Trumps Trade War With China Has Sucked; Trumps Twitter Fury Unleashed

What started as a slightly green early morning for futures ended in a disastrous week for United States financial markets. Currently the S&P 500 has experienced a fall of over -178 points or a -5.68% drop in a month with the weekly fairing a loss of -2.5% it’s clear the market is uneasy.

Now lets take a look at what had led to these events that triggered the market sell off.

The last day of our Standard & Poor’s Index market highs was July 26th, 2019. July 26th, 2019 was also the day the volatility index started to turn so it’s safe to say that this is when things started to look questionable.

Source: Twitter

The first tweet comes as a boast, President Trump talks of GDP rising 2.1% but noting the “heavy weight” of the Federal Reserve he claims is wrapped around “our” neck.

The second tweet a bit more concerning as it directly aims at Apple

Source: Twitter

“Apple will not be given Tariff waiver, or relief, for Mac Pro parts that are made in China.” While individual segment analysis has been stripped from Apples earnings reports we can no longer see exactly the impact to which this may affect Apple directly.

Source: CBOE

Now here is where the ride gets a bit wild. After July 26th we’ve seen upward motion in the volatility index (VIX) and downward motion in the financial markets everywhere. After flurrying more than 12 tweets in a single day at Baltimore’s democratic representative Elijah Cummings as a backlash for him speaking out against Trump’s handling of the boarder situation, things started to slip out of hand.

Source: Twitter

Trump takes a jab at the Fed stating China and Europe’s willingness for lowering interest rates to allow for easier economic stimuli, yet again Trump shows his distain for the Fed’s unwillingness to lower interest rates. An odd switch up from disliking to idolizing and switching the enemy to the United States itself.

It Gets Worse

Source: Twitter
Source: Twitter

Now Trump has stated China “knows how to play the game” citing that the United States is currently at the disadvantage when it comes to negotiations, as for enemies President Trump has now turned his focus on his unwilling Fed and blames them for raising to early and too much claiming a small rate cut is not enough.

Now The Poking Begins

After flip flopped talks with Chinese leader Xi JingPing, Trump takes a vastly different approach from the rather friendly dialogue that has been spoken between the two.

Source: Twitter

Trump claims the problem with China is “they just don’t come through” as agricultural product talks fall through, Trump goes on to compare it to the strength and resilience of the United States and its financial markets.

Source: Twitter

July 31st, 2019

The Fed cuts rates for the first time since 2008 and the market reacts with fear .

Source: Yahoo Finance

Trump responds to the Fed

Source: Twitter
Source: Twitter

“What the market wanted to hear from Jay Powell and the Federal Reserve was that this was the beginning of a lengthy and aggressive rate-cutting cycle which would keep pace with China, The European Union and other countries around the world…”

I’ve repeadtly stated time and time again that this market growth has been artificial and is all in an attempt to compete on a global level. When you look at places like Israel or China, they offer a certain government interest for tax reduction programs. In Israeli’s case, ownership of the entity and it’s production would result in a near 0% corporate tax rate. By doing this there is incentive for domestic production and also increases profit margins which can effect many things. President Trump has offered companies to come back to the United States and or to keep production here in exchange for lower income tax brackets. While this may be nice for some countries short term, long term most executives are awaiting Trump’s departure and hoping someone new will not follow the same narrative so they can keep production abroad. The matter of fact is the stock market performance will heavily weigh on the re-election of President Trump, the chances are if he can end his term with large gains in the market, we will see another 4 years of lowered corporate tax rate. However, I believe personally if he fails to be re-elected will we see these artificial cuts and surges in the market roll back.

Source: Twitter

Then there is this curve ball

Aug 1st, 2019

Trump raises another 10% on Chinese goods

Source: Twitter
Source: Twitter
Source: Twitter
Source: Twitter

They had constructive talks? Trade talks have been ongoing for several months with no avail but higher taxes that the people and only the people will end up paying for. Trump also tries to put the blame of drug use on China and negates to focus on homelessness or the causes of drug use but rather points a finger to create a public enemy. Trump says the future of the two countries “will be a very bright one!”

