Wall Street Breakfast: Economically Assured Destruction

Wall Street Breakfast: The Conflict Goes Hypersonic

Economically assured destruction

Check out Wall Street Breakfast’s original Seeking Alpha show The bite of the weekend! This week episode we discuss market correction, where to allocate capital with Catherine Faddis, CEO of Grace Capital and high dividend-yielding stocks with Steven Cress, head of SA’s quantitative strategy.

US President Joe Biden will speak with Chinese President Xi Jinping this morning and Biden is expected to impress on the Chinese leader that there will be consequences for getting involved in the Russia-Ukraine conflict. Biden “will make it clear that China will take responsibility for any action it takes to support Russia’s aggression, and we will not hesitate to impose costs,” Secretary of State Antony Blinken said Thursday.

The message is no different from that conveyed during talks between senior officials of the two countries on Monday. China denied being asked to assist Russia militarily and maintained it was completely impartial, but US diplomats reportedly told allies that Beijing had indicated it could help Russia with weapons. The call is expected to take place at 9 a.m. ET.

However, China may be reluctant to court an economic battle with the West, given the issues it faces domestically that have forced the government to reassure risky markets, not to mention its ongoing battle to contain COVID. . Marko Kolanovic, a widely followed strategist at JP Morgan, wrote in a note yesterday that China’s tail economic risks are unlikely to materialize.

“During the Cold War, peace was preserved by the virtue of ‘mutually assured destruction’; for now, the current relationship with China can be preserved by the equivalent of economically assured destruction,” he said. -he declares.

The biggest rally in decades: Stock markets in Shanghai (SHCOMP) and Hong Kong (HSI) take a breather today after the biggest two-day rally in 1998. BTIG said Chinese stocks have seen the volume and speed of a “ washout,” but cautioned that 9% gains weren’t usually indicative of a bottom. The buying of the downed stocks was spurred by a government commitment to pro-stock policies that would stabilize markets, stimulate the economy and not prolong a trial of property tax reform.

“This ‘equity put’ saw Vice Premier Liu’s all-out attempt to try and allay all investor concerns all at once, from ending ‘as soon as possible’ to cracking down on the tech sector, to engaging solve real estate developer risk,” eToro strategist Ben Laidler said. “We find that the authorities are reluctant to cause further disruption to trade,” he added. “As the world’s largest manufacturer and exporter, they have the most to lose. The market is one of the cheapest in the world, with a P/E ratio of 9x.

Kolanovic said he was still bullish on Chinese equities “because the budget carry over to 2021 allows stimulus to be in place in 2022.” In the latest BofA survey of fund managers, only 1% considered a credit event in China an extreme risk.

COVID crackdown adjustments: Xi signaled for the first time yesterday that the government is ready to make adjustments to its COVID-zero policy which is putting additional pressure on the economy. Shenzhen, a vital tech hub, is still under lockdown amid a new outbreak.

China “will strive to achieve the maximum effect of prevention and control at the lowest cost and minimize the impact of the epidemic on economic and social development,” Xi told the Politburo standing committee, according to Bloomberg.

Morgan Stanley said there would be an impact on global oil demand if China’s COVID policy “should ultimately fail”. (2 comments)

GameStop loss

GameStop (GME) fell in extended trading hours after the retailer released a mixed earnings report that included an unexpected loss for the quarter.

Revenue rose 6.21% to $2.25 billion. Hardware and accessories sales accounted for 52.7% of total sales from 54.8% a year ago, while software sales increased to 34.9% from 34.4% last year . Collectibles revenue was 12.4% of the total compared to 10.8% a year ago. (68 comments)

FedEx falls on costs

FedEx (FDX) traded lower after third-quarter earnings missed expectations. Purchased transportation costs and higher wage rates were a drag on earnings in the quarter.

FedEx Ground’s operating results declined primarily due to increased purchased transportation rates and employee salaries, network inefficiencies and expansion-related costs. These costs were partially offset by higher revenue per package, an increase of two additional commercial ground operating weekdays, and a net fuel benefit. FedEx Freight’s third-quarter operating profit nearly tripled, thanks to a continued focus on revenue quality and profitable growth. (27 comments)

ARKK low

The fight for Cathie Wood’s ARK Innovation ETF (ARKK) continues. Wood’s ETF is down -36% year-to-date and is currently working towards its fifth straight month down. Meanwhile, this week has been particularly tough, as 23 of its 35 holdings have fallen to 52-week trading lows, roughly two-thirds of the total. (154 comments)

Fuel for uranium fire

The newly introduced Sprott Uranium Trust Units (OTCPK:SRUUF) allowed retail investors to indirectly purchase physical uranium; the trust has acquired about 52 million pounds of uranium in the past nine months, about a quarter of the world’s annual demand. Caxton Associates, a multi-billion dollar macro hedge fund, filed a request to disclose that the company owns more than 18 million of the trust’s 209 million units. (3 comments)

Blankfein sees doves?

The Federal Reserve’s forecast of seven quarter-point interest rate hikes “isn’t so hawkish” as real (inflation-adjusted) yields are “still negative on the horizon”, Goldman Sachs Senior Chairman Lloyd Blankfein wrote in a Twitter post. (3 comments)

Russian bonds

JPMorgan Chase (JPM) processed funds allocated for interest payments on dollar bonds held by the Russian government and funneled the money to Citigroup (C), Bloomberg reported. JPMorgan was the correspondent bank used by Russia to send payment to Citi, which acts as the payment agent on the bonds. (36 comments)