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Wall Street Breakfast: U.S.-China Tensions Resurface

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Wall Street Breakfast

Listen on the go! A daily podcast of Wall Street Breakfast will be available by 8:00 a.m. on Seeking Alpha, iTunes, Stitcher and Spotify.

Escalating tensions between the world's two largest economies saw S&P 500 futures fall 1% to start the week, while European stocks tumbled as investors returned from a May Day break. President Trump said China made a "horrible mistake" and the government was putting together a report that would be "very conclusive," while Warren Buffett tried to soothe ("never bet against America"), although he doesn't see any attractive investments (see more below). Meanwhile, the weakest earnings season in more than a decade continues, with nearly 150 companies in the S&P 500 expected to report quarterly results this week.

U.S. looking to rip supply chains from China

These discussions include "how we restructure ... supply chains to prevent something like this [coronavirus economic fallout] from ever happening again," said Secretary of State Mike Pompeo, after citing "significant evidence" that COVID-19 emerged from a Chinese laboratory. Tax incentives and potential re-shoring subsidies are among measures being considered to spur changes, while the U.S. is pushing to create an alliance of "trusted partners" dubbed the "Economic Prosperity Network." "We've been working on [reducing the reliance of our supply chains in China] over the last few years but we are now turbo-charging that initiative," added Keith Krach, undersecretary for Economic Growth, Energy and the Environment at the U.S. State Department.
Go deeper: Cuomo warns against dependence on China.

More PPP loans may be needed

That's according to White House economic adviser Larry Kudlow, who said "we waited a little bit too long when the last tranche ran out. Let's not make the same mistake again." He's not in a rush to provide more funds to individuals, however, with 175M Americans having already received assistance, either through direct payment or enhanced unemployment. During the interview on CNN's "State of the Union," host Jake Tapper outlined that that $175B of the second round of $310B of PPP loans have already been approved.
Go deeper: Ashford returns PPP loans.

The Oracle speaks

Asked why he hasn't invested in any companies during the pandemic crisis like the company did during the financial crisis, Warren Buffett said "we haven't seen anything attractive" and the Fed "did the right thing and very promptly." In fact, Berkshire Hathaway (BRK.A, BRK.B) sold $6.5B of equities in the month of April, and offloaded its entire stake in all airlines it held. Buffett still gave an upbeat assessment of the United States' ability to withstand crises, and said "American magic" will overcome coronavirus uncertainty.

Next steps

With a new forecast of up to 100K coronavirus deaths in the U.S., the medical community is watching three critical areas in its fight against COVID-19: Testing, treatments and vaccines. On Sunday, Roche's (OTCQX:RHHBY) COVID-19 antibody test and Gilead's (GILD) experimental drug remdesivir received emergency use authorization from the FDA, while Moderna (MRNA) inked a production deal for 1B experimental vaccine doses on Friday. Estimated timelines for a vaccine are still murky, with some seeing a solution by the end of the year, while others say it cannot be reasonably expected until the end of 2021.

Uncertain road to recovery

Crude futures are off 8% to start the week as oil executives see signs that fuel consumption is starting to recover, but say it's likely to be a slow, painful process. "I believe we have seen the bottom," said Marco Dunand, co-founder of Mercuria Energy Group, one of the five largest trading houses. Traders feel the recovery in demand is likely to take more than a year before it reaches a pre-pandemic rate of about 100M bbl/day, though some say it may never reach those levels.

Virtual roadshows and remote IPOs

There probably couldn't be a better way to highlight demand for its product as Norway's Pexip kicked off a virtual IPO roadshow amid the coronavirus pandemic. The company competes with Zoom (ZM) and Bluejeans (VZ), and says its video conferencing software is used by the U.S. military and the German government. "Pexip has for example never met the two U.S. based cornerstone investors face-to-face, all interaction with them have been done by video," CEO Odd Sverre Ostlie declared.

Hot on the heels of Facebook

Just two weeks after Facebook (FB) shelled out $5.7B for a nearly 10% stake in Jio, a subsidiary of Indian conglomerate Reliance Industries, Silver Lake announced it would jump on the bandwagon. The private-equity firm has struck a deal to invest $750M in the telecom and technology giant, valuing the entity at $65B - a 12.5% premium to the value implied by the Facebook investment. Jio owns a suite of diversified services, including music streaming, smartphones, broadband, on-demand live TV and payments.