The Rocket Man Returns

Aug 2nd, 2019

Then an “old issue” rehashes. North Korea launches off missiles. Remember when Trump said he would “totally destroy” North Korea? Well here was that fierce man’s response.

Source: Twitter
Source: Twitter
Source: Twitter

Yes that is right “I may be wrong but” then goes on to say “Chairman Kim has a great and beautiful vision for his country” Chairman Kim has labor camps, killed Otto Frederick Warmbier after keeping him prisoner because the United States college student took a sign from an airport. Has famine in his country, yet Trump has the audacity to shake the guys hand, call him smart, and a “friend”. Yes Donald Trump, you are wrong.

Source: wikicommons

But Don’t Worry! Important Things First

Now if you think Trump is getting a bit distracted don’t worry, he has his priorities in place.

Source: Twitter
Source: Chad Cooper

Yes that is right, after rapper A$AP Rocky was arrested in Sweden for causing bodily harm to an individual (His group jumped someone after they claimed to have been followed) but Trump is there to make everything OK for people who cause harm to others. (No hate to ASAP but do the crime do the time)

Then China Hits Back

After the yuan sunk to 7 against the US dollar, the lowest level in 11 years, China was deemed as a currency manipulator by the United States. What is the tactic here? China devalues its own currency. By devaluing the yuan, China can mitigate damage on the forced tariffs imposed by Trump. This creates bigger problems for consumers; investors; and everyone really.

Then right on time China announces that they will suspend the purchase of U.S. Agricultural goods.

Then there was silence.

For over one week the markets slowly started moving back upwards with a gain of 2% in the Standard & Poor’s 500 and the VIX collapsed and it looked as if the tensions of the market were easing.

United States Pushes Back Tariffs Aug 13th, 2019

In a rather unexpected move the 10% tariff that would include mostly computer and technology goods that was levy in September would be moved to December “the USTR is removing certain products from the scope of additional tariffs, citing “health, safety, national security”

Trade talks were renegotiated to happen in two-weeks however in that time span Donald Trump said days before the meeting that he didn’t care if the trade talks fell through as he still felt America was in the better position to make a deal.

Source: Twitter

Days Before the Supposed Meet

It’s August 23rd, 2019 China has just announced a new tariff on U.S. agricultural and automotive goods on over $75 Billion from the 5% range to the 10% range. This was yet another escalation in a now very elongated brink of a real trade war. The official reasoning for the new tariffs on American goods was for violating “the consensus reached by the two heads of state in Argentina and the consensus reached in Osaka”.

How does Trump respond?

Source: Twitter
Source: Twitter
Source: Twitter
Source: Twitter

President Trump said “Our great American companies are hereby ordered to immediately start looking for an alternative to China” It’s clear President Trump has a distain towards China but then he post this tweet.

Source: Twitter

Donald Trump said something the markets really didn’t care for, he said “Who is our bigger enemy, Jay Powell or Chairman Xi?” Now Trump has made it clear that he believes the internal threat to his power is just as great as China as a whole.

But it Doesn’t End There

Donald Trump fires back with a tariff increase of his own.

Source: Twitter
Source: Twitter
Source: Twitter
Source: Twitter

President Trump moves the 10% tariffs to 15% on 300 Billion, he also raises the 25% to 30% on an additional 250 Billion.

Meanwhile the Markets Did This


Source: CBOE


Source: Yahoo Finance


Source: Yahoo Finance

SSE Composite Index

Source: Yahoo Finance

So who is really winning? Does anyone really win from trade wars?

Because so far over 500 Billion dollars have been shaved from the market amidst the fear looming and that doesn’t account for the losses China has suffered as well.

It’s also important to note that according to John Bogle, we’ve experienced an inadequate stock market to GDP growth of nearly 10-1. In short this means those who hold large amounts of marketable securities have made a lot while the average uninvested American reliant on income from a job hasn’t nearly experienced the same growth in the wealth that the investor has.

