Things you need to know.
- China turns up the heat, banning iPhones in more workplaces.
- Investors continue to hit the sell button on Apple and on Tech
- Two more Fed Heads suggest a pause…. but leave the door wide open.
- The UAW is turning up the heat on the Automakers – Get ready to pay higher prices.
- Try the Bucatini w/Peas & Leeks
And Apple was the story of the day again yesterday as it lost another $5.35 or 2.9% to bring the total 2-day loss in value to $190 billion as some investors remain concerned over the recent iPhone ban! The ban is now rumored to be growing ever larger….and what was it that I said yesterday?
“…. just think what he will say next…. suddenly he will ban the use of iPhones in public and then in your home and then if you get caught with one – it will be the firing squad…. I mean – I know that’s bit dramatic – but it is China…”
The news yesterday afternoon said it was like this.
“China plans to extend a ban on the use of iPhones in sensitive departments to gov’t backed agencies and state companies, a sign of growing challenges for Apple in its biggest foreign market and global production base.”
Bingo! And there it is – and while Apple is trying to downplay this as being a very small percentage of affected phones (when you consider the total size of the iPhone market) the issue here is – When does it stop? Does it stop? Will Xi Xi suddenly ban iPhones across the country? And don’t laugh – it is China….and this just once again confirms my reasons for NOT investing directly into China – makes no sense (to me)– they change the rules on a whim, you risk your capital and you aren’t getting paid any more to take on that risk – in the end – there are too many other places in the world that offer investment opportunity and keep your money safe.
I mean this is not an Apple product failure, but you could argue that it is an Apple business planning failure – they (as well as so many others) got in bed with the enemy and now the enemy has them in a very interesting position…. This is the Chinese gov’t pounding their chest trying to show the world that THEY can create financial chaos because the world has put them in that position… We have allowed it to happen…. That ‘Made in China’ sticker about to haunt global markets. And that speaks directly to why the world needs to diversify AWAY from China. This morning the foreign ministry is clarifying their ban saying any product is allowed in China as long as it doesn’t violate the rules….and that suggests that somehow Apple has violated the rules…. which makes sense because China CHANGED the rules. Remember it is ‘Made in China.’ This isn’t new….
Ok – onto the latest FED commentary – both Dallas’s Lorie Logan and NY’s Johnny Williams making comments that reflect both sides of the argument… Logan suggesting that a pause in September by no means means we have come to the end of the rate hiking cycle……while Johnny said that “US monetary policy is in a good place” …..In the end – the comments remain confused….with many of the FED heads appearing to confirm what the market expects…..a pause in September – even as the data shows that inflation is heating up again…Oh boy…..I guess it’s true – History does repeat itself…..
By the end of the day, we saw more losses for tech and for the broader market – the Dow did gain 52 pts, while the S&P lost 14 pts, the Nasdaq got pounded again losing 124 pts, the Russell down 18 and the Transports gave up 75 pts.
Apple has now violated its intermediate term trendline at $180.82 as it closed at $177.56 – leaving it in that new trading range – $163.90/$180.82. I think it is getting closer to that point of ‘backing up the truck’….so get ready….
In addition – the nervousness created in Apple has spread to some of the Apple suppliers – QCOM lost 7.2%, MU -0.8%, SWKS – 7.4%, CRUS -4.7%…. as well as the broader tech space…and other high profile tech names that have ‘outperformed’ this year – One that comes to mind? NVDA….it has lost 7.2% in the last 3 days…. leaving it up only 216% ytd…. Remember – what we said – the outperformers are going to be the first ones to get whacked when the anxiety heats up….
Which then suggests that the money will move to more defensive plays….(something else we have been talking about) and a BankAmerica study confirms that exposure to ‘high beta’ names (think growth) is well below historical averages while exposure to defensive sectors (in this case utilities) is up vs. the historical averages……..According to the study – active hedge funds and those ‘vanilla’ long only funds have been moving money into utilities….which are considered the ultra-defensive play in stocks…..the XLU gaining 1.3% yesterday…..recall that this sector has been this year’s underperformer – falling more than 12% ytd…. We also saw gains in Consumer Staples +0.3% and Healthcare +0.5% – two other ‘defensive sectors’ that have also been underperforming this year…. Staples off 4% ytd while Healthcare is down 2.5% ytd.
And remember what we discussed about the coming UAW contract negotiations? Well, get ready…because the UAW is not happy with how they are going….the big 3 automakers are not impressing the rank and file – the union wants a 40% wage increase and the automakers – shall we say – are NOT in that camp (they proposed a 16% hike)….and as noted – they have already voted to strike if an agreement is not reached by the 14th… Now, all they want is what the other unions got…BIG wage increases to deal with rising inflation….… which will force even more wage increases causing even more price increases – this is called Wage/Price spiral inflation….and this is what happened during the 1970’s – the whole decade – 10 yrs!!! Capisce?
