correction caused by disappointing Q4 earning results for big Tech firms, the VIX rose about 212% from around 12.00 to 37.50. Maybe its time to look into options trading for the VIX…
Your daily dose of sports. It was reported that a letter from Lebron’s agent was sent to Nick Saban, head coach of Texas A&M’s football team, which claimed that their barber shop show “Shop Talk” violated copyright trademark rights. On Tuesday, Saban said publicly that they are going to continue with the show regardless of James’s legal threats because there’s no copyright infringement’s happening. In the MLB, Shohei Ohtani, a Japanese baseball player who plays for the Los Angeles Angels, had a huge game yesterday and homered in his second straight game today. Wednesday's home run was a two-run bomb in the fifth inning against the Indians. In the NFL, RGIII signs a one year deal with Baltimore after not playing at all last season. In 2016, he had a short stunt with the Browns which ended after he went down due to injury. He’s a great player, you can see it in his play, but he just has to stay healthy and take care of himself.
The Alchanati Campbell and Associates Team
WHAT'S UP FRIDAY? is a weekly newsletter that will give you a summary of "What's up?" on Wall Street, in the US and around the World written by The Alchanati Campbell and Associates Team. What makes us unique is we focus on long-term knowledge; knowledge that will still be useful to you 10 years from now.