Follow-Through Thursday – 5% Correction or Just the First Step?

DOOM!!!

That’s what I said would happen on Tuesday morning so this is certainly not surprising.  Even from my vacation on Monday I could smell the BS of the move up, as Team Trump’s Trade Triumph was not at all confimed by their Chinese trading partners and, as I said in the Morning Report:

When you think about it, of course, not only has NOTHING changed since last week but now we know for sure there will be no trade deal until March at best.  Trump showed real weakness backing down on more tariffs since that was the only leverage he had in this negotiations and China’s tariffs have always been retaliatory – so Xi has given up nothing at all and Trump has stopped fighting – how is that worth $500Bn of stock advances?

All pretenses of improving US-China relations were dashed yesterday evening as news spread that the CFO of Huawei was arrested in Canada on Dec 1st, at the behest of US Authorities over “Iran Sanction Violations” – something the company claims to have had no notice of and no one was more shocked (or insulted) than China’s President Xi, who was pretty much sitting down to dinner with Donald Trump at the time and was embarassingly clueless that this was happening.  Making a Chinese leader look clueless has historically been a big mistake….

The United States is “resorting to despicable hooliganism,” China’s Global Times wrote in an editorial published Thursday. “Anybody can see that the United States is maliciously picking holes in Huawei, trying to give it a hard time using the American legal system,” said the paper, which often reflects the foreign policy views of the ruling Communist Party.

The “persecution” of Huawei is “clearly contrary to the spirit of the consensus” forged between Trump and Xi, it said.

Earlier this year, ZTE was sanctioned by the US but all was forgiven after they paid a record $892M fine in what China widely regarded as a shake-down.  Huawei has not been formally accused of breaching the sanctions and Meng Wanzhou is the daughter of the company’s founder, leading to many Chinese essentially viewing this as a kidnapping and any “fine” the US decides to levy will be seen as a ransom demand.  

Huawei employs 180,000 people in some 170 countries and earned $92.5 Billion last year. It is the world’s third-largest seller of smartphones, after Apple and Samsung, and expects to sell 200M handsets this year.  Recently, the company was accused of installing spyware in their phones and network devices but no evidence of this was ever uncovered – just a lot of accusations by right-wing news sources in the US.  Nonetheless, Trump signed a bill in August banning Government agencies from using Huawei and ZTE devices. 

“My jaw dropped when I saw this news,” said James McGregor, chairman of the greater China region for APCO Worldwide, a business consultancy. “This is so different from anything we’ve seen before. Serious legal action taken with political timing.  I’ve never seen China take something like this lying down,” said McGregor, who has lived in China for nearly three decades. “For now, China seems to be taking a measured approach. But this could get ugly very quickly.”

IN PROGRESS

Provided courtesy of Phil’s Stock World.