Trump's tax law sent stocks soaring — but now his trade war is hurting the market's biggest driver, and threatening to erase all his progress -Business Insider.

Trump's tax law sent stocks soaring — but now his trade war is hurting the market's biggest driver, and threatening to erase all his progress  As investors look ahead to 2019 earnings, they're becoming more worried about the impact of US trade policy on profit growth.  This had a limited effect on the stock market until recently, when many companies started detailing how badly they expect tariffs to hurt their bottom lines.  The trade war worsened a sell-off that wiped the stock market's gains for 2018, and now threatens to undo the positive effects of tax cuts.  President Donald Trump rarely brags about the stock market on Twitter these days.  He has instead turned to other issues during the market's sharp correction — one that's wiped out gains for the year just weeks before the crucial midterm elections. Earlier in 2018, when it seemed like stocks were hitting all-time highs on an almost daily basis, Wall Street was quick to cite the Tax Cuts and Jobs Act as a significant catalyst of future profit growth, which has been the most important driver of stock prices. UBS, for example, forecast last December that profit gains would lift the S&P 500 by 25% this year if the tax bill passed. Other firms devised investing playbooks for tax reform, such as buying companies that had been paying the highest rates, and loading up on multinationals with piles of overseas profits waiting to be repatriated. However, in October, US stocks fully joined a global sell-off that's now on pace to erase nearly $8 trillion in market cap, the biggest monthly decline since the 2008 financial crisis according to Bloomberg data. It certainly seems that investors who were once quick to praise the merits of one of Trump's signature policies (tax reform), have started focusing more on the risks from another (tariffs). This can be seen in the outlook for 2019 earnings, which has seen trade shift from a dormant concern to a prominent one. "We estimate that an all-out US-China trade war (25% tariff on US-China trade) would reduce S&P 500 earnings ~3%," Barclays' Ajay Rajadhyaksha said in a recent note. "One potential reason why the market was sanguine about trade wars was that this is not a meaningful fraction of 2018 earnings growth, which is estimated to be greater than 20%." Rajadhyaksha said he expects less than 10% growth next year. The idea that mounting trade tensions could lead to a profit slowdown has been a major recurring theme of third-quarter earnings season. Ford, Honda, and BMW all issued warnings about how the steel and aluminum tariffs are raising costs and biting into profits.  Companies in the industrials sector that rely on access to Chinese markets have also sounded the alarm on tariffs. Caterpillar sank when it said tariffs would raise its material costs, even though its executives tried to reassure investors that it planned to put offsets in place.   Fastenal, a supplier of nuts, bolts, and other fasteners, said on its earnings call that it took a limited hit from US tariffs on China until the third round announced mid-September that impacted its North American customers.   Other examples abound; according to FactSet, more than a third of companies discussed tariffs on their earnings calls. With all of that considered, it would seem the stock market's wipeout this month has shown that the trade war is worsening a sell-off that was brewing all along.  But trade has by no means been the only issue on investors' minds of late. Fed policy — and its impact on inflation and borrowing costs — has been troubling investors since the correction earlier this year. Trump touched upon the subject on Tuesday when, on Twitter, he quoted Wells Fargo strategist Scott Wren as saying the S&P 500 would be higher if the Federal Reserve "backs off and starts talking a little more dovish."  Trump has gone as far as to call the Fed "crazy" for raising interest rates and thereby reducing the allure of borrowing. The slowdown in cyclical sectors like housing and autos holds evidence of the effect of higher rates. Beyond the trade war's impact on corporate earnings, as well as the Fed's planned rate hikes, investors are grappling with what's ahead for the market. At this point, if just one thing is abundantly clear, it's that Trump's conflict with China is doing more harm than good. Read » Advertisement   Also On Markets Today:      Email sent to:   ericauseemeng@gmail.com   |   Manage your email preferences   |   Unsubscribe  Terms of Service   |   Privacy Policy 150 Fifth Avenue, 8th Floor New York, NY 10011

Calculating The Intrinsic Value Of Magna International Inc (TSE:MG)

Simply Wall St.October 29, 2018

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I am going to run you through how I calculated the intrinsic value of Magna International Inc (TSE:MG) by taking the foreast future cash flows of the company and discounting them back to today’s value. I will use the discounted cash flows (DCF) model. It may sound complicated, but actually it is quite simple! If you want to learn more about discounted cash flow, the basis for my calcs can be read in detail in the Simply Wall St analysis model. If you are reading this and its not October 2018 then I highly recommend you check out the latest calculation for Magna International by following the link below.

View our latest analysis for Magna International

What’s the value?

I use what is known as a 2-stage model, which simply means we have two different periods of varying growth rates for the company’s cash flows. Generally the first stage is higher growth, and the second stage is a more stable growth phase. In the first stage we need to estimate the cash flows to the business over the next five years. For this I used the consensus of the analysts covering the stock, as you can see below. I then discount the sum of these cash flows to arrive at a present value estimate.

5-year cash flow estimate

	2019	2020	2021	2022	2023
Levered FCF ($, Millions)	$1.81k	$2.03k	$2.10k	$2.18k	$2.25k
Source	Analyst x4	Analyst x3	Est @ 3.48%	Est @ 3.48%	Est @ 3.48%
Present Value Discounted @ 12.71%	$1.61k	$1.60k	$1.47k	$1.35k	$1.24k

Present Value of 5-year Cash Flow (PVCF)= US$7.3b

After calculating the present value of future cash flows in the intial 5-year period we need to calculate the Terminal Value, which accounts for all the future cash flows beyond the first stage. The Gordon Growth formula is used to calculate Terminal Value at an annual growth rate equal to the 10-year government bond rate of 2.3%. We discount this to today’s value at a cost of equity of 12.7%.

Terminal Value (TV) = FCF2022 × (1 + g) ÷ (r – g) = US$2.3b × (1 + 2.3%) ÷ (12.7% – 2.3%) = US$22.2b

Present Value of Terminal Value (PVTV) = TV / (1 + r)5 = US$22.2b ÷ ( 1 + 12.7%)5 = US$12.2b

The total value is the sum of cash flows for the next five years and the discounted terminal value, which results in the Total Equity Value, which in this case is US$19.5b. In the final step we divide the equity value by the number of shares outstanding. If the stock is an depositary receipt (represents a specified number of shares in a foreign corporation) or ADR then we use the equivalent number. This results in an intrinsic value in the company’s reported currency of $57.78. However, MG’s primary listing is in Canada, and 1 share of MG in USD represents 1.311 ( USD/ CAD) share of NYSE:MGA, so the intrinsic value per share in CAD is CA$75.74. Compared to the current share price of CA$63.3, the stock is about right, perhaps slightly undervalued at a 16% discount to what it is available for right now.

TSX:MG Intrinsic Value Export October 29th 18

The assumptions

Now the most important inputs to a discounted cash flow are the discount rate, and of course, the actual cash flows. If you don’t agree with my result, have a go at the calculation yourself and play with the assumptions. Because we are looking at Magna International as potential shareholders, the cost of equity is used as the discount rate, rather than the cost of capital (or weighed average cost of capital, WACC) which accounts for debt. In this calculation I’ve used 12.7%, which is based on a levered beta of 1.353. This is derived from the Bottom-Up Beta method based on comparable companies, with an imposed limit between 0.8 and 2.0, which is a reasonable range for a stable business.

Next Steps:

Whilst important, DCF calculation shouldn’t be the only metric you look at when researching a company. For MG, I’ve compiled three important factors you should further research:

1. Financial Health: Does MG have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
2. Future Earnings: How does MG’s growth rate compare to its peers and the wider market? Dig deeper into the analyst consensus number for the upcoming years by interacting with our free analyst growth expectation chart.
3. Other High Quality Alternatives: Are there other high quality stocks you could be holding instead of MG? Explore our interactive list of high quality stocks to get an idea of what else is out there you may be missing!

PS. The Simply Wall St app conducts a discounted cash flow for every stock on the TSE every 6 hours. If you want to find the calculation for other stocks just search here.

To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com. 

Will Bitcoin Make It? By Ron Rimkus, CFA

Will Bitcoin Make It?

By Ron Rimkus, CFA

Posted In: Alternative Investments, Portfolio Management

Questions still surround bitcoin. After all, the digital currency experienced wild highs and outrageous lows in 2018 — its value has risen above US $19,000 and sunk below $6,000 per coin. The first question might be which version of bitcoin to focus on.

Besides bitcoin’s initial incarnation, there are the products of bitcoin’s various hard forks. Bitcoin Cash, for example, was created in August 2017, Bitcoin Gold in October 2017, and Bitcoin Private earlier this year.

Which one should you care about? All of them? None of them? Does it matter?

These hard forks mean that merchants must decide which forms of bitcoin to accept as payment and whether they need to quote their products in the different prices. What if a dozen versions of bitcoin are created? Will merchants quote prices for and accept payment in all 12?

Could bitcoin dilute itself into oblivion, with a hard fork for every Tom, Dick, and Harry with a pet interest? And how are these splits affecting the bitcoin project as a whole?

And bitcoin is just one cryptocurrency. At present, there are well over 1,000, and at least 39 digital currencies have achieved a market cap greater than $1 billion. What happens when one experiences an inflationary coup d’état in which 51% of the owners vote to expand the number of coins?

Maybe all cryptocurrencies will go to zero. Warren Buffett famously called bitcoin “a mirage.” Jamie Dimon, CEO of JPMorgan, termed it “a fraud.” Agustín Carstens, general manager of the Bank for International Settlements (BIS), described cryptocurrencies as a combination of “a bubble, a Ponzi scheme and an environmental disaster . . . neither a good means of payment, nor a good unit of account, nor are they suitable as a store of value.”

Many in the media are calling crypto a speculative bubble:

• “If Bitcoin Is a Bubble, The ‘Panic’ Stage Is Near” (MarketWatch)
• “Bitcoin’s Bubble Is Bursting. How Low Will Prices Fall?” (Forbes)
• “Bitcoin Is Worthless, Bubble May Pop Soon, Allianz Global Says” (Bloomberg)

Nevertheless, prominent advocates remain, and Morgan Stanley, Goldman Sachs, the New York Stock Exchange (NYSE), and even Dimon’s JPMorgan have all been dipping their toes or diving in to the space. Some have developed cryptocurrency trading products. Fidelity Investments recently announced the creation of a digital asset exchange for the retail market. So there seems to be some dissonance between public critique and private investments. These companies are investing in the future of bitcoin and cryptocurrencies.

Maybe a classic shakeout is required that culls most cryptocurrencies from the herd, but leaves a select few survivors that add something special to the marketplace. That’s what Michael Novagratz, formerly of Fortress Investment Group, seems to expect. He says crypto is now in a “speculative mania phase” that will end with a grand crash, one that, like the bursting of the dot-com bubble, will exact a considerable toll but help create a more mature and viable sector.

Those investors who have come to terms with cryptocurrencies and accepted them on a conceptual level must now deal with the realities of owning them. Portfolio managers and advisers have to address the practical questions for their flesh-and-blood clients. How might these investments behave in a portfolio? Do they most closely resemble currencies, hedges, or alternative assets?

And investors must contend with the existing uncertainties and risks presented by the current economy and fiat monetary system. The simultaneous convergence of opportunities and risks means that implementing a cryptocurrency strategy requires vigilant stewardship.

It is a hard puzzle to solve. But there are resources to which to turn. At the upcoming 63rd Annual Financial Analysts Seminar (FAS) in Chicago on 23–26 July 2018, George (Yiorgos) Allayannis of the Darden School of Business at the University of Virginia will examine these issues in his presentation, “Case Study: Bitcoin — Investment or Illusion?”

Of course, if you can’t make it, the pseudonymous Satoshi Nakamoto, the creator of bitcoin, may have a new book in the works. So, keep an eye out for that.

If you liked this post, don’t forget to subscribe to the Enterprising Investor.

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All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.

Image credit: ©Getty Images/ KeremYuce

Tags: Alternative Investments, Bitcoin, cryptocurrencies, Fiat currency, Investment Products and Asset Classes

Wednesday, July  11, 2018

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Must-know facts about the interwoven China-U.S. economic ties

Source: Xinhua| 2018-07-05 16:05:32|Editor: ZX

BEIJING, July 5 (Xinhua) -- China-U.S. economic ties have been under the global spotlight this year after the United States initiated trade disputes and protectionist measures against its key trade partners including China.

Understanding how tightly interwoven the China-U.S. economic ties are and what huge benefits have been delivered to both sides over the past decades would help assess how much damage a trade war would do to the people of the two countries.

Here are some key facts and figures about China-U.S. economic ties:

-- In 2017, bilateral trade increased 15.2 percent year on year. China's exports to the United States grew 14.5 percent, outpaced by a 17.3 percent expansion in imports from the latter.

