 The Market Sum | Insight after the bell
By James Early Monday's Headlines 1. Markets Near All-Time Highs on U.S.-China Trade Progress 2. More Chinese than Americans in World's Richest 10% 3. Striking UAW Workers to Vote Oct. 25 -- as GM Bleeds $450m per Month 4. Inverted Yield Curve Yields to Re-Inversion 5. SoftBank to Take Control of WeWork, CNBC Reports Markets Closed
 Image: Getty Images
Markets Today
It's not every day that market-lifting news comes out of a virtual reality conference. But good news creates market reality, regardless of the source. So markets pushed to near all-time highs on the "substantial progress" referenced by Chinese vice premier Liu He at a speech he gave at a virtual reality conference in Nanchang, China (Liu's speech was made in-person, although a VR delivery would have been more memorable, especially considering that Liu is not a fan of giving public addresses anyway).
"Stopping the escalation of the trade war benefits China, the U.S., and the whole world. It's what producers and consumers alike are hoping for," Liu said in a Reuters translation.
The market's reaction to trade war rhetoric has been consistent and simple: good words = market up. White House economic advisor Larry Kudlow followed Liu's cheer by mentioning that the U.S.' scheduled December tariff increases could be avoided, pending progress. President Trump hinted at a forthcoming deal as well.
Some media reports proclaim investors to be optimistic about earnings; I'd rather wait for the evidence. In the meantime, Apple's stock rose nicely today as a Raymond James analyst upped his price target to $280 per share (Apple is $250 per share now). On the other hand, the DJIA rose less than its index brethren as Boeing tanked 3.8% on fallout that executives hid negative information from regulators during its 737 Max investigation.
Photo credit: Andrew Caballero-Reynolds / Getty Images  More Chinese Than Americans in the World's Richest 10% If you're getting weary of hearing stats about how wealthy China is becoming, I don't have a solution for you. I just have more stats. This one is from Credit Suisse, which found 100 million Chinese in the wealthiest 10% of the world's population, compared to 99 million Americans. For another stat, China was creating two billionaires per week in 2017, according to UBS.
The counterbalancing argument is that China has 1.43 billion people vs. 329 million in the U.S., so for any type of category -- whether it be ultra-rich people or cancer patients -- it's not surprising that China would have more people by number. And the U.S. still leads in number of millionaires and per-capita wealth; the latter at $432,365 versus $58,544 in China, according to CNN Money. But the Chinese numbers have grown quickly, trade war and all, and that's the real news here.  UAW Will Vote to (Potentially) End Strike on Oct. 25 Been wondering about the best time to buy a Chevy Blazer?
Well, me neither. But those in the market will have to wait for the latest casualty of the now-six-week-long strike to come back to production. See, although the Blazer is made in Mexico, it relies on U.S. made parts -- which aren't being made thanks to a strike that's cost the company 300,000 lost vehicle production and an estimated $2 billion in lost earnings.
The United Auto Workers' leadership reached a tentative deal with GM already. But that's just the leadership: Now, the 48,000 members must approve -- at a time when a Federal corruption investigation into UAW officials is tainting the organizations' "protect the little guy" feel. For now, the UAW negotiated an $11,000 per-union-worker return-to-work bonus, more overall bonus, and faster full-time hiring (and a $4,500 per-person bonus) for temporary workers. GM wants to close three plants and one parts distribution facility, which has been a sticking point.
The real story for investors isn't about the details. It's about re-emergence of union power in an industry traditionally beleaguered by unions. In the sense of future industry valuations and discount rates, this affects Ford and Fiat Chrysler, too, although their workers aren't striking. The GM strike costs roughly $450 million per week -- for perspective, GM made $8.1 billion in net profits in 2018 and $10.1 billion in pre-tax profits -- and the company's stock price is down roughly 8% since mid-September, when the strike began, including a percentage point in today's up market.  What Inverted Yield Curve? Remember that inverted yield curve that had everyone freaked out a month or two ago? Well, it's starting to uninvert. Morgan Stanley Wealth Management noted that at its worst, on August 27th, the 3-month Treasury Bill was yielding 57 basis points higher than the 10-year Treasury Note, but now, the 10-years are paying 7-8 points more than the 3-month Bills. That's a solid reversal.
(If you're curious, Treasuries issued with maturities of less than a year are called "Bills;" those with maturities from two to 10 years are "Notes," and beyond that, they're "Bonds," although these are all bonds in a broad sense.)
While we're on a tangent, it's also worth noting that "yield curve" means different things to different people. Morgan Stanley, for example, is comparing 10-year rates with three-month rates. Others compare the 10-year Treasury to the 2-year. Or even the 5-year to the 2-year.
Anyway, the inversion spooked investors because inversions have preceded every U.S. recession since 1957. However, this recent inversion wasn't as deep or -- it now appears -- sustained as prior ones, so between that and the fact that global money is relatively cheap and the U.S. is attracting plenty of long-term foreign capital (which, because it drives long-term Treasury debt prices up, results in lower long-term yields), we don't have as clear of a harbinger of recession as the darkest doomsayers warned about. Then again, trees don't grow to the sky, so the question is still not about "if" but "when."
Chart from Morgan Stanley Wealth Management  SoftBank to Control WeWork, CNBC Reports If you've been following the WeWork saga, you know that besides burning through billions in cash, WeWork -- or, technically, its parent, the We Company -- was a virtual corporate soap opera. Eccentric (and very tall) founder Adam Neumann walking barefoot everywhere, allegedly getting banned from using a private jet because of smoking marijuana on it, screaming at staff, and just generally being good for the inflammatory stories the media loves so well. Well, Adam is now the former CEO, and the company shelved its IPO plans as its hoped-for $47 billion valuation seems less likely.
They were right about that. SoftBank, CNBC reports, will invest $5-6 billion at a new valuation of $7-8 billion. Be glad you didn't invest in WeWork recently, in other words. And while SoftBank's founder, Masayoshi Son, is regarded as a visionary thanks to his other investing successes, considering that WeWork business model is billions of dollars (literally) away from profitability, I'm reminded of the Warren Buffett quote here: "When a management with a reputation for brilliance tackles a business with a reputation for bad economics, it's the reputation of the business that remains intact."
Today's Market Sum is Guest Written by James Early
(chart courtesy YCHARTS)  Beauty company Coty announced it is looking into selling its hair care and professional beauty brands, which sent its stock up 13.2% today. Hewlett Packard Enterprise's stock rose 5.2% after BofA double upgraded it to a "Buy," rating. Energy firms Halliburton and Helmerich & Payne jumped 5.6% and 5.1% today respectively.  Boeing dropped 3.8% today in light of the continuing revelations involving safety problems with its 737 Max jet. Drug distributors AmerisourceBergen and McKesson fell 3.5% and 3.2% after they settled another suit over their involvement in the opioid crisis, this time with a number of counties in Ohio. Word of the Day The pretax profit margin is a financial accounting tool used to measure the operating efficiency of a company. It is a ratio that tells us the percentage of sales that has turned into profits or, in other words, how many cents of profit the business has generated for each dollar of sale before deducting taxes. The pretax profit margin is widely used to compare the profitability of businesses within the same industry.  Image: Library of Congress
Today in History October 21th, 1960 Today in 1960, the fourth and final presidential debate between Richard Nixon and John F. Kennedy was held. These debates were the first televised presidential debates in U.S. history. Nicknamed "the great debates" they were compared to the famous Lincoln-Douglas debates just over a century before. However, instead of being watched live by crowds of 20,000, they were watched on TV across the country by between 60 and 70 million people. Contemporary viewers of the debate brought up many of the same issues that contemporary debate viewers express, from the rising cost of presidential campaigns to role of the media influence in presidential election.
https://www.loc.gov/item/today-in-history/october-21/
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Monday, October 21, 2019
Good News from Virtual Reality
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