Trump Threatens High-Tech Export Curbs in Latest Swipe at China
The Trump administration is considering tighter curbs on technology exports, a step that Deutsche Bank AG says would have a “profound and long lasting adverse impact” on relations between the U.S. and China.
A request for public comment, published Monday on the U.S. government’s Federal Register, asks if a list of new technologies that have national security applications — from artificial intelligence to microprocessors and robotics — should be subject to more stringent export-control rules. That would affect U.S. manufacturers as well as purchasers in China. (…)
Under the proposed curbs, Apple Inc., Alphabet Inc.’s Google, IBM, Amazon.com Inc. and similar companies could see limits placed on the way they export the technology behind voice-activated smartphones, self-driving cars and fast supercomputers to China, the Washington Post reported. (…)
The proposal also raises the prospect of retaliation from China, where the anti-monopoly regulator is already investigating Samsung Electronics Co., SK Hynix Inc. and Micron Technology Inc. (…)
From the WaPo article:
(…) “If you think about the range of products this potentially implicates, that’s massive. This is either the opening of a big negotiation with the industry and the public, or a bit of a cry for help in scoping these regulations,” said David Edelman, the director of the Project on Technology, the Economy, & National Security at the Massachusetts Institute of Technology. (…)
The Commerce Department explicitly said it hopes to protect national security without “hampering the ability of the U.S. commercial sector to keep pace with international advances.” The rules come at the request of Congress, which authorized them as part of a recently passed defense bill. On Thursday, the agency said it is “committed to laying the proper foundation to ensure that those technologies critical to national security remain protected to ensure the safety of our country.” (…)
Many executives at big tech companies have bristled at White House-backed tariffs on China, fearing that Beijing’s retaliation could result in higher costs for them — or higher prices on components for their products. Others simply don’t want to anger Beijing, which controls one of the world’s largest markets for tech devices. (…)
“We view this as a really important process that our industry is taking very seriously and plan to engage in, because the outcomes are of great consequence for us,” said Christian Troncoso, a policy director at BSA | The Software Alliance, a Washington-based trade group for companies including Apple, Microsoft, IBM and Oracle.
Pretty serious stuff with loads of known and unknown unknowns.
U.S. Home-Builder Sentiment Fell in November NAHB index drops eight points, underscoring builders’ rising concerns over climbing interest rates and home prices
Eight points! Traffic also declined by 8 points, that’s 15%!
John Burns, CEO of John Burns Real Estate Consulting, says that his own survey suggests that the Home Builders Index should be closer to 50 than its current 60 and that home sales will collapse in the next 6 months.
Big hurdles for builders is that house prices have risen much faster than wages and rent while mortgage rates have increased nearly 50% from 3.4% in 2016 to almost 5.0%.
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How vulnerable is the housing market?
(…) Those trends look eerily similar to those observed back in 2006, or just before the U.S. housing market collapsed. So, should investors be concerned about the U.S. housing outlook? To be sure, a house price correction can never be ruled out, especially if, as we expect, economic growth and employment creation pace down next year. But in our view, a housing crash à la 2007-2011 is unlikely anytime soon. Our optimism rests on the quality of mortgage originations in recent years. Latest data from the New York Fed puts the mortgage delinquency rate in the third quarter at just 1%, the lowest since 2006Q2. The difference between now and 12 years ago, however, is the share of sub-prime in mortgage origination. As today’s Hot Charts show, just 3% or so of recent mortgage originations has been sub-prime, compared to 13% back in 2006. Mortgage lenders have seemingly learnt from past mistakes by not only tightening lending standards but also disproportionately increasing the qualifying threshold for lowest rated borrowers. (NBF)
A case where the solution is part of the problem (my yellow highlight).
SENTIMENT WATCH
Goldman Says It’s Time for Equity Investors to Boost Their Cash It may be wise to dial back on risk in equities, the bank said.
“Mixed-asset investors should maintain equity exposure but lift cash allocations,” Goldman strategists led by David Kostin wrote in a Nov. 19 report. “Cash will represent a competitive asset class to stocks for the first time in many years.” (…)
As for stocks, investors should tilt their portfolios toward defensive sectors including utilities, the Goldman strategists wrote. They forecast the S&P 500 will generate “a modest single-digit absolute return” next year as the “robust” profit and economic growth seen in 2018 slows. (…)
- The base case, with 50 percent probability, sees the S&P 500 Index closing this year at 2,850, up from Monday’s close of 2,690.73. It then rises 5 percent to 3,000 in 2019.
- The downside case, with 30 percent odds: the risk of a 2020 recession starts weighing heavily on investors, with the S&P 500 ending 2019 at 2,500.
- The upside case, at 20 percent probability: economic growth stays strong for a longer period of time, and the benchmark index closes at 3,400 next year.
Let’s see. Trailing EPS are now $157.74 or about $160.25 pro forma the tax reform for the full 12 months. At today’s opening of 2600, the Rule of 20 P/E is 18.3, where it troughed in January 2016, a testing level for investor sentiment with an actual P/E of 16.2. Back in early 2016, trailing EPS were still declining from their mid-2015 high and inflation was rising, unlike now.
Goldman’s “base case” for a 2850 close this year would bring the Rule of 20 back to 20.0 assuming no change in inflation. It “upside case” of 3400 next year would require a Rule of 20 P/E of 21.9 given current forward EPS of $172. Always gutsy to expect equities to trade at overvalued levels…As to GS’ “downside case”, assuming a recession, all bets are off but a 2500 close in a recessionary 2019 seems pretty optimistic to me.
Interestingly, Merrill’s recent manager survey reveals a similar negativism for world profit growth as in 2011, 2012 and 2016.
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SMALL CAPS EARNINGS REVISIONS
Just received Refinitiv’s latest numbers and up revisions went back below 50% for small caps (ALL minus 500): 47% last week from 55.8% in the previous two weeks.
If GE Debt Gets Junked, Markets Have Reason to Shudder Holders of GE bonds are preparing for one of the world’s biggest borrowers to be downgraded to junk. To get a sense of what that might do to the markets, take a look back to the turmoil caused by the 2005 downgrades of General Motors and Ford—but worry that this time it might be worse.
(…) GE’s financial troubles are self-inflicted, not a sign of broader problems in the economy. Yet, it is the world’s sixth-most indebted nonfinancial company, behind Volkswagen ,Toyota, AT&T , SoftBank, Ford and Daimler. And it has more traded debt outstanding than any of them, totaling $122 billion, according to Refinitiv. It is big enough to shake the entire market. (…)
But the credit-rating firms say that if GE’s restructuring goes as planned, there’s no need for further downgrades. If GE can get its finances under control, the panic will abate all by itself. (…)
Hopefully GE will end up merely as a case study in financial mismanagement, rather than the trigger for messy markets. I’d expect only a short period of turmoil, rather than serious trouble, if GE is downgraded—but I do fear that the overall debt load will hurt a lot in the next economic downturn.
James Mackintosh misses a few points discussed yesterday (There Will Be Blood!)
(…) “At the end of the process GE will look like a shell of what it used to be, but it will survive,” said Mr Culp’s confidant. “As long as there is a debt pile that risks bring the company down, GE will keep on selling.” (…)