-- China is the largest trade partner of the United States, while the U.S. is China's second largest. Bilateral trade has surged to 583.7 billion U.S. dollars in 2017 from 2.5 billion dollars in 1979 when the two countries established diplomatic ties.

-- China receives 26 percent of U.S.-exported Boeing aircraft, 56 percent of its soy beans, 16 percent of its automobiles, 15 percent of its farm produce, and 15 percent of its integrated circuits.

-- The structure of bilateral trade is gradually improving. Over the past decade, U.S. exports to China increased about 11 percent annually on average, while China's exports to the United States only rose 6.6 percent.

-- Although China still has a trade surplus with the United States, it does not mean China benefits while the United States loses. About 40 percent of the trade surplus is actually generated by U.S. companies in China. In 2017, U.S. exports to China created some one million jobs for the United States.

-- U.S. trade with China saved each American household up to 850 U.S. dollars on average annually, or about 1.5 percent of the U.S. median household income of 56,500 dollars, in 2015.

-- According to a survey conducted by the American Chamber of Commerce in China, 64 percent of its member companies reported revenue growth in 2017, up from 58 percent in 2016 and 55 percent in 2015. Nearly 75 percent of respondents reported that they are profitable, the highest proportion in three years.

-- Statistics from the U.S. Bureau of Economic Analysis show the total sales of U.S. firms in China was about 372 billion dollars in 2015, comprising 223 billion dollars by their subsidiaries in China and 150 billion dollars through exports from America to China.

-- The United States has maintained a service trade surplus with China, which surged more than 30-fold from 2006 to 2016. Meanwhile, bilateral service trade only tripled. In 2017, U.S. service trade surplus to China reached 54.1 billion U.S. dollars.

-- Travel and tourism exports account for 61 percent of all U.S. service exports to China, according to a report compiled by the U.S. National Travel and Tourism Office. Some 2.97 million Chinese tourists traveled to the United States in 2016, spending a total of 33 billion dollars.

-- Chinese students have accounted for the highest percentage of foreign students in U.S. universities for eight straight years since the 2009-2010 academic year. A total of 350,755 Chinese students were enrolled in U.S. institutions of higher education during the 2017-2018 academic year, up 6.8 percent year on year.

Trump says Trudeau's comments are going to cost Canada 'a lot of money'

 John Melloy,CNBC 3 hours ago 

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President Trump elaborates on why he appeared to be angry with Canadian Prime Minister Justin Trudeau following the G-7 meeting over the weekend.

President Donald Trump is still angry at Justin Trudeau for a perceived slight during a speech by the Canadian Prime Minister following the G-7 meeting.

Trump explained the situation Tuesday when asked about the G-7 gathering at a press conference in Singapore following his summit with North Korean leader Kim Jong Un:

"When I got out to the plane, I think that Justin probably didn't know that Air Force One has about 20 televisions. And I see the television and he's giving a news conference about how he will not be pushed around by the United States and I say push him around? We just shook hands. It was very friendly. ... No, I have a good relationship with Justin Trudeau. I really did, other than he had a news conference, that he had because he assumed I was in an airplane and I wasn't watching. He learned. That's going to cost a lot of money for the people of Canada. He learned. You can't do that. You can't do that."

The comments dashed hopes that Trump had moved on from what he believed to be was a "dishonest" action by Trudeau. The ire directed at the prime minister by Trump and his advisors had confused some trade observers since the comments seemed to be just a reiteration of what the prime minister had said previously and not a personal insult.

Trudeau said after the G-7 meeting that the aluminum and steel tariffs imposed by the U.S. on Canada on national security grounds were insulting and that "Canadians are polite, we're reasonable, but we also will not be pushed around."

Trump then tweeted Saturday evening, "PM Justin Trudeau of Canada acted so meek and mild during our @G7 meetings only to give a news conference after I left saying that, 'US Tariffs were kind of insulting' and he 'will not be pushed around.' Very dishonest & weak."

The president also withdrew U.S. support for a G-7 communique.

The president's staff then blasted Trudeau on Sunday with economic advisor Larry Kudlow accusing Canada of stabbing the U.S. in the back. Trade adviser Peter Navarro told Fox News, "There's a special place in hell for any foreign leader that engages in bad-faith diplomacy with President Donald J. Trump and then tries to stab him in the back on the way out the door."

"We are being taken advantage of by virtually every one of those countries," Trump said Tuesday of the G-7.

