“ . . . A man has rigged up a turkey trap with a trail of corn leading into a big box with a hinged door. The man holds a long piece of twine connected to the door that he can use to pull the door shut once enough turkeys have wandered into the box. However, once he shuts the door, he can’t open it again without going back into the box, which would scare away any turkeys lurking on the outside. One day he had a dozen turkeys in his box. Then one walked out, leaving eleven. ‘I should have pulled the string when there were twelve inside,’ he thought, ‘but maybe if I wait, he will walk back in.’ While he was waiting for his twelfth turkey to return, two more turkeys walked out. ‘I should have been satisfied with the eleven,’ he thought. ‘If just one of them walks back, I will pull the string.’ While he was waiting, three more turkeys walked out. Eventually, he was left empty-handed. His problem was that he couldn’t give up the idea that some of the original turkeys would return . . . ” — Fred C. Kelly

1. Europe Trans-Atlantic Trade in Question — European Commission chief Jean-Claude Juncker spoke in Stuttgart – the hometown of Daimler (OTCPK:DDAIF) – after the U.S. Commerce Department sent a report to President Trump that could unleash steep tariffs on imported vehicles. “Trump has given me his word that there will be no car tariffs for the time being,” Juncker declared. “I believe him. However, should he renege on that commitment, we will no longer feel bound by our commitments to buy more U.S. soya and liquid gas.”
2. Payless Bankruptcy to Begins shuttering U.S. stores — Payless ShoeSource began closing its 2,700 U.S. stores on Sunday and filed for its second bankruptcy in two years. The latest retail victim may point to storm clouds hovering over the industry, or possible positive developments for Caleres (NYSE:CAL) and DSW (NYSE:DSW) due to a narrowed shoe store field. Toys “R” Us, Shopko, FullBeauty Brands, Charlotte Russe, Things Remembered and Gymboree (OTC:GMBEQ) have all filed for bankruptcy in the past year.
3. Facebook Plans to Develop AI Chips — FB also wants to develop its own artificial intelligence chips that go beyond what’s currently on the market, according to Yann LeCun, Facebook’s (FB) chief AI scientist. While the company is already creating its own custom ASIC (application-specific integrated circuit) chip, the idea is to provide faster computing that Facebook (needs in order to achieve new AI breakthroughs including digital assistants imbued with enough “common sense.”
4. AAII Investor Sentiment Latest Survey — in the latest survey, investor sentiment showed growing optimism but nothing extreme. Bullish sentiment was up a little over 4% to 39.32%, and while not particularly high, the percentage of bulls now sits at the upper end of the range the sentiment reading has been at over the past couple months.

Meanwhile, bearish sentiment held steady, rising ever so slightly to 25.39% from 25.07% last week. The percentage of bearish investors has come way off of its highs from the late 2018 sell-off and is sitting at the lower end of the range that has been observed in the past year.

5. Latest Fed Minutes Show Division on Rate Hikes — the latest minutes from the Fed’s last meeting reaffirmed that the U.S. central bank would be “patient” with respect to further interest rate hikes. Most FOMC officials also indicated they were ready to stop shrinking the central bank’s $4.1T asset portfolio this year and believed an action plan should be released soon.

The week ahead — Economic data from Econoday.com:

“A peak performance trader is totally committed to being the best and doing whatever it takes to be the best. He feels totally responsible for whatever happens and thus can learn from mistakes. These people typically have a working business plan for trading because they treat trading as a business.” — Van K. Tharp

1. S.Korea to Pay More for U.S. Troops — South Korea will shell out $920M this year for the 28,500 U.S. military personnel stationed in the country, representing an increase of about 8% from what Seoul paid in 2018 and about half of the overall cost. “Most of our contributions for the cost-sharing is returned to the Korean economy by helping create jobs, boost domestic consumption and develop regional economy,” according to the Ministry of Defense.
2. U.S. Lawmakers Reached a $1.38B Border Security Funding Deal — U.S. lawmakers reached a tentative $1.38B border security deal that could help avert another government shutdown. Democrats kept funding for physical barriers along the border far below President Trump’s $5.7B request. The deal headed to Trump’s desk for approval.
3. Trump Considers Extending March 2nd Deadline U.S.-China Deals — President Trump said he was willing to “let slide” a March 2 deadline for resolving the U.S.-China trade conflict if negotiations were progressing well. The softer tone suggests the two sides are making headway on key issues like intellectual property theft and force technology transfers.
4. Germany Avoids Recession With 0% Growth — the German economy narrowly escaped recession in the final quarter of 2018, recording output growth of just 0.02%, following a 0.2% contraction in the previous quarter. Fallout from global trade disputes and Brexit are threatening to derail a decade-long expansion in Europe’s economic powerhouse. Morale is also being depressed by weaker demand for German products in China, the eurozone and emerging markets.
5. Amazon Cancels NY HQ — Amazon (NASDAQ:AMZN) is canceling plans to build its HQ2 in New York City, blaming opposition from local leaders upset by the nearly $3B in incentives promised by state and city politicians. The facility was intended to create 25,000 jobs in Long Island City. General Electric (NYSE:GE) has also scrapped a 12-story headquarters office tower on Boston’s waterfront, choosing instead to lease smaller buildings nearby.
6. Buffett’s Berkshire 4Q 2018 Holdings — New 13F filings show Berkshire Hathaway (BRK.A, BRK.B) took a new stake in software maker Red Hat (NYSE:RHT) valued at $733M at the end of December and reduced its holdings in Apple (NASDAQ:AAPL) by about 1%. The group also dumped its entire stake in Oracle (NYSE:ORCL) only months after revealing its $2B investment, and reduced holdings in United Continental (NASDAQ:UAL) and Phillips 66 (NYSE:PSX).

