Monday, June 25, 2018

Did Tech Change Today?

Apparently The US is preparing an announcement for Friday or maybe sooner that could limit Chinese investment in the US but could also limit exports to China.

That would be a game changer if it comes to fruition.

Limiting exports would mean that companies with Chinese exposure would see their revenues disappear as soon as that law was enacted.  That is a bigger risk to tech than tariffs or investment limits.

Here's What We Told Subscribers Around 8 AM Today

"I hate to say it but I think until we have clarity that there is a slowing of tensions, [China] exposed stocks should be reduced."

NASDAQ (NYSEARCA:QQQ) opened down 1.4% and closes down 2.3% after making a scare lower. The Semiconductor Index (NYSEARCA:SMH) opened down 2.5% and closed down 3.2% having also made a scare lower.

Why Reduce?

While everybody was focused that China wouldn't be able to invest in the US we cared much more about the other part of the news,

This is from CNBC this morning,

"The National Security Council and the Commerce Department are also putting together plans for tighter export controls that will not allow "industrially significant technology" to be exported to China."

Companies won't be allowed to export to China? If true, they probably mean only the top tech stories. That would reduce revenues. If true, instead of growing revenues and earnings leverage you'd get slower revenues and maybe even down earnings.

That's a monster potential change to this tech earnings boom if it were to happen.

Steve Mnuchin To Clean Up

Steve Mnuchin came out mid-day in an attempt to calm tensions with a tweet but I think he only added fuel to the fire and stocks went down further. He said,

"On behalf of @realDonaldTrump, the stories on investment restrictions in Bloomberg & WSJ are false, fake news. The leaker either doesn't exist or know the subject very well. Statement will be out not specific to China, but to all countries that are trying to steal our technology."

Steve Mnuchin not only confirmed the premarket stories but he made it out to be even worse. China's not the only one stealing US intellectual property? This is a wider issue?

China would be heavy enough for markets but there are others?

The export ban would be on other countries too?  Not amazing to hear if you're a bull. So our big earnings targets are they still good? Not sure. It would now depend on this next trade move.

Peter Navarro Contradicts Mnuchin

Trade advisor to the President, Peter Navarro though came out later and said,

"There is no plans to impose investment restrictions on any country that are interfering with our country. That is not the plan."

Navarro did not deny the export restrictions but he did say that if other countries "interfere" the US has no plans to restrict them. That doesn't really make any sense, right? Isn't the whole point that if a country "interferes" the US would want to restrict them?

I didn't get that one.

Sanders Contradicts Navarro

Sarah Huckabee Sanders, the White House press secretary seemed to discredit Navarro and said something was coming out. There are plans after all.

"As the secretary [Mnuchin] said, a statement will go out that targets all countries that are trying to steal our technology. We expect that to be out soon. We'll keep you posted."

What Now?

For our Buys, the stocks we like most, I want to step to the sidelines. It's not easy but I want to wait for the dust to settle. We need to know if the US is going to cut off huge chunks of revenues for top tech companies or not. Are there bigger moves ahead or not.

We've had monster moves in our Buys if you've been following us. Scroll through our posts. This accelerated uncertainty is as good a reason as any to step aside after a monster move.

Markets don't like uncertainty and it makes sense to see what's in store.

The CNBC report said the US will come out with something on Friday. Huckabee hinted it may be sooner.

If we don't get any export restrictions by earnings I want to build back on our favorite ideas for earnings reports. Until then I don't want to be the one to bear the risk. An export ban, if any chance at all, is something different.


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