What is yet to come is mystery, it may be to even Trump himself.


Opportunity Cost Described By Warren Buffett and Charlie Munger

“Life is a whole series of opportunity cost, you have to marry the best person who is convenient to find who will have you. Investment is very much the same sort of a process.” – Charlie Munger

Charlie Munger & Warren Buffett 1997 at Berkshire Annual Shareholders meeting.

The year is 1997, an investor approaches and ask an indirect question about opportunity cost. The response from both Munger and Buffett was a wonderful one and goes as following.

Video Courtesy of The Financial Review

Investor Question on Opportunity Cost 

“Mr. Buffett, my name is Pete Brown from Columbus Ohio Class B shareholder I had a couple questions if I could the first is I don’t have a very good idea in my mind how are typical Insurance operations work I mean in particular how many leaves the insurance pool in energy investment pool and how our operations are different than the typical run-of-the-mill Insurance operation in around the country why are we able to generate so much more float then you know the XYZ company you know somewhere else and a second question is it kind of goes back to an article you wrote for Fortune Magazine back in the late 70s about the effect of inflation on on Equity values and then that sort of thing in any you asserted that stalks were in businesses were really like Vons they just had their own par and the par being the average 12% return on Equity that companies have averaged you know what company does better than has a sensitive worth way more than a hundred cents in a dollar company does less you know will be less correspondingly my question is when you are projecting cash close up a company as a prospective investment why would you use the going interest rate you know of a risk-free treasury bills why wouldn’t you use the sort of opportunity cost to discount at the maybe Charlie was referring to maybe 12% return on Equity of average corporations maybe you know you’re 15% goal maybe Coca-Cola’s return Equity is a comparison I mean doing that would dramatically change the value of the company that year that you’re you know evaluating as I’m sure you know why would you use the risk-free rate is my question.”

Warren Buffett

“The risk-free weight is used merely to equate one item to another, in other word for looking for whatever is the most attractive but in terms of present valuing anything we’re going to use a number and then obviously we can always buy the Government Bond so that that becomes the yardstick rate, it doesn’t mean we want to buy government bonds that doesn’t mean we want to buy government bonds if the best thing we can find is only as a present value that works out and a half percent of year better than the government bond but it’s it’s the appropriate yardstick in our view you just simply use to compare across all kinds of investment opportunities oil wells, farms, whatever it may be now gets into degree of certainty too but it’s the yardstick rate it’s not it’s not because we want to buy government government bonds but it does it does serve to make that a constant throughout the valuation process. 

In our insurance business will be to have a group of insurance businesses they have different characteristics the consistent characteristic actually is it they’re all very very good businesses that some of them a lot larger and have opportunities to get larger and some of them we’re not so large and and have limited opportunities in terms of growth but every Insurance operation we have is a distinct asset to Berkshire we’ve got smaller workers comp operation ,credit card operation, we’ve got a home state operation we have all these different business Kansas Banker Surety whatever they’re all good businesses some of them don’t develop a lot of float relative to premium volume of the nature Kansas Banker Surety is it won’t develop a lot of Float, just happened to be the kind of business they write the nature of comp is that it develops more float because comp claims pay more slowly. 

You really should think of each one of those having different characteristics, Geico is entirely different the Supercat business but both good businesses, in terms of how we invest the money when it comes in we invest it when it comes in I mean we will get a large Supercat premium today it’s invested. Now if we have a claim tomorrow then we disinvest and you know and in a substantial way, if you take something like Geico the cash flow is always going to be positive probably on that we won’t have another Hurricane Andrew because we backed out of the homeowners business to quite an extent so month by month the money comes in at Geico an the faster it grows the more the money that comes in we have so much Capital that we can basically put that money into whatever makes the most sense for Berkshire so we have none of them either the mental or psychological constraints or the regulatory constraints that that the that many insurance companies operate under than many of them think they should have this portion of this in this, or this portion of that. Investments usually play second fiddle to the insurance business as most companies that are in the insurance business we look at them as being of equal importance and we run them as two distinct businesses we do whatever makes most sense on the investment side whatever makes the most sense on the insurance side we never do anything on the investment side that will impinge on our business on the insurance side but you really should look at each one of our business separately Geico has entirely different characteristics then Supercat business they both call themselves insurance and they both develop float but an economic terms and in terms of competitive strengths and that sort of thing or two with two very different businesses that are smaller businesses are different businesses some of those might grow well, we’ll keep working on it. Charlie?”

Charlie Munger

“Yeah you look at a corporate stock it’s obvious you can buy any maturity of Government Bond you want so one opportunity cost of buying the stock is to compare it with the bond what you may find that have two stocks in America you’re so careful about or know so little about or think so poorly of that you would rather have the Government Bond so opportunity cost basis they’re taking out of the filter now you start finding corporations where you like the stocks way better than then government bonds you got to compare them against the other and when you find one that you regard as the best opportunity that you can understand that’s the best opportunity now you’ve got one to buy so very simple idea, it uses nothing but the most elementary ideas from economics or game theory,  child’s play is a mental process now it’s hard to make the business appraisals but the mental process is a cinch.”

Warren Buffett

“If Charlie and I were forced told we had a choice of buying stock A B C or D in all 2500 or 3000 whatever may be listed on their stock exchange or buying a 10-year Government Bond that we had to hold a stock for 10 years or the bond for 10 years probably at least 80% of the cases we would take the 10-year government many cases because we didn’t understand the business well enough elsewhere or we may understand and still prefer the 10% sure everything that way and I don’t know what you come up with 80% or where Charlie? Desert island 10 years? Get to fondle a stock certificate or fondle a government bond? I mean which one are you going to choose? Haha”

Charlie Munger

“Life is a whole series of opportunity cost, you have to marry the best person who is convenient to find who will have you. Investment is very much the same sort of a process.”

Warren Buffett

I knew we would get in trouble after lunch. 

Dialogue Provided by: Berkshire’s Annual Shareholders Meeting 2006


Why Coca-Cola is HOT right now

“With this, our focus on consumer-centric innovation, almost 25% of our revenue is now from new or reformulated
products, up from 15% two years ago. “

— James Quincey
Chairman & Chief Executive Officer

No matter where you’re from the chances you’ve enjoyed the sweet crisp taste of a Coke on a hot afternoon is extraordinary high. If you’re unfamiliar Coke works in a very interesting and different way than other soft drink beverage providers.

Geographically Coke is split into several different operating entities, however the main being a concentrate company and the other being a bottling manufacture. Coca-Cola operates by selling concentrates to independently operated but authorized and quality assured bottling companies whom mix the concentrates to formulate both sodas, carbonated water, and drinks like Sprite, Fanta, Vitamin-water, Dasani, Fair-life, Ciel, Minute maid, Simply Juices, Surge, Zico Coconut Water, Odwalla Juices, Powerade, and many more products.

The first thing that comes to mind when you think of Coca-Cola is definitely soda but what about coffee and energy drinks? That’s right!

The giant Coca-Cola has officially entered the coffee and energy drink world and so far (though still early) it’s been a success. With an acquisition of Costa Coffee officially closed in January 2019 valued at 5.1 Billion dollars we’ve already seen a slight boost in the Q2 2019 earnings release, a quote from CEO James Quincey reads as followed “As we move forward on these opportunities, our focus is on accelerating three segments: The Express vending machines, beans and machines for food service customers, and ready-to-drink products.”

Now it doesn’t pay to hype up Costa Coffee as a major source of revenue just yet but entering the ready-to-drink coffee market is an amazing idea and there is not many more financially sound companies to pose as a competitor in this field. Below is a list of the beverage – soft drink sector in descending form weighted by market cap. Amongst coffee Coca-Cola has also entered the energy drink market. Recently legislations passed in Republic of Lithuania and the Republic of Latvia banned sales of 150+ mg caffeinated energy drinks to people under the ages of 18, however Coke like Red Bull decided to go with 80mg per 250 ML can so this would not effect their business model as they offer a lesser caffeine dosage than say Monster, Bang, or Rockstar.