The week ahead — Economic data from Econoday.com:

“Watch the December closing low for the D-J Industrials. If that low is violated in the first quarter of the New Year, watch out.” — Lucien Hooper

1. U.S., Russia Suspend Nuclear Treaty — the U.S. and Russia suspended a 1987 nuclear weapons treaty on Saturday, which banned land-based missiles with a range between 300 and 3,400 miles, and kept nuclear-tipped cruise missiles off the European continent for three decades. Arms race? Putin said Moscow would follow Washington in pursuing research and development of intermediate-range missiles, but said he wouldn’t deploy them in Europe or elsewhere unless the U.S. did so.
2. Puerto Rico $18B Bond Restructuring Deal Gets Court Approval — Puerto Rico’s restructuring deal that wipes out a third of its $18B in sales-tax bond debt received court approval, making headway in fixing its broken finances, the Wall Street Journal reports. The write-downs on the revenue bonds known as Cofinas will save the island’s government $17B in interest and principal payments in the coming decades. Creditors holding over $14.5B in Cofina debt supported the deal. The settlement is tied to a split of the sales taxes pledged to Cofina that releases 46% of the money back to the island’s government, giving it an average of $456M a year that otherwise would have been set aside for bondholders.
3. Trump Delivered State of the Union — President Trump delivered the State of the Union address to Congress. Trump said the administration is seeking fair trade, cheaper prescription drug prices, and an improvement in the nation’s infrastructure. Trump also disclosed that he plans to meet with North Korean leader Kim Jong Un on February 27-28 in Vietnam. Illegal immigration was a major topic as expected, with Trump announcing that he’s ordered an additional 3,750 troops to the southern border. “Congress has 10 days left to pass a bill that will fund our government, protect our homeland, and secure our Southern Border,” he stated without directly threatening another shutdown. No great surprise, but Trump also maintained that the unfair trade practices of China must end. While maintaining his prior positions, there didn’t appear to be any ratcheting up of the trade rhetoric.
4. U.S. Trade Reps to Meet in China Next Week — the Trump administration is reportedly sending U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin to Beijing early next week to continue trade talks. A meeting between the two officials with their Chinese counterparts is seen as a step toward bringing President Trump and Chinese President Xi Jinping together to close a deal. The trade war truce between the U.S. and China expires on March 1.
5. Britian PM Theresa May heads to EU for Backstop Talks — U.K. Prime Minister Theresa May heads to Brussels to meet with EU officials with 50 days left until Brexit. May will discuss potential changes to the Irish “backstop” that would allow Northern Ireland to remain tied to EU trading rules. The U.K. can’t leave the agreement without EU permission, which has made the backstop unpopular in the U.K. parliament. If the talks aren’t successful, the U.K. could be one step closer to a hard Brexit.
6. Trump Set to Sign Exec Order Banning Chinese Telecom Equipment — Pres. Trump is set to sign an executive order banning Chinese telecom equipment from U.S. wireless networks, in a move aimed at protecting the U.S. from cyber threats, Politico reports. The administration reportedly plans to release the directive before the Feb. 25-28 MWC Barcelona conference to send a signal that future contracts for cutting-edge technology must prioritize cybersecurity. Many countries seek to deploy next-generation 5G wireless networks to power the rapidly proliferating IoT, and Chinese firms such as Huawei and ZTE (OTCPK:ZTCOY) are aggressively pushing to build these networks at a lower cost than their competitors.

The week ahead — Economic data from Econoday.com:

“The stock market can stay overbought longer than you can stay solvent!” — unknown

1. Samsung to Eliminate Plastic in Material Packaging — it’s the latest international company to reduce its plastic waste footprint. Samsung (OTC:SSNLF) will soon begin packaging its phones, tablets, wearables and appliances in paper, pulp molds and bio-based or recycled plastics. It will also alter the design of its phone charger, replacing the glossy exterior with a matte finish and ditching plastic protection films.
2. US to Impose Sanctions Against Maduro — “The U.S. has decided to follow the path of stealing Citgo from Venezuela,” President Nicolas Maduro declared after the Trump administration imposed sanctions on its parent company – state-owned oil giant PDVSA. While the sanctions will hit Citgo, the penalties will have a minimal effect on other American refiners, according to Treasury Secretary Steven Mnuchin. Other large U.S. importers of Venezuelan crude are Chevron (NYSE:CVX), PBF Energy (NYSE:PBF) and Valero (NYSE:VLO).
3. Vale to Shut and Dismantle All Upstream Dams After Disaster — Vale (NYSE:VALE) will spend 5 billion reais ($1.3B) to take as much as 10% of its iron ore production offline and decommission 19 dams like the one that burst last week. At the peak of that process, the impact on Vale’s production will be 40M tons of iron ore and 11M tonnes of iron pellets per year. The decision came after the death toll from the dam breach has increased to 84 from 65.
4. China manufacturing contracts for second month — manufacturing activity in China contracted for the second-straight month in January – another sign the world’s second-largest economy is slowing. The official manufacturing PMI came in at 49.5 amid domestic headwinds and the ongoing trade dispute with the U.S. China’s services sector posted stronger figures, recording a PMI of 54.7, helping cushion the impact of decelerating factory activity.
5. Federal Reserves Meeting Recap — in its latest meeting, the Federal Reserve signaled that its march toward higher interest rates may be ending sooner than expected. The Fed left its benchmark interest rate unchanged at its first meeting of 2019, a decision that was widely expected. What surprised markets was the indication that rates, which are in a range of 2.25 percent to 2.5 percent, may stay put for some time. The Fed chairman, Mr. Powell said, “The case for raising rates has weakened somewhat,” pointing to sluggish inflation, slowing growth in Europe and China, and the possibility of another federal government shutdown.

The week ahead — Economic data from Econoday.com: