China puts IP and Forced Transfer on the table

Good morning America, good afternoon Europe, and Good evening Asia. It’s a short week for US trading…Closed Thursday all day and close early on Friday — so if anything is going to happen in the markets, expect it to happen today, tomorrow, or Wednesday…

Now I say this because suddenly over the weekend, something interesting did happen. After 23 months of back and forth and 23 months of demanding that China recognize and deal with “forced technology transfer” and IP theft – Xi Xi has come around to the idea that just maybe we aren’t wrong and that Donny is justified when he demands that this issue be addressed.

Over the weekend, a Bloomberg article revealed that China said that they…

“will raise penalties on violations of intellectual property (IP) 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. It didn’t elaborate on what such moves might entail.”

And this is significant. It is the first time that China acknowledges (publicly) that violation of IP rights is significant and they need to recognize what this means for trade. On the back of that, Donny came out and said that ‘he is very close to a trade pact with China’ and boooooom… it’s off to the races…(again). US National Security Advisor Robert O’Brien said that a Phase 1 trade deal really could happen before year end… Wait – who? Where did he come from? What happened to Mnuchin and Lighthizer?  This – if true – should cause excitement in the markets today and in fact is causing excitement in global markets.

And Merry Christmas to all TIF shareholders! “Yes Virginia – there really is a Santa Claus…” LVMH to buy Tiffany’s (TIF) for $135/share all cash. The deal will close in mid 2020. After just a couple of weeks of back and forth – with a bid starting at $120/share – LVMH wasted no time in raising the bid to secure the deal. Sunday afternoon, news broke that TIF has accepted the deal and now it is expected to go thru the process of being taken out. TIF closed at $125/share on Friday and the $135 bid represents 37% over the level it was trading at in late October when news first broke of their interest. The TIF acquisition further strengthens LVMH’s foothold in the ultra-luxury market, adding to its brands – Moet, Louis V, Bulgari, Givenchy and the list goes on…

And BABA’s record raising IPO in HK is expected to start trading tomorrow. The deal was well oversubscribed and now gives BABA another problem to deal with… They now have some $43 billion in their checking account – just $6 billion behind Apple. So what will they do with all that money?  Stay tuned… share repurchase in the US? Acquisitions?  Dividends?  Oh, so many decisions to make.

Speaking of HK – what about those elections over the weekend?  Voters turn out in record numbers and vote for Democracy! Freedom! How will China react? What is Xi’s next move? Now, while no one should be surprised at the outcome, it does present an interesting quandary for mainland China… and while geo-political issues do not price stocks – this is sure to cause a short term market reaction. Hong Kong stocks rally hard overnight…+1.5%… Just to clarify – these were low-level elections – but that being said – the message is clear…and so, let’s see what’s next….

UBER down 6% in pre-market trading… London withdraws their license to operate in the city… safety issues, tech problems with their app top the list of complaints. Which brings up a whole other set of issues with safety and UBER. If they are having trouble in Europe, can they have that same trouble here at home? This will be an issue for them as they try to fight the latest move out of London – understanding that London is their biggest market in Europe – so this is a hit.

Overnight – stocks in Asia rallied on the back of the trade news and US futures rose along with them. What does this mean for phase 2 and 3 of a deal? Not sure yet – we have to get thru 1 first and unless this news is real – we may not see a deal before 2020 anyway… I mean we only have 5 weeks left in 2019 – do we really think that they will hammer out any deal at all? Probably not. By the end of the day – Japan +0.78%, Hong Kong +1.5%, China +0.73% and ASX +0.52%.

European stocks are up as well on the back of the trade news… the thought that O’Brien is saying that a deal could be reached by year end – is fueling the moves – BUT a deal does NOT mean a signature… it just means a ‘deal in theory’ – and while that sounds good – how many times have we had a deal in theory? Either way – markets are marching higher on the hope that this time it’s different… (yawn).  FTSE +0.78%, CAC 40 +0.39%, DAX +0.37%, EUROSTOXX +0.38%, SPAIN +0.55% AND ITALY +0.60%. 