This isn’t the only reason KO is attractive, if we take a look KO common stock offers a 2.94% dividend yield compared to the SPY dividend return of 1.88%.

Now let’s not get to carried away, it’s important to note that on a long term scale KO has underperformed the SPY in terms of percentage gain over a 5 year term, while KO has risen 28% in 5 years, the SPY has risen over 42%. Now there are a few ways you can look at this depending on where you’re attempting to place your bias, you could argue that during that time the return on capital invested may in KO due to higher dividend yields was more attractive to you. Let’s take a look at this mock back tested portfolio created on portfoliovisualizer.com from Jan 2015 – Jul 2019. Originally capital of 10,000 dollars, portfolio 1 consist solely of the SPY and portfolio 2 solely KO. Now let’s clarify, we don’t believe you should ever be solely invested in 1 equity, that is a recipe for disaster. Here is an article of John C Bogle’s investment approach.

Stats from PortfolioVisualizer.com

Since this may be hard to read it reads as followed

PortfolioInitial BalanceFinal BalanceCAGRStdevBest YearWorst YearMax. DrawdownSharpe RatioSortino RatioUS Mkt Correlation
SPY (1)$10,000$15,822 10.53% 12.30%21.70%-4.56%-13.52% 0.801.251.00
KO (2)$10,000$14,459 8.38% 12.39%14.37%-0.34%-10.87% 0.640.980.41

Below is a Log scale – inflation adjusted portfolio growth showing the difference in performance. The Blue (1) is the SPY and the Red (2) is KO

What is very interesting is the fact that Coca-Cola (KO) saw much less drawdowns in times where the market stumbled, this shows the resilience by KO and the fact that in times of hardships, assets continue to do extremely well. Some may consider this quality “recession proof like”. A long term holder and continuously outspoken bull on the stock is Warren Buffett as Berkshire Hathaway holds an extremely large position. Here is an article where Mr. Buffett explains that there aren’t many Coca-Colas. This drives Warren’s point home in the fact that “if you own a really good business and understand that bad things won’t happen to that business then that’s really it.”

Now there is a downside to this, let’s assume you’ve done your adequate research on the financials of KO, you want to purchase shares because you believe the management is capable and the pipeline looks bright for the future. In this case KO is entering the coffee market and energy market (they’ve already tried energy drinks but not directly labeled under Coca-Cola’s brand) this does put them in a little bit of a conflicting position as Coca-Cola owns a large portion of MNST Monster Energy stock, though now as they’re entering as a competitor to Monster, they don’t plan on dropping their ownership or reducing it by any. This can be seen as a hedge against their product, clearly they like the caffeinated soft-drink market and want to be in it regardless of which company it is but if they do in-fact capitalize on both Coffee and Energy it really could be huge. But let’s get back to the problem, you can’t really get the shares to cheap. The problem with this .40 beta market position, is when the market sells off KO is usually reluctant too.

I’m reluctant to use the term human nature but there seems to be a reluctancy to purchase shares when they’re trading near highs. While the old expression “buy low, sell high” holds true I think it’s important to ask the question “why is this making new highs”. You may find the answer to be because it’s a sound company with growing profitability and a prominent market share. Now you should also be prepared to ask yourself the question on the stock you may be contemplating on purchasing solely because the particular equity has been depressed for some time and surely a change must be coming soon, “why is this making new lows”. Now you should wait a second before you quickly come up with an answer to that, what are you trying to get from this position? A quick buck? Because if you’re buying a depressed equity that has been in a downtrend for some months to years in the expectations that for some reason a reversal is coming and you have the ability to detect it maybe you should stop. A wonderful quote by Jack Bogle from The Vanguard Group “I don’t know anybody who’s ever been successful in timing the market, I don’t even know anybody who knows anybody who was ever been successful in timing the market.” So with this I say looking for the best financially sound company with a proven track record that is making new highs is always going to be the better investment than the 2nd-grade stock making new lows that you may be trying to time for a larger return.

Disclaimer: This is solely my opinion and not financial or investment advice. I currently hold no position on $KO, $SPY, or $COKE at the time this article was written.

Noteworthy Monday Option Activity: AGIO, MRNA, KTOS

Looking at options trading activity among components of the Russell 3000 index, there is noteworthy activity today in Agios Pharmaceuticals Inc (Symbol: AGIO), where a total volume of 3,179 contracts has been traded thus far today, a contract volume which is representative of

source https://www.nasdaq.com/articles/noteworthy-monday-option-activity%3A-agio-mrna-ktos-2020-05-11

Noteworthy Monday Option Activity: LULU, DIS, QDEL

Among the underlying components of the Russell 3000 index, we saw noteworthy options trading volume today in lululemon athletica inc (Symbol: LULU), where a total of 16,187 contracts have traded so far, representing approximately 1.6 million underlying shares. That amounts to

source https://www.nasdaq.com/articles/noteworthy-monday-option-activity%3A-lulu-dis-qdel-2020-05-11

Notable Monday Option Activity: INTC, UNFI, DT

Looking at options trading activity among components of the Russell 3000 index, there is noteworthy activity today in Intel Corp (Symbol: INTC), where a total volume of 113,649 contracts has been traded thus far today, a contract volume which is representative of approximately

source https://www.nasdaq.com/articles/notable-monday-option-activity%3A-intc-unfi-dt-2020-05-11

Noteworthy Monday Option Activity: LITE, CDLX, COUP

Looking at options trading activity among components of the Russell 3000 index, there is noteworthy activity today in Lumentum Holdings Inc (Symbol: LITE), where a total volume of 8,640 contracts has been traded thus far today, a contract volume which is representative of appr

source https://www.nasdaq.com/articles/noteworthy-monday-option-activity%3A-lite-cdlx-coup-2020-05-11

Noteworthy Monday Option Activity: HELE, OKTA, BYD

Among the underlying components of the Russell 3000 index, we saw noteworthy options trading volume today in Helen of Troy Ltd. (Symbol: HELE), where a total of 1,311 contracts have traded so far, representing approximately 131,100 underlying shares. That amounts to about 63.

source https://www.nasdaq.com/articles/noteworthy-monday-option-activity%3A-hele-okta-byd-2020-05-11

Noteworthy Monday Option Activity: IRBT, FB, ATVI

Among the underlying components of the Russell 3000 index, we saw noteworthy options trading volume today in iRobot Corp (Symbol: IRBT), where a total of 5,420 contracts have traded so far, representing approximately 542,000 underlying shares. That amounts to about 50% of IRB

source https://www.nasdaq.com/articles/noteworthy-monday-option-activity%3A-irbt-fb-atvi-2020-05-11

Noteworthy Monday Option Activity: AMD, SDGR, ALB

Among the underlying components of the Russell 3000 index, we saw noteworthy options trading volume today in Advanced Micro Devices Inc (Symbol: AMD), where a total of 343,342 contracts have traded so far, representing approximately 34.3 million underlying shares. That amount

source https://www.nasdaq.com/articles/noteworthy-monday-option-activity%3A-amd-sdgr-alb-2020-05-11

Notable Monday Option Activity: LEG, TTWO, MAR

Looking at options trading activity among components of the S&P 500 index, there is noteworthy activity today in Leggett & Platt, Inc. (Symbol: LEG), where a total volume of 11,798 contracts has been traded thus far today, a contract volume which is representative of a

source https://www.nasdaq.com/articles/notable-monday-option-activity%3A-leg-ttwo-mar-2020-05-11

FIVN November 20th Options Begin Trading

Investors in Five9, Inc (Symbol: FIVN) saw new options begin trading today, for the November 20th expiration. One of the key inputs that goes into the price an option buyer is willing to pay, is the time value, so with 193 days until expiration the newly trading contracts rep

source https://www.nasdaq.com/articles/fivn-november-20th-options-begin-trading-2020-05-11