Another hit to brick-and-mortar

It's the first major retailer to fall during the coronavirus pandemic, but it's unlikely to be the last. J. Crew has filed for Chapter 11 bankruptcy protection as part of a financial reorganization that will hand over control to top creditors, including hedge fund Anchorage Capital, by converting $1.65B of its debt into equity. The company also plans to hold onto its Madewell brand, which it had considered spinning off into a public company.

Mandatory mask policies

Uber (UBER) is in the process of developing technology to detect if drivers are wearing masks or face coverings before they go online and start accepting trips, and is also looking into ways to hold riders accountable, according to CNN Business. While it didn't elaborate on how the technology would work, Uber already has a Real Time ID-check feature that periodically asks drivers to take selfies. The policy is expected to be rolled out in the coming weeks as the ride-sharing giant comes to terms with new realities imposed by the COVID-19 pandemic.
Go deeper: Two more U.S. airlines require face coverings.

What else is happening...

Clorox (CLX) lifts ad spending on disinfectant demand.

Amazon (AMZN) eyes asset sale from bankrupt OneWeb.

Glut for U.S. auto industry; EVs a priority in China.

Tesla (TSLA) takes first step to becoming a U.K. energy provider.

Embraer (ERJ) not actively seeking new partner.

EU clears €7B bailout for Air France-KLM (OTCPK:AFRAF).

Rocket Lab sees long 'slog' for space industry.

Confirmed! Merger talks between O2 (TEF) and Virgin Media (LBTYA).

Intel (INTC) in talks to buy Israel's Moovit for $1B.

Impossible Foods (IMPF) starts new talks for funding.

Today's Markets

In Asia, Japan closed. Hong Kong -4.2%. China closed. India -5.8%.
In Europe, at midday, London -0.3%. Paris -4%. Frankfurt -3.5%.
Futures at 6:20, Dow -1.3%. S&P -1.1%. Nasdaq -1%. Crude -7.8% to $18.23. Gold +0.8% to $1714.20. Bitcoin -5.1% to $8658.
Ten-year Treasury Yield -4 bps to 0.6%

Today's Economic Calendar

Auto Sales
10:00 Factory Orders
12:30 PM TD Ameritrade IMX

Companies reporting earnings today »

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Wall Street Breakfast, Seeking Alpha's flagship daily business news summary, is a one-page summary that gives you a rapid overview of the day's key financial news. It is designed for easy readability on the site or by email (including mobile devices), and is published before 7:30 AM ET every market day. Wall Street Breakfast's readership of over 3.4 million includes many from the investment banking and fund management industries. Sign up here to receive the Wall Street Breakfast in your inbox every business day.Check out our Podcast RSS feed

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Comments (84)

China did everything good and Trump is all bad. Looks like the CCP trolls are out in force here today.
Secretary of State Mike Pompeo and President Donald Trump are not only gross incompetents they are disgusting liars as well.

The empirical scientific evidence they are lying is undeniable. They and their poltical/intelligence "advisors" consciously choose to ignore the evidence and deny it publicly.

Such as: the epidemic began in Wuhan City but the SARS-CoV-2 virus in humans began in Guangdong - 930 Kms away near Hong Kong

PNAS April 28, 2020
"There are two subclusters of A which are distinguished by the synonymous mutation T29095C. In the T-allele subcluster, four Chinese individuals (from the southern coastal Chinese province of Guangdong) carry the ancestral genome, while three Japanese and two American patients differ from it by a number of mutations. These American patients are reported to have had a history of residence in the presumed source of the outbreak in Wuhan. The C-allele subcluster sports relatively long mutational branches and includes five individuals from Wuhan, two of which are represented in the ancestral node, and eight other East Asians from China and adjacent countries. It is noteworthy that nearly half (15/33) of the types in this subcluster, however, are found outside East Asia, mainly in the United States and Australia."
"Cluster B is striking with regard to mutational branch lengths: While the ancestral B type is monopolized (26/26 genomes) by East Asians, every single (19/19) B-type genome outside of Asia has evolved mutations. This phenomenon does not appear to be due to the month-long time lag and concomitant mutation rate acting on the viral genome before it spread outside of China (Dataset S1, Supplementary Table 2). A complex founder scenario is one possibility, and a different explanation worth considering is that the ancestral Wuhan B-type virus is immunologically or environmentally adapted to a large section of the East Asian population, and may need to mutate to overcome resistance outside East Asia."