US futures are trending higher this morning. Dow futures are up 66 pts, S&P’s are +6, the Nasdaq is up 26 pts and the Russell is ahead by 4 pts. Trade, trade, trade… Eco data today includes Chicago Fed and Dallas Fed surveys – both expected to be negative -0.2% and -3.7 respectively… but no need to worry – no one will be paying attention to either of these reports.

S&P closed at 3110. As noted on Friday, we tested 3100 and found support and like I said – it felt like investors were trying to end the week on the north of 3100 and they succeeded. Today’s news is likely to see the markets up 0.75% – 1% on the back of the trade news – UNLESS someone comes out and bursts that bubble…which is very possible… My gut says we will remain in the 3100/3125 range.

As you would expect – Gold is off by $6/oz at $1,464 as the thought of a trade deal marinates across the markets… and removes the risk! Look for gold to find support at $1,455/oz.

Oil — which rallied on the news of a deal is now flat ($57.75) as oil investors remain patient… suspect that any deal is in the works. Like I pointed out last week – the 200-day moving average – which represented resistance for a long time is now support – so if oil wants to test lower – it should find support at $57.35/barrel.

Take good care.

Kp


Linguine Aglio

Linguine Aglio/Olio w/Caramelized Onions

Considering we are all caught up with the oil space – what better way to eat than the classic Italian dish from Abruzzi  – Aglio e Olio – (Garlic and Oil)

Abruzzi borders the region of Lazio to the west, The Adriatic to the East, Marche to the north and Molise to the south-east….the capital of Abruzzi is L’Aquila – the city that got hit by the earthquake on April 6, 2009.  The damage was tremendous – much of the capital city was destroyed.    There are over 150 km of beaches on the east coast along the Adriatic and the scenery is spectacular.  To the west – you will run into the Apennines Mountains – which create one of the most mountainous regions in all of Italy.  The climate varies from warm and sunny on the coastline to an Alpine climate deep in the mountains.

Linguine Aglio Olio is a simple dish to make…you need:  Linguine, 6 – 7 cloves of “thinly sliced” garlic, olive oil, Fresh grated Reggiano Parmegiano, Chopped Italian parsley, red pepper flakes and s&p.  Now I like to add in caramelized sweet onions…..It changes the dish a bit – but in terms of taste – spectacular!
Begin by bringing a pot of salted water to a rolling boil and add the linguine.

In a sauté pan – heat us some oil and add in the sliced onions and on med heat – sauté and caramelize the onions…..the longer you let them sauté the sweeter they become.

In another lg sauté pan – add like ½ cup of olive oil and the sliced garlic – now turn the heat up to med high and sauté the garlic….here is the trick – you do NOT want to burn the garlic – you want to toast it.  Once the oil is hot and the garlic begins to sizzle – turn heat to simmer and continue to stir…allowing the garlic to brown… once toasted (will have a nutty color) add one ladle of the pasta water and turn the heat OFF.  This will stop the cooking…

In the meantime – the pasta should be done – just al dente…strain – reserving a mugful of water – add the linguine to the large sauté pan with the garlic and mix well.  Next add in the caramelized onions and toss.  (here is where you would add some red pepper flakes if you like).  Do not forget the handful of fresh grated parmegiana cheese and chopped parsley.  Toss and mix well.  Serve immediately – offering more fresh grated cheese to your guests.   (if you sense that it is too dry – feel free to add back a bit more of the pasta water to moisten – but do not drown… only moisten).

Buon Appetito

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Kenny Polcari

Kenny is the editor of Morning Thoughts and has been with Seven Figure Publishing since 2019.

Kenny is a CNBC exclusive contributor appearing on shows like The Halftime Report, Power Lunch, and Closing Bell. His market commentary has reached audiences across the nation on media outlets such as Bloomberg, Fox, ABC, and more.

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