China’s Nuclear Option: Stop Buying US Treasuries
Bloomberg is floating the idea this morning that all China must needs to win the burgeoning trade war with the US is stop loaning the US money. This is called the “nuclear option” apparently, though it literally requires no action at all. Bloomberg also has its eyes on the yield curve, which is currently at its narrowest spread since 2007 at 35 basis points positive between 2Y and 10Y notes. They note that the global bond yield spread has already gone negative. According to Bloomberg:
“Within the past two months, the yield on an ICE Bank of America (NYSE:BAC) index of government bonds due in seven to 10 years has fallen below the yield on an index of bonds due in one to three years for the first time since the first half of 2007. The strategists at JPMorgan Chase & Co. said they were seeing the same thing in indexes they manage.
What to do: DEEEE-fense.
General Electric Gets DOWnsized
General Electric (NYSE:GE), which has been in the Dow 30 (^DJI) since the index was founded in 1896, is no longer in the Dow 30. It will be replaced by Walgreens Boots Alliance (NASDAQ:WBA), which is fitting because GE is probably going to need some over the counter antacids today. They can get those at Walgreens. Since going parabolic in the 90’s, GE has never really recovered from the dot com boom at the turn of the millennium and is trading near its post financial crisis lows.
Canada Folds on War on Marijuana, Cannabis Wins
“It’s been too easy for our kids to get marijuana – and for criminals to reap the profits. Today, we change that. Our plan to legalize & regulate marijuana just passed the Senate,” Canadian Prime Minister Justin Trudeau said in a tweet. Canada becomes the first G7 nation to legalize the plant for recreational use, and marijuana investors are excited. Canopy Growth (NYSE:CGC), Aphria (OTCMKTS:APHQF), Emerald Health (OTCMKTS:EMHTF) and others could have a heavy volume day today, though Canada’s official legalization is hardly a surprise.
What to do: POTential complications may arise at the US-Canadian border as smugglers are sure to try and bring some product over illegally in order to sell it in the US. Will the Trump Administration call for a border wall with Canada now? Let’s see.
Apple Gets Special Tariff Treatment, But if Tariffs Are Good, Why?
Being the largest company in the history of the world by market cap has its perquisites, or disadvantages, depending on whether you believe that tariffs are good for business or not. Apple (NASDAQ:AAPL) believes they aren’t, as all companies that actually have their products tariffed tend to believe. Apple has received assurances from the Trump Administration that iPhones produced in China will not have to pay any tariff, probably because the prices of iPhones are tracked with an electron microscope and if tariffs apply to them, lots of people will realize that they cause prices to rise pretty obviously and this could lead to massive protests.
What to do: Track the prices of everything that the new tariffs apply to and prepare for price inflation indexes to tick higher, faster. The prices of everything Chinese, except iPhones, are about to go up.
Chinese Investment in the US Collapses 92%
In another sign that trade tensions are not a particularly good thing as far as rising standards of living go, Chinese investment in the United States has fallen off a cliff, down 92% this year compared to last. Some deals that were called off include Alibaba (NYSE:BABA) and Moneygram (NYSE:MGI). The effect of this will be a deepening of the trade deficit that Trump wants so much to even out. Less Chinese investment in the US means less importation of money, which deepens net exportation of money, which is what trade imbalances do. Oops.
What to do: Companies that depend on cooperation between the US and China, except Apple which is exempt from this economic warfare, will suffer the most. Related tickers: (NYSEARCA:ASHR) (NYSEARCA:FXI)