But never let the facts get in the way of a massive political beat up. To blame others using rank lies to excuse your own abject incompetence and failure of leadership.

More background scientific facts about the SARS-CoV-2 virus

SCMP 13 Mar, 2020 -- yes the 13th MARCH
"Scientists are now keen to identify the so-called patient zero, which could help them to trace the source of the coronavirus, which is generally thought to have jumped to humans from a wild animal, possibly a bat.

Of the first nine cases to be reported in November – four men and five women – none has been confirmed as being “patient zero”. They were all aged between 39 and 79, but it is unknown how many were residents of Wuhan, the capital of Hubei and the epicentre of the outbreak." www.scmp.com/...

Now 3 weeks later we know even more than when that article was written. There are much better answers to the questions available today. While Pompeo and Trump play at "make believe" games instead.

"Let's see how much we can get away with Mike. The media are all idiots anyway. "

True that!

And why are the "death rates" so different from one country to another?

First is the success or lack thereof of containing the virus spreading where the more that happens the higher the degree of "viral load" in those carrying the virus. And secondly that there are THREE different strains of CV and they each have varying strengths once infected. Those main strains have mutated in other sub-strains (mutation clusters) along the way again with different degrees of infection strength - at last count 101 distinct genomic sequences.

The Virus in the east coast of the USA in New York is a different strain to what first showed up in California. The virus in Wuhan is different than what hit ITALY and SPAIN.

Of course very few people think it's important enough a FACT for the president of the USA to know about, share with the people and Governors and then act accordingly.

What can one say about nation who freely elected a Reality TV Star to the highest office in the land? Nothing good that's for sure. They choose people as bad as Pompeo to be Sec of State. You get what you pay for people. Enjoy the collective choice and suffer the consequences.
I am totally agree with your assessment of the Trump administration in dealing with the Covid 19 pandemic. Trump has a reputation of being arrogant, egotistic and unreceptive, plus he hates to read. With his meager medical knowledge he repeatedly making blunders in the course of managing this pandemic. He does not understand science and he does not bother to learn. He is mind set to crush China politically and economically and twisting or disregard scientific evidence. Even his CIA felt the Sars-coV-2 was not from the lab. However, Pompeo insisted he has " enormous evidence" to prove the virus was from the lab. These two are politicians and they will discredit any scientific feedings if the findings are not to their interests. Many naive patriotic Americans buying into their stories and disregard the scientific evidence. Sad for America and the world. Cutting fundings to WHO during the unprecedented pandemic can clearly illustrate Trump's mentality. A. Lam Md
I guess California has changed its tune on illegal imigrants as now they dont want them.
Great podcast! Thanks!
techy46 profile picture
"U.S. is pushing to create an alliance of "trusted partners" "

So who will trust US as a partner is the big question.
More than will trust China.
techy46 profile picture

We need to keep score.

So far it's 325M to 1.4B!
I just don't understand why everyone treats chapter 11 as a death equivalent. Some of these businesses need to be rationalize and will continue running if there is market demand for the product. It may be painful for some but it's orderly. Having politicians pick who gets a bailout among corporations is just crazy. Really small businesses on the other hand represent main Street America and are necessary for the survival of cities and towns. Otherwise it will just be Amazon and Walmart.
@Dr.Think Is this a serious comment? Do you know what happens to stock holders when a corporation goes bankrupt?
techy46 profile picture
Its already just Amazon, Home Depot and Walmart.
I guess you don't believe in efficient markets.
GratefulGuy57 profile picture
No doubt WB is a smart man. But he is 89 years old and has $135 billion cash to rest on. He no longer has the investment horizon or motivation he had in his fifties. Do not let him unduly influence your investment decisions.
Are you implying that his comments about the airlines are wrong?
@wyostocks Just in general, wyo. I have had the feeling for some time now that his priorities and mine are no longer aligned, with him more in the return of capital mode than a return on capital mode which, I think, most investors still have. Munger recently made a comment about the priority of protecting the principle for the long-term BRK investors.
techy46 profile picture
We'll all know what he did 90 days (13F) after he does it.
Bhughes7918 profile picture
No one asked the most important question, will the 4% fee the small banks are getting more than off-set the bad loans that are coming for the clean small banks, ( great asset quality only)
I would vote yes the profit on these will more than off-set future losses and the growth in new accounts for the good ones from the big ones that will come from this will be also great for them go NWIN, OPY. All way under tangible book !
marpy profile picture
When even Buffet has to call on the tooth fairy and the magic wand to see any positives, you know you got a problem!!
techy46 profile picture
Why would Buffet tell anybody what he's doing?
Noteworthy that Sec. Pompeo cited U.S. intelligence sources to support his contention that China behaved less then honorably in the Covid-19 affair. Suddenly, U.S. intelligence sources are to be believed by the U.S. government. That is not always the case.
blueline profile picture
"Secretary of State Mike Pompeo, after citing "significant evidence" that COVID-19 emerged from a Chinese laboratory"

