Stocks continue to trade in volatile fashion with the Dow opening with a 450 point drop before closing with a 138-point decline at 25,828. Trading volume was higher on the day.
Trade negotiations are apparently ongoing. Ed “Voya” Moya, senior guru over at a firm called Oanda, said that while consensus indicates a deal will be reached, the markets could see a worse case 10% hit should the deal fall apart completely while if a deal is reached it is likely that stocks will make a run at fresh record highs. There are many forces at play in the trade negotiations. Inflation in China jumped in April due to a 14.4% increase in pork prices caused by an outbreak of African swine fever which some estimate could lead to upwards of 200 million pigs being culled. The only prescription for this fever is more cow bell. On top of that, China has a 62% and 70% tariff on frozen and fresh US imported pork plus they stopped pork imports from Canada after the arrest of Huawei CFO Meng “Books” Wanzhou in Vancouver, BC. With over a billion mouths to feed President Xi might need to rethink the situation.
Chevron stock bolted higher after the company said it will walk away from the Anadarko buyout and not try to outbid Occidental Petroleum. This will trigger Anadarko to pay a $1 billion breakup fee to Chevron and the news sent shares of Occidental plunging to a 52-week low. Some gurus think Occidental is making a huge mistake by paying so much for Anadarko given the differentials between operating metrics and saying that Occidental could have done much better to just buy back its own stock at sixty cents on the dollar as opposed to buying Anadarko’s less efficient reserves at a premium. I guess time will tell how this works out. Warren Buffett has pledged a $10 billion convertible offer to help Occidental. He will earn a dividend plus capital gains if Oxy stock rises. One guru stated “Well, Warren Buffet will make money, Anadarko shareholders will make money…. two out of three ain’t bad”.
Costco reported April sales and the number came in better than expected. Comp stores sales in the US were up 7.7% while in Canada they gained 2.3% and 6% in other international stores. They should start a new metric for valuing Costco that’s related to the number of available parking stalls during business hours.