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RoboStreet – June 28, 2018
Can Trump Deliver Art of the Deal on Trade?
Markets continue to hunker down as there is little news of breakthrough in the tit-for-tat tariff battle that could become an all-out trade war amid President Trump’s threats to impose tariffs on up to $450 billion in Chinese imports. China’s highly publicized “Made in China 2025” initiative outlines a state-backed industrial policy targeting 10 sectors in technology that include aerospace, advanced materials, clean energy and robotics among other software advances like artificial intelligence. This ambitious program has Washington’s trade officials on full alert.
Made in China 2025 is at the heart of China’s efforts to capture 70% market share by 2025 for basic core components and important basic materials in strategic industries. Trump’s initial list of tariffs on $50 billion worth of Chinese goods, which will begin taking effect on July 6, specifically targets items related to Made in China 2025.
Peter Navarro, the president’s key trade advisor, argues that the Chinese government plans to dominate emerging technology industries. “China seeks to achieve its goal of economic and military domination in part by acquiring the best American technology and intellectual property,” he writes, concluding that “Trump’s new tariffs will provide a critical shield against this aggression.”
Without question, there are credible issues with how China functions regarding technology and trade. China wants to close the gap in key areas of military applications that are clearly a threat to U.S. national security. How Trump manages this Chinese initiative will require his best deal-making skills. China has a history of being patient to achieve their objectives, and any set of terms to avert a trade war will have to be viewed with a big dose of skepticism. By no means is China going to scale back their long-term ambitions, but the U.S. can do much to protect its most valued intellectual property.
And remember we’re not talking about day-trading here. I’m looking for 50-100% gains inside of the next 3 months, so my weekly updates are timely enough for you to act.
American corporations share some of the blame here as well. In their eagerness to access Chinese markets, a good measure of the Chinese ventures involve handing over proprietary technology. Chinese rules require foreign firms who want to enter certain industries such as energy, telecommunications and autos to form joint ventures with local partners, which often results in the transfer of technology to the Chinese companies. Beijing also strongly encourages global businesses to carry out R&D activities inside the country.
Some experts say that handing over technology has effectively become a cost of doing business in China, a market too big for most companies to ignore. Foreign companies that give up their technology usually do so at least somewhat of their own volition. The trade problem cuts both ways and with the White House confirming the passage of CFIUS measures to protect US technology related to the Foreign Investment Risk Review Modernization Act (FIRRMA).
“After reviewing the current versions of FIRRMA with my team of advisors—and after discussing them with many Members of Congress,” President Trump said this week, “I have concluded that such legislation will provide additional tools to combat the predatory investment practices that threaten our critical technology leadership, national security, and future economic prosperity. Therefore, upon enactment of FIRRMA legislation, I will direct my Administration to implement it promptly and enforce it rigorously, with a view toward addressing the concerns regarding state-directed investment in critical technologies identified in the Section 301 investigation.”
This is the first piece of positive rhetoric that provides some hope of averting a trade war with China and hopefully, the FIRRMA reforms will provide the necessary oversight in assessing threats to national security posed by significant investments in U.S. businesses by non-U.S. investors. It’s a big step in the right direction and sends a strong message to China that the U.S. is changing the terms and conditions on the export of key U.S. intellectual property. Now we just need Trump’s trade team to deliver an eleventh-hour deal to avoid mutually triggered U.S.-China tariffs set for July 6.
While most growth sectors that have international exposure have been enduring almost two weeks of persistent selling pressure, shares of consumer staples stocks have traded higher as investors seek the safety of non-cyclical defensive businesses. The Consumer Staples Select Sector SPDR ETF (XLP) has seen its price turn higher over the past month against a negative tape. M&A activity is also sparking some of the buying in the sector. Conagra announced it will acquire Pinnacle Foods. A potential merger between Kraft Heinz and Campbell Soup is being rumored and there is increased upside call in buying names like Hormel Foods and Hain Celestial.
My Tradespoon Seasonal Chart has a bullish forecast for the next 20, 30, 40 and 50 time periods for shares of XLP. The stock corrected from $58.95 in late January down to $48.75 in early May. At its current price of $51.50, the shares pay a very attractive dividend yield of 3.06%, 65% higher than the 1.85% yield being paid by the SPDR S&P 500 ETF (SPY). So, while many investors wring their hands over the near-term future of their hot growth stock holdings, there is a strong bid under the consumer staples sector that makes for a smooth and steady summer ride.
What is even more impressive is our RoboInvestor Portfolio which has four of six positions comfortably profitable with the other two positions trading within a couple points of also being in the plus column. I put my own capital into each position and am very pleased with the relative strength my six holding are exhibiting. I’ll be coming to RoboInvestor subscribers this weekend with two more fresh picks that are showing up as extremely bullish within my Stock Forecast Toolbox.
I want to encourage all readers of today’s issue of RoboStreet to get on board and let my best ideas make their way into your investing portfolio. My AI platform has delivered 100% winners and not a single loss since we launched RobInvestor three months ago. I can’t promise a perfect record, but the power of artificial intelligence is proving to be invaluable in a market that can’t make up its mind.
And remember we’re not talking about day-trading here. I’m looking for 50-100% gains inside of the next 3 months, so my weekly updates are timely enough for you to act.
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