And another so called "conspiracy theory" becomes main stream.
101VET profile picture
Vote Joe Biden I’m sure he’ll really help your portfolio
Conspiracy theory? Don't bet on it, as more evidence has been & is being released.....dd.
hahaha not main stream considering intelligence community leaders already stated the evidence pointed to non man made.

Oh wait i will listen to the partisan R's who are only thinking about re election.
blueline profile picture
"take more than a year before it reaches a pre-pandemic rate of about 100M bbl/day, though some say it may never reach those levels"

Rubbish!! Traffic levels have already increased dramatically. People are actually complaining about the heavy traffic again. Anyone that doesn't believe that oil consumption will return to normal must be living in a cave.
You are discounting the second wave coming.
you are discounting most evidence
2nd wave? We haven't cleared the first wave yet.
$5 trillion fine levied on China?
You'd think they'd have closed those markets by now, but no, they're fully opened and ready to unleash the next pandemic...of which China will again deny any and all responsibility.
" ...But for now, discouraging people from using wet markets altogether is not a viable solution. University of Sydney's environmental and humanitarian engineer Petr Matous said that wet markets play an important role in food security for many low income communities, both in China and globally, who don't have access to online options.

"Abolishing wet markets may give the illusion of solving the cause of the current situation but the real problems are deeper than that," he said in an email.

* Many experts agree that ending the illegal trade of animals is the most important means of preventing the next pandemic -- and that means better regulation and stricter enforcement, especially at a local level. *

*** In the long term, however, even better regulation might not fully stop the illegal wildlife trade if demand persists -- it will simply go underground, according to the World Wildlife Fund.

"This health crisis must serve as a wake-up call for the need to end unsustainable use of endangered animals and their parts, as exotic pets, for food consumption and for their perceived medicinal value," said the organization. *** "
techy46 profile picture

Why not $100T, you'll never see a dime of it!
Airline stocks crash on Buffett sale. Will we see negative oil again?
techy46 profile picture
We'll be seeing airplanes full of masked travelers.
Not this year. Maybe next if there is no recurrence in the fall and winter.
I think we will see more airline travel, I know I am in late summer. People are continueing to travel and their seeing travel pick up week by week. The TSA confirms this.
Buffett was resolute but his tone was very sobering. White House advisor Jared Kushner indicated that everything would be humming by June. Take your pick.
I think there's a good chance Market rebounds back above 29K or higher before eoy imho. Lot's of stimulus.
i will stick with Kushner, he was born from the lucky sperm club.
Novavax - The rush for secure national supply lines rather than efficient but fragile supply lines, prevalent to some degree everywhere as the "lesson learned" from the pandemic, will leave everyone a bit poorer even if the present pandemic ends soon. Do not expect markets to be priced for perfection when future economies tend towards inward looking mediocre production.
Political Comments profile picture
Dear Readers,

We recognize that politics often intersects with the financial news of the day, so we invite you to click here - seekingalpha.com/... - to join the separate political discussion.
"Good luck with that!"

Some 80% of reader comments on WSB are either explicitly (or thinly disguised) political posts.
For those of you who want a politics and "extrania free" investment news update, here's a link to eercreekvols 's latest blog-

deercreekvols profile picture
Thank you! Plenty of room for folks at brunch.
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