On Canada, Trump continued:

"We have a big trade deficit with Canada. ... It's either 17 but could actually be 100 billion. You know they put out a document, I don't know if you saw it. They didn't want me to see it, but we found it. Perhaps they were trying to show the power they have. It's close to $100 billion a year loss with Canada. They don't take our farm products — many of them."

It's unclear what additional action the U.S. would take against Canada. The U.S. at the end of May imposed tariffs of 25 percent on steel imports and 10 percent on aluminum imports against Canada, Mexico and the European Union .

The U.S. and Canada are in the middle of renegotiating the North American Free Trade Agreement along with Mexico. The U.S. had a trade surplus with Canada of $8.4 billion last year, according to the Office of the United States Trade Representative . That figure adjusts to a $17.5 billion trade deficit when services are excluded, according to the USTR.

The Money Deluge (Video)

The Money Deluge

2017, 

Interest rates in Europe have consistently fallen for much of the past decade. Today, the rate is virtually nonexistent. As a result, many citizens have decided to keep their cash, gold and other valuables in safety deposit boxes. Yet, there appears to be a seemingly endless stream of cheap money flooding into the financial system, which only succeeds in propping up the wealthy while responsible investors are left out in the cold. "The Money Deluge" examines this complex financial reality that could lead to another volcanic global crisis.

This deluge of cheap money acts as a massive engine that redistributes wealth from the bottom up. Banks and states are propped up on the backs of the middle class who see little return on their investments and must contend with rapidly increasing costs. Checks and balances are tossed aside, and debts are permitted to mount among the elite while their liability is minimized. The meek regulations that remain in place are easy to circumvent. Brexit could further exacerbate this dynamic.

The real estate market is booming as the super rich continue to buy up properties as a form of investment. In London, over 40,000 homes have been purchased by large shell corporations, and many of them remain uninhabited. Meanwhile, ordinary citizens have been priced out of the housing market, and struggle to keep pace with escalating rents. Much of the working class have been forced to live far outside the city.

This economic model is almost entirely speculative, and it's driving a deeper wedge between the rich and the poor.

The filmmakers travel across Europe and speak with a series of financial experts who predict an oncoming meltdown in the global economy, young entrepreneurs who struggle to attain loans for their innovative start-ups, and seasoned investors who have been forced to reconsider what they do with their retirement funds.

The lessons from the 2008 global financial crisis have gone unheeded. When this current bubble bursts, it will likely prove catastrophic. "The Money Deluge" is an effective warning shot that speaks to the doom that could be lying in wait for us all.

Troubled Waters (Video)

Troubled Waters

In the midst of widespread pollution and the ill effects of climate change, we tend to lose sight of another factor that threatens the vitality of our oceanic ecosystem: overfishing. Troubled Waters examines the long-term economic and environmental ramifications of a rapidly dwindling fish population.

Our romanticized image of a modest working-class fishing boat sailing from a port is a fading remnant of the past. Today, corporate-owned super trawlers lurk the seas in search of their next massive marine haul. These tankers are designed to carry as much as 200 tons of fish per day. Many species are overexploited and in danger of extinction. The population of Pacific jack mackerel - a species once thought indestructible - has decreased by as much as 90%.

The largest fish have been the first victims of overfishing. Now, these species are gone, and the industry is left to pick through a smaller to medium sized inventory. This practice has fundamentally altered the food chain.

The fishing industry is a massive, multi-national operation which survives in large part on taxpayer-funded government subsidies. Demand for seafood is so great that entities like the European Union have been forced to look outside their own borders for fresh stock. They form bilateral agreements to fish in the waters of developing nations in exchange for sizeable financial donations.

Through their investigation, the filmmakers attempt to unravel a tangled weave of poor regulations, limited accountability, questionable sources of funding, and an ecosystem that hangs in the balance. These efforts are supported by a range of interview subjects including ecologists, conservation activists, and professional fishermen.

Beyond its clear and thought-provoking diagnosis of the crisis, the film also offers a number of options that can effectively curb the overexploitation of fish. These include increased restrictions on the periods of time fishing crews can operate in regulated seas, regulations on the type of equipment they employ, and the establishment of marine safe zones that deny all fishing activities until the population of certain species have a chance to regenerate.

Perhaps the most meaningful of the film's achievements is its ability to contribute to a more informed and conscientious consumer culture.

Directed by: Matthew Judge