China said it will raise penalties on violations of intellectual property rights in an attempt to address one of the sticking points in trade talks with the U.S.
The country will also look into lowering the thresholds for criminal punishments for those who steal IP, according to guidelines issued by the government on Sunday. (…)
“Strengthening IPR protection is the most important content of improving the IPR protection system and also the biggest incentive to boost China’s economic competitiveness,” according to the guidelines. Local governments will be required to implement the strengthening of IP rights, it said. (…)
Last week, Chinese President Xi Jinping said his nation wants to work toward a phase-one trade agreement with the U.S. that’s based in part on “equality.” That’s a guiding principle that President Donald Trump just hours later said he doesn’t share.
“This can’t be like an even deal, because we’re starting off on the floor and you’re already at the ceiling. So we have to have a much better deal,” Trump said in an interview Friday on Fox News. (…)
The Federal Communications Commission’s action is another blow to Huawei Technologies Co. and ZTE Corp. , targeting one of the firms’ success stories in the U.S. market: Sales of telecommunications equipment to small wireless and broadband providers. Many of those companies rely on federal subsidies, and the FCC is banning federal funds from being spent on buying—or even maintaining— Huawei and ZTE products.
The FCC also Friday began a regulatory process that would eventually force U.S. firms to replace Huawei and ZTE equipment they have already bought and installed. That could cost as much as $1.89 billion within two years, the FCC estimated.
The move contrasts with a decision by the Trump administration earlier this week to ease some restrictions on Huawei. The Commerce Department said it was permitting some U.S. suppliers to resume shipping to Huawei despite an export restriction. FCC officials have said their decision is unrelated to broader U.S.-China trade talks. (…)
Importers also jumped on the new crop Brazilian beans because of attractive margins, said two traders who declined to be identified.
The purchases were for delivery when the new harvest hits the market early next year, they said. Some U.S. and Argentinian cargoes were also booked last week, one of the traders said, with total purchases of about 30 cargoes. (…)
RECESSION WATCH
Friday I posted on the Conf. Board’s LEI declining for the third consecutive month. Advisor Perspectives has the charts to illustrate the recession warnings from the LEI. The first chart shows the 6-m change in the LEI, now nearly as low as it gets without a recession 3 to 15 months later.
The 12-m chart may look less daunting but consider that its lead time is very short and has actually lagged recessions twice before. Scott Minerd, Global CIO at Guggenheim Partners, asserts that “every US recession has been preceded by 3 negative months of LEI. Since #LEI began in 1959, 3 consecutive monthly declines have resulted in a #recession within 6 months 7 out of 11 times…Three consecutive declines are a necessary but insufficient condition, but 4 negative prints will seal the deal.”
The much less followed Duncan Leading Indicator is also nearly flashing red. The DLI measures cyclical demand in the economy as a percent of total final demand, a sort of measure of confidence in the economy by gauging the propensity for long-term investments by economic agents.
This has been an excellent recession indicator as Gluskin Sheff illustrates. The apparent false signal in the mid-1980s was due to the aggressive Fed easing after the 1987 crash:
We know how crucial consumer spending is to the economy. The recent uptrend in initial unemployment claims needs to be monitored:
The Daily Feather last week revealed that the number of states with rising initial jobless claims averaged 58% in the last 3 months and has been steadily rising in 2019 after being below 50% for most of 2010-2018. Consumer spending is intimately correlated with the Payrolls Index which has been slowing recently…
…while the savings rate has been steadily rising:
EARNINGS WATCH
From Refinitiv/IBES:
Through Nov. 22, 476 companies in the S&P 500 Index have reported earnings for Q3 2019. Of these companies, 75.0% reported earnings above analyst expectations and 18.1% reported earnings below analyst expectations. In a typical quarter (since 1994), 65% of companies beat estimates and 20% miss estimates. Over the past four quarters, 74% of companies beat the estimates and 18% missed estimates.
In aggregate, companies are reporting earnings that are 4.5% above estimates, which compares to a long-term (since 1994) average surprise factor of 3.3% and the average surprise factor over the prior four quarters of 5.3%.
Of these companies, 57.8% reported revenues above analyst expectations and 42.2% reported earnings below analyst expectations. In a typical quarter (since 2002), 60% of companies beat estimates and 40% miss estimates. Over the past four quarters, 59% of companies beat the estimates and 41% missed estimates.
In aggregate, companies are reporting revenues that are 0.9% above estimates, which compares to a long-term (since 2002) average surprise factor of 1.5% and the average surprise factor over the prior four quarters of 0.9%.
