Why Investors Should Feel Lucky

I read that at least 10% of the U.S. population has a fear of the number thirteen (13), according to researchers. The specific fear of Friday the 13th costs the economy $800,000,000 annually. Well, today is Friday, and it will wrap up the 13^th round of talks between the United States and China to resolve trade imbalances, and other unfair and unacceptable trade practices.

Why Investors Should Feel Lucky

So, after all the drama, speculation, fake news, twists and turns, we might be on the verge of something that moves the needle on US-China trade. I get it if you’re skeptical about anything we hear today that might point toward a greater probability of a deal, but good news will be good news. Of course, the question is what’s good news?

I suspect goodwill gestures on both sides would mean something on currency, allowing U.S. companies to do more business with Huawei, and perhaps a reprieve on sanctions against Chinese tankers. The United States would receive in return substantial agricultural orders, no more forced technology transfers and minority shares in joint ventures.

There could be other configurations that essentially take the deal back to what China was ready to sign back in May, which some say is about 90% of what the administration demanded. Some commenters will chuckle or even ridicule the notion this was an exercise in hubris and poor judgment. However, the nature of deals is for both sides to move what appears intractable positions, then work back toward an agreement.

Any moves deemed backward steps mean a complete loss of credibility.

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It’s clear both sides want a deal. There is no doubt China has suffered more, no matter how many academics invent metrics or additional measures to prove the United States has suffered most. Be that as it may, the trade war was fought to get to a resolution that should help both nations, and perhaps the only losers are globalists that worship at the altar of profits at any cost.

If the meeting is a bust, and President Trump reiterates the administration’s intention to hike tariffs and implement more before Christmas, the market will be very disappointed. 

Watch the Chips

Keep an eye on the Philly Semiconductor Index (SOX), which is a better proxy for U.S. companies with the greatest exposure to China (see asterisk):

• Skyworks Solutions (SWKS)*
• Wynn Resorts (WYNN)
• Qorvo Inc (QRVO)
• Qualcomm (QCOM)*
• Micron Technology (MU)
• Broadcom (AVGO)*
• Nvidia (NVDA)*
• Taiwan Semiconductor Mfg. Co Ltd (TSMC)
• IPG Photonics Corp (IPGP)
• KLA Group (KLAC)*

The SOX is in an amazing uptrend since forming a perfect double bottom in early 2016. Currently, the chart is in an ascending wedge formation, indicating a major break either up or down very soon.

Portfolio Approach

Today’s Session

The futures are pointing to a decidedly higher open as optimism about a trade deal is growing, even if it is a smaller scale deal, which may leave the alleged intellectual property theft and force technology transfer for future negotiations.  President Trump is scheduled to me with Chinese Vice Premier Liu He at 2:45 ET, and all eyes will be on that meeting, its result and tone of any press conference.  An important element for the administration is that China commit to not only agricultural purchases, but to stop the currency manipulation.  Stay tuned.