EU Squares off With FAANG

Posted On Aug 30, 2019 By Emily Clancy

  • EU proposal to give Silicon Valley a run for its money
  • Spotify can’t compete with FAANG
  • Will the U.K. be the fly in the EU’s ointment?
  • Nomi Prins extols the virtues of competition
  • Greg Guenthner: Surviving August
  • Dollar General’s boss earnings report
  • Police crackdown on Hong Kong protesters
  • Andrew Luck and Final Jeopardy!

“European Union officials have drawn up an aggressive 173-page plan to counter both President Donald Trump’s trade moves and American tech giants,” says an article at Politico.

We check in today on the goings-on in Europe… that just might be the overlooked stepchild in the global trade war — while the soap opera that is the U.S.-China trade dispute plays on.

(Our sincerest apologies to overlooked stepchildren everywhere… heh.)

According to the EU’s lengthy plan — obtained by Politico — members of the European Commission are pressing President-Elect Ursula von der Leyen to establish a $100 billion European Future Fund to invest in “high-potential” European companies.

“The goal: get Europe competing head-on with the American and Chinese tech giants it has lagged behind for decades,” Politico says.

Europe has certainly trailed American tech colossi like Facebook, Apple, Amazon, Netflix and Google — with their market caps over or approaching $1 trillion.

Europe’s largest tech company Spotify? “100 times less valuable than its U.S. counterparts,” according to Fox Business.

China makes its appearance in the EU proposal, too, with the report specifically calling out Chinese companies Baidu and Tencent.

To which the document says (rather drolly, we think): “Europe has no such companies.”

Ahh… that dry, British sense of humor… er, strike that.

“The shadow of Brexit — the United Kingdom… due to leave the European Union on Oct. 31… looms over the proposals,” Politico says.

“Without U.K. influence,” the article continues, “the EU is free to pursue the more interventionist economic policies France and Germany have long favored…”

Including stamping unilateral tariffs on American goods and policing — aka fining — U.S. tech companies for running afoul of EU antitrust regulations.

Likewise, the plan turns up the heat on China.

In a thinly veiled reference to the Asian powerhouse, the document allows more leeway for EU countries to subsidize companies to thwart “the emergence and leadership of private non-EU competitors, with unprecedented financial means, [that] has the potential to obliterate the existing innovation dynamics and industrial position of EU industry.” (*out of breath*)

So back to Brexit: “As an EU member [for now], the market-oriented U.K. would almost certainly veto any such proposals.”

Which brings us to thoughts from our former investment banker Nomi Prins…

“One very interesting byproduct to the trade wars… is that other nations are actively seeking ways to bulk up their economic futures without relying as much on the U.S.”

Nomi says: “This is both a defensive move in the near term and a proactive one for the future.”

The European Commission’s proposal to fund promising companies — to the tune of $100 billion? “The upshot would be firms… that are positioned to compete with dominant American and Chinese tech companies.”

And competition’s a good thing, helping investors diversify their portfolios. (Be honest: Have you scaled back your foreign investments in the past few years?)

“What this means for you is that regardless of economic slowdowns,” says Nomi, “there could be upside in EU tech companies targeted by the plan, whether they reach the size of Amazon or just grow as a result of an external capital injection.”

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“If you’re reading this,” says Agora analyst Greg Guenthner, “you survived a painfully volatile trading month where everything that could go wrong did exactly that.

“I’m sure September will bring its own surprises,” Greg says resignedly.

Most financial wonks are stymied, he believes, by trade war concerns and the specter of a global financial downturn, because of which, “the major averages remain trapped in a range below all-time highs.

Bulls Can't Escape the Range Chart

“The bulls made an honest push Thursday,” says Greg. “But overall, the bigger picture hasn’t changed.” In fact, the “big picture” might go through its blue period soon enough if Trump’s cryptic remarks have any bearing.

“Trump’s latest comments on trade come courtesy of a Fox News interview, where the president insinuates talks with China are moving forward,” Greg says.

Trump said: “There’s a talk scheduled for today at a different level.” No word on what exactly “different level” means…

“Let’s see what the end product is,” the president continued, “that’s what you have to judge it by.”

Fair enough?

“Once again,” says Greg, “we’re stuck waiting on potential tariff news heading into the weekend.” Where the trade war goes, nobody knows…

Aaand the market seems to be holding its breath today as the Dow’s gained eight points to 26,370…

As for the other major indexes, the S&P 500’s up three points to 2,929 while the Nasdaq’s down 25 to 7,948.

Oil’s lost $1.51 to $55.22 for a barrel of WTI. Gold is down $3.60 to $1,533.30 per ounce.

And flagship crypto bitcoin’s added $72 to its price of $9,572.00.

“Whether you’re feeling on edge about the market or not,” says our colleague Aaron Gentzler at The Rundown, “a basket of stocks to take note of so far this year is discount retailers.

“It’s no secret brick-and-mortar stores have been slammed by Amazon’s dominance. Articles about the ‘retail apocalypse’ run just about weekly,” says Aaron.

According to a Zacks Equity Research report at Yahoo Finance: “Despite these odds, the stocks in the retail-discount stores industry have shown resilience in the year-to-date period.

“The industry has surged 24.1% in this period compared with the broader sector’s rally of 14.8% and the S&P 500 index’s growth of 13.7%.”

Aaron says: “Looking for specific stocks in this subsector? One of our favorites — Dollar General (DG) — is included. Also, Target, Walmart and Ross Stores.”

Aaron follows up on Dollar General today as the stock revels in a post-earnings glow. DG sales and earnings were both notably higher than expected with the company announcing 4% growth in same-store sales, beating the consensus estimate of 2.5%.

Like we said, Aaron’s a fan… and, at The Rundown, he’s been following the company this year, shining a light on the following:

(Dec. 28, 2018) “In Dollar General’s third-quarter earnings report, the company’s execs said it anticipated positive sales growth in each of its stores. Looking ahead to 2019, DG will…

  • Open 975 new stores
  • Remodel 1,000 existing stores
  • Relocate 100 stores.”

(May 24, 2019) Aaron highlighted a snippet from an article at Fortune: “By serving the bottom of the nation’s economic pyramid, Dollar General has generated one of the top performance records in retail.

“In 2018, the company reported its 29th-straight year of same-store sales growth — despite minimal e­commerce.

“That’s a streak no other major U.S. retailer can match,” says Fortune. “Even mighty Walmart endured nearly two years of comparable­sales declines earlier this decade.”

(July 16, 2019) Aaron says: “If you’d bought shares of DG five years ago, you’d have realized a 147% rate of return. Including the dividend? You’d be up 160%.”

Which brings us to today…

“And the hits keep coming for Dollar General,” says Aaron. Shares rocketed yesterday, up about 8% — this despite trade war jitters.

“Hong Kong police arrested opposition figures… after denying approval for a mass protest planned for the weekend,” Bloomberg reports.

The roundup of protest leaders went down yesterday and included fresh-faced 22-year-old Joshua Wong, whom Dave mentioned at The 5 over a week ago.

Joshua Wong Tweet

Wong is part of the pro-democracy party Demosistō and was a key figure in student protests back in 2014.

Wong’s out on bail this morning, telling reporters: “The Beijing government are the ones who back and endorse Hong Kong police to conduct such a mass arrest and prosecution.”

For their part: “Police representatives… offered a clear warning to the city’s residents, saying that anyone who takes part in an illegal assembly could be charged with a crime, punishable by up to five years in prison,” Bloomberg reports.

From consequential to trivial: What do retiring quarterback Andrew Luck and the second most-winningest Jeopardy! contestant have in common?

Perhaps you were as surprised as we were this week upon learning Indianapolis Colts quarterback Andrew Luck — at age 29 — decided to retire from professional football.

(When he heard the news, I saw my husband do a literal double-take!)

But — if you’re a fan of the game show Jeopardy! — we bet you were more surprised when longtime champ James Holzhauer, who appeared on 33 episodes this spring, finally lost.

Here was the Final Jeopardy! clue that proved to be James’s undoing: “The line ‘a great reckoning in a little room’ in As You Like It is usually taken to refer to this author’s premature death.”

All contestants answered correctly: “Who is Christopher [Kit] Marlowe?” But… James didn’t wager enough. A strange turn of events for a professional gambler.

I remember saying to my husband: “He threw the game!”

Now there’s proof?

Andrew Luck tweet

More than a little cryptic, to be sure, but something to ponder over the Labor Day weekend.

Speaking of, The 5’s taking the day off but we’ll catch up with you Tuesday.

Enjoy the long weekend!

Best regards,

Emily Clancy
The 5 Min. Forecast

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