This morning US futures are lower……Dow futures off 60, the S&P down 10, Nasdaq off by 38 and the Russell is down 2. The tech sells off continues and I wouldn’t be surprised to see a wash out as the morning turns to afternoon ahead of the weekend. I just don’t see a reason yet for the tone to change…while there are plenty of buyers out there – they are playing it close to the vest, willing to buy on weakness rather than chase stocks higher. Remember – the market is lower – because the sellers are (at the moment) more aggressive and the buyers know that – so what do they do? They bid down to see just how anxious the sellers are. That will change at some point…. I just don’t think we are there yet…
Asian markets ended lower, European markets are lower…global sentiment continues to weaken as global economies deal with renewed inflationary worries, rising rates, higher bond yields and weakening data points. The Eurozone economy grew by only 0.1% in the second qtr. – below the +0.3% expected rate. Inflation across the region rose by 5.3% – exceeding the expected 5.1% rate…. Did you see that? It went UP…not down…. sound familiar? Price increases in food and energy are rising at an even faster pace – but hey – nothing to see here. At 6 am – Eurozone markets are all down between 0.4% (UK) and 1% (Italy).
The 2 yr. treasury ended the day yielding 4.93% while the 10 yr. ended the day at 4.24%…….The 3- and 6-month bills continue to yield 5.5% and 5.552% respectively.
Oil is trading up 40 cts at $87.30. Gold is trading at $1948, while the Dollar index is now trading above 105 leaving it just below the March high of 105.40. Remember – a higher dollar suggests that currency traders expect higher rates. Just sayin.’
The S&P ended the day at 4451 down 14 pts….…We remain in the 4350/4465 trading range with the path of least resistance lower not higher. The FOMC meeting will continue to create volatility in the week ahead….so, proceed with caution for now…. I am expecting a test of the trendline…..in fact maybe next week after we get the latest CPI & PPI reports…which I expect will show rising prices…unless of course they somehow manage to massage the data…..Rising prices will cause investors and the FED to question whether or not a pause is appropriate at this time….You know how I feel – I think they need to hike in September and then reevaluate for November…..
Oil will be the culprit – and that is a Biden issue that has made the US dependent on OPEC+ and as we know oil affects nearly every aspect of the economy…..and as it is – food prices are rising at a faster pace than headline inflation and if transportation costs continue to rise (higher oil prices) then expect food prices to rise as well. Which is why I am in the ‘hike’ camp for now. I am not interested in repeating the mistakes of 1979/1980. Are you? As it is – the FED waited way too long to move on rates, which is why we are where we are…. The last thing we need is for them to make another mistake at this end – but it appears that is what is about to happen.
Don’t stress – stay focused, give me a buzz…. Remember – this is a long game and there is always an opportunity somewhere.
Take good care,
Chief Market Strategist
kpolcari@slatestone.com
“The market commentary is the opinion of the author and is based on decades of industry and market experience; however, no guarantee is made or implied with respect to these opinions. This commentary is not nor is it intended to be relied upon as authoritative or taken in substitution for the exercise of judgment. The comments noted herein should not be construed as an offer to sell or the solicitation of an offer to buy or sell any
financial product, or an official statement or endorsement of Kace Capital Advisors.
Bucatini w/Peas & Leeks
From the Piemonte region of Italy. Piemonte – is one of the 20 regions of Italy, located in the northwestern part of the top of the boot – it borders France, Switzerland to the north and Liguria, Lombardy, and Emila Romagna – to the south and east. It is surrounded by the Alps; its capital is Torino – site of the winter Olympics in 2006. Much of the food from this region has both French and Swiss influence and as such – uses a lot of butter and cream. This dish is easy to make and one that you will enjoy – again – Enjoy this with a crisp chilled white wine.
You will need: Bucatini Pasta, 6 leeks, garlic clove, onion, butter, lite cream, frozen petite peas, fresh grated Parmegiana cheese and s&p.
Bring a pot of salted water to a rolling boil.
Using the bottom part of the leek – up to where it turns dark green. Cut the stalks at that point. Trim the bottom and then slice the stalk in half. Now slice lengthwise into thin slices. Next peel and slice the onion.
In a sauté pan – melt the butter with a splash of olive oil, sauté 1 sliced garlic clove*(optional), the onion and the leeks. Sauté slowly on a medium low so that the leeks and onion brown, not burn. After about 10 mins – add the frozen peas. Sauté for another 10 or 15 mins. season with s&p. Now add the lite cream and stir.
In the meantime, add the pasta to the pot and return it to a boil. Cook for about 8 mins or until aldente. Now add one ladle of pasta water to the onion and leek mixture. Strain pasta – reserving a mugful of pasta water.
Add the pasta to the leek, onion, peas Mix to blend. Add a handful or two of grated Parmegiana cheese and toss. If it is not moist enough – add back some more of the pasta water. Serve immediately in warmed bowls with toasted garlic bread.
Buon Appetito
