Friday Market Review - Friday, August 28

After he was nominated for a second term, President Trump got lucky Friday, August 28, when the US purchasing manager's index (PMI) for August showed a 53.6 level of sales, the highest since January of 2019. A PMI of over 50 means the economy is growing; anything below 50 means it is contracting.

In July, the PMI was barely positive at 50.9, and the consensus forecast was a mere 51.9 for this month. Unsurprisingly, the only negative was that input cost inflation (which cuts the PMI) was also at its high since January of 2019. The rise in input costs hints that inflation is with us again, along with new Fed tolerance for price hikes.

Japanese Prime Minister Shinzo Abe is scheduled, due to health issues, to resign when a replacement is named. He has been the longest serving Prime Minister in Japanese post-war history. The yen rose on the news because Abe is very much a hawk on inflation risks, which has kept Japanese recovery modest.

Gold and Finance

  • As global tolerance for inflation rises, the odds that prices will rise grows, too. The smart move now is to get into the oldest floating inflation hedge out there, gold, and gold mines. Today, both SPDR Gold (GLD), a fund sponsored by the World Gold Council which mines gold, and our Kirkland Lake Gold (KL) Canada gold miner opened up by 3.31% and 1.5%, respectively.
  • The SPDR FTSE International Government Inflation-Protected bond ETF rose 1.4%. Its ticker symbol is WIP.
  • Korea and India Investment Funds, KF and IIF, are both up today on hopes for recovery and an end to negative interest rates.
  • Inflation is good for banks and financial firms, if not for their depositors. The top rise was a jump of 8.71% for the Hong Kong arm of HSBC, Hang Seng Bank (HSNGY), and 6.18% at insurer AIA Group, AAIGF. However, railway Guangshen (GSH), which runs to Hong Kong from Guangzhou, fell 3%.
  • Our Japanese bank play, Sumitomo Mitsui Financial Group (SMFG), gained about $6, or 2.5%. Other risers at the opening fell in early trades, such Bank of Nova Scotia (BNS). Banco Santander (SAN) was up at last by 3.8%. However, markets were downtrending overall.
  • Tata Motors (TTM) of India rose 2% today. We sold that one in fear of people staying home.
  • Canadian Solar (CSIQ) won a $75 million loan from Nomura Funding America (NRSCF). It makes energy storage and systems, and while it was tipped by Max Deml of Oeko-Invest, I stuck with an Israeli competitor instead.

Drug makers

  • Compugen (CGEN) rose 5.13% due to expanding its US Patent for TIGIT inhibitor COM 902 in combination with other antibodies like PD-1 and PVRIG. CGEN's patent now runs to 2037. Israeli markets are closed, so the big gain was here. Israel will catch up Sunday, August 30.
  • BiolineRX (BLRX) rose in sympathy by 1.3%, and even hard-pressed Teva (TEVA) eked out a 0.5% gain after falling 2.6% Thursday.
  • Glaxo (GSK) fell today despite good early results in its phase II trial of an anti-sense medicine against hepatitis B, the variant of the liver disease for which there is now no cure. GSK partnered with Ionis (IONS) on the trial, which showed markedly lower hepatitis surface antigens and virus in treated HEP B patients who were stable. HEP B causes cirrhosis, liver cancer, and liver failure.
  • I overnight averaged down on my newest pick, Grifols of Spain (GRFS), but it fell back today as it is not making a $5 coronavirus testing machine. The closest thing I own to a contender for testing, Thermo Fisher Scientific (TMO), has enough other irons in the fire to remain up.
  • Canadian Zymeworks (ZYME) gained 3.42%. ZYME has been roiled lately due to options trading and modest buying by funds, according to Martin Ferera.
  • Chembio Diagnostics (CEMI) crashed after Abbott Labs (ABT) offered a $5 rapid coronavirus test.

Cars and Oil

  • We sold Veoneer (VNE) of Sweden too soon. VNE signed up with Qualcomm (QCOM) to jointly put a chip on the advanced driver assistance electronics it makes. The new platform will go live in 2024 and be sold to automakers. VNE rose 18% yesterday. We sold after it split from Autoliv (ALV). We bought QCOM for its distanced medical diagnosis startup.
  • BP (BP) and Royal Dutch Shell B (RDS-B) both are up despite damage done to drilling sites in the US Gulf of Mexico caused by hurricane Laura. Both are also shifting their investments away from hydrocarbons and toward green energy. They are not bidding in the Alaska protected zone.
  • Schlumberger Ltd. (SLB) is up today by 2.5%, at $19.17. SLB is a Dutch Antillean company whose technology helps find oil and gas, but it also has green elements.
  • Johnson Matthey (JMPLY) refines and sells platinum group metals. JMPLY rose another 1.14% today in London.
  • Nio (NIO), the Chinese electrical vehicle maker, fell 4.3% today as a bunch of rivals went public. It has its own special sauce, with funding of RMB 7 billion from Hefei, the city specializing in alternative energy. Li Auto (LI), which IPOed this week, uses gasoline on board to keep its batteries working - not exactly a green play.
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Comments

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William K. 2 years ago Member's comment

V.L. has called it ALMOST right: " As global tolerance for inflation rises, the odds that prices will rise grows, too. " That ONLY benefits banks and financial institutions. ALL folks who need to pay for services or things like food suffer from the reduced value of their cash or equivalents. And the worst is that NONE of us who are not banks or financial institutions have no say at all about inflation. The elected leaders either are unable or unwilling to even try to change that situation. Presently the only recourse appears to be investing with those who are causing the inflation, a recourse that is not affordable to many, if not most, folks. ( The balance of this comment will not be stated.)

We do see that some organizations are able to prosper, and that makes the averages a bit less depressing to those who do not look closely.

There is also good advice in the form of comments about how the wrong clue was taken and some shares went up when their fall was anticipated. Clearly that is an experience that others can be learning from.

So thanks for the education.

Andrew Armstrong 2 years ago Member's comment

Good comments.

Texan Hunter 2 years ago Member's comment

When you say "Trump got lucky" when the US showed a high level of PMI, it implies that his courageous leadership had nothing to do with it.

Angry Old Lady 2 years ago Member's comment

Welcome to Earth, you must be new to the planet. Trump is destroying the country - can you honestly say America is better off now than it was 4 years ago? Here is a hint:

4 years ago, we did not have people killing each other in the streets, urged on by a president who marginalizes and encourages violence. We did not have 1,000 Americans a day being killed by a virus that Trump refuses to admit is a threat, and millions are out of work. Courageous leadership?

William K. 2 years ago Member's comment

The damage to the country (USA) is due to a number of causes, not all promoted by the current president. But I do not see him pushing any solutions, so I do classify him as part of the problem.

Our ballots DO need one more choice, that being "NONE OF THE ABOVE.", Which would be a vote AGAINST all of them. That would mean that the parties need to offer a different choice. Picking the lesser of the evils is not the way we should be going.. If any wish to grab this concept and make it real, they can take full credit and I will not complain.