The estimated earnings growth rate for the S&P 500 for 19Q3 is -0.4%. If the energy sector is excluded, the growth rate improves to 2.1%. The estimated revenue growth rate for the S&P 500 for 19Q3 is 3.8%. If the energy sector is excluded, the growth rate improves to 5.2%.
The estimated earnings growth rate for the S&P 500 for 19Q4 is 0.0%. If the energy sector is excluded, the growth rate improves to 2.2%.
Earnings revisions improved last week but only for large caps:
Corporate pre-announcements look better than at the same time during Q3 but are worse than one year ago:
Interestingly, analysts have meaningfully downgraded their expectations for consumer-centric company earnings in Q4, that for the only solid component of GDP so far this year.
Consumer Discretionary companies in the S&P 500 Index are expected to grow revenues only 1.9% in Q4. This big slowdown is seen offset in total S&P 500 revenues by a surge in Financials revenues:
Trailing EPS are now $163.99. The Rule of 20 P/E is 21.3.
TECHNICALS WATCH
Lowry’s Research offers two views this week. Shorter term, “decreasing participation in a rally coupled with signs of falling short-term Demand has been a combination that, historically, provides timely evidence of the potential for a short-term market top.” Longer term, “whatever the potential for a short-term market pullback, the key measures of breadth and of longer-term Supply and Demand continue to point to a healthy bull market likely to carry to further new all-time highs in the weeks and months ahead.”
(…) Stocks tend to move together when investors are focused on macroeconomic factors like those that captivated their attention for much of the early autumn. But in recent weeks, trade tensions between the U.S. and China have somewhat eased, the Federal Reserve has indicated it is likely done cutting interest rates for now, and improving economic data has squashed fears of an imminent recession.
Those factors have helped push the S&P 500 up 2.4% in November and the three major stock indexes to a series of new highs. Much of the recent rally has been powered by economically sensitive stocks such as those of financial and industrial companies, suggesting that investors are gaining confidence about the health of the economy. (…)
“It becomes increasingly a stock picker’s market, where fundamentals matter more,” said John Linehan, portfolio manager and chief investment officer of equity at T. Rowe Price. (…)
Haitao Xiang, 42, an employee of Monsanto and its Climate Corp subsidiary from 2008 to 2017, was stopped by federal officials at a U.S. airport before he could board a flight to China carrying proprietary farming software, the department said in a statement.
“The indictment alleges another example of the Chinese government using Talent Plans to encourage employees to steal intellectual property from their U.S. employers,” Assistant Attorney General John Demers said. (…)
China announced in 2008 its “Thousand Talents Plan” to recruit scientific researchers, which authorities in Washington have called a threat to U.S. national security.
“Xiang promoted himself to the Chinese government based on his experience at Monsanto,” Demers said. “Within a year of being selected as a Talent Plan recruit, he quit his job, bought a one-way ticket to China, and was caught at the airport with a copy of the company’s proprietary algorithm before he could spirit it away,” he said. (…)
“No matter if it’s a Chinese citizen or an American citizen, if they’ve violated a law, if the Americans have fairly handled the case according to law, then we have no objection,” said Chinese foreign ministry spokesman Geng Shuang at a regular press briefing Friday.
“But we resolutely oppose the U.S. using this single case as a pretext for saying China has groups that organize and plan steal intellectual property from the U.S. China’s technological achievements did not come from theft.” (…)
OK Boomer, Who’s Going to Buy Your 21 Million Homes? Baby boomers are getting ready to sell one quarter of America’s homes over the next two decades. The problem is many of these properties are in places where younger people no longer want to live.
Lenders Brace for Private-Equity Loan Defaults The default risk of companies owned by private-equity firms is 2.5 times that of their public counterparts, according to data collected from banks, insurers and asset managers.
(…) About 57% of companies purchased in leveraged buyouts now carry debt loads more than six times their earnings before interest, taxes, depreciation and amortization, or Ebitda, according to Morgan Stanley’s report. That exceeds the 51% ratio in 2007 on the eve of the financial crisis, according to the report. (…)
A jump in leveraged-loan defaults could have more impact on global finance than in years past because there are far more of the loans in existence and they are broadly held by mutual funds, institutional investors and collateralized loan obligations, or CLOs.
Price declines in loans with low credit ratings triggered a 5% loss last month in the value of some CLO securities. The value of loans outstanding has roughly doubled since 2008 to about $1.2 trillion, according to data from S&P Global Market Intelligence. (…)
Source: Ned Davis Research
Source: Ned Davis Research
U.S. charges Chinese national with stealing trade secrets: Justice Department