A Green Light to Invest in China? And Is This Chart So Bad, It’s Good? 7/7/23

0:00Right now on Fast Fine and Dandy. Could China slapping fintech firm Ant Group with a nearly $1 billion fine actually be a good thing for investors looking to put money to work in tech stocks in Beijing and beyond? The answer may surprise you. Plus, winning streak shares of Rivian charging higher for the eighth straight session at more than 80 percent during this recent run. How long will this EV revival roll on? We'll debate that. And later, the chartmaster waiting in the wings with his chart of the week. This one's a classic case of so bad, it's good. The big reveal is just moments away. I'm Melissa Lee.

0:32This is Fast Money. We're live at the NASDAQ MarketSite on the desk tonight. Steve Grasso, Bono & Ice and Tim Seymour and Karen Feinerman, who will join us in a few minutes. Stocks unable to hold on to gains to close out the week with the Dow shedding nearly 190 points after this morning's jobs report. All three indices were down for the week as well, with Q2 earnings season right around the corner. We're going to get to today's action in just a minute. But first, we've got to start off with a landmark ruling out of China. Authorities there announcing fines totaling more than a billion dollars against companies, including Alibaba affiliate Ant Group and Tencent.

1:02The question now, though, is today's move a sign that after years of regulatory scrutiny, the worst is now over for the tech sector in China? Well, investors seem to be applauding today's decision. Shares of Alibaba soaring 8 percent, its best day since March. Tencent, PDD and Baidu also seeing big gains. So did China just give us the all clear to get back into this tech trade? We'll start off the desk tonight with Tim Seymour, who we call the ambassador here on Fast Money. So, Tim, what do you think? Well, I've been investing in some of these China tech names for decades. And this is a very important moment because there's been an overhang as it's related to.

1:41And it's been through different platforms of the Chinese apparatus, really. I mean, whether it's PBOC, whether it's cybersecurity, there's been different places to lean on their biggest tech companies, by the way, who are some of the biggest tech companies in the world. And so coming to some terms, coming to a settlement that, by the way, is very manageable. very manageable for both these companies in Baba and Tencent is very important. It comes when we've also had some other ingredients of why there's an all clear. If this was its own just a settlement after four or five years of very difficult times, that would be reason to be excited and be cautious.

2:18But the fact that also in the last month and a half, we've essentially had the approval essentially of a change in the board at Alibaba. We talked about Joe Sy coming back to play a chairman's role. We've talked about some of the the old guard being allowed back in. We've talked about the monetization of potentially different pieces of the puzzle. Some of the parts at Alibaba, now that they are looking to actually spin out some of these various entities, investors can start to do realistic some of the parts. And again, a couple of weeks ago, we had some numbers out of AliCloud, which alone, I think, give you a 35 percent premium to the sum of the parts before you start to even value the other pieces.

2:56So I think it's great news. on both sides of this trade, meaning I own it higher up. I've also been buying it over the last three weeks, so I'm pretty happy to see this. And I think there's more to go. Yeah, it was interesting. The statement put out by Tencent, it said effectively it's looking forward to a period of normalized regulation now, which does seem to be a good sign. And it is a sign that Beijing is keeping to its word when it comes to regulating these companies. I mean, at this point, we could even maybe look for Ant to revive its IPO plans. Bonwin? I think that might be a stretch. And I think saying, like, projecting that this is going to be the status quo also is a slight projection.

3:30I will say, though, if you look at, you know, the last quarter of earnings, right, you have$31 billion of free cash flow. So this does seem like somewhat of a minor. I don't want to say slap on the risk and kind of rural markets here, but it's definitely on the low end of what we feared might happen. I think it does at least provide some finality into what might be there. With that said, I do think the whims of Beijing still loom large. And so, you know, I think this definitely clears it from being uninvestable. But when we're looking at Sino-U.S. relations right now, we're still in the thick of that situation.

4:04So I think this is somewhat of a temporary resolution. With that said, I do think there is somewhat of an overhang. But, yeah, clearly it gives you a little bit more visibility than we had previously. Investing is always a relative game, though, right? Absolutely. Where do you put money? Absolutely. Can you get the better return? So at this point, with tech in the United States, where it is in terms of valuation versus tech in China, where it is, and now with this gone, does it all of a sudden give us an alternative? I would think it definitely gives you an alternative. But when you look at the price action, to Bono's point, I don't know if you could say there is true closure in this.

4:37So is this how far out do we see this being really the decision? So if you look at Alibaba in January, it was$120 name trading down as low as 80 bucks. You go to the halfway point, maybe you got another$10 upside to this. So if you're trading it, I wouldn't leave these unattended. I wouldn't say that the smoke is cleared because the truth is nobody at this table can say that in a week from now, the Chinese government is going to say something else. So that's the fear. You're always dancing around minefields in the market, period. In China, it's exacerbated. exacerbated exponentially more difficult to sort of navigate that system than it is here.

5:23But people have been itching to get back to Alibaba. And this seems like the time to get back in the least short term. Well, Tim, if we go back to where, you know, what is so hot in the U.S. and that is A.I. at this point, would you think China A.I. being like Baidu and Baba versus U.S. A.I.? I mean, there's a would you rather. But I mean, because evaluations are very different, right, at this point. And it's the same sort of trend if you're a big believer in AI. I'm a believer in AI. I believe there's some merit to the CapEx spend that people think is attached to AI and is going to at least resuscitate some of the CapEx spend across tech, et cetera, et cetera.

6:05I think when it comes to Tencent and Alibaba, we're talking about two of the most sophisticated tech companies in the world that maybe they were seen domestically as there being a significant amount of hubris. This is often what you hear when you hear about a company that is basically flying ahead of the government and emerging markets. And it's something you don't do. And it's something you suffer for. And they've suffered mightily for it. And in fact, the fact that these companies haven't been dismantled, look, you can make an argument that there's a, you know, the sell off that's going to be essentially spinning out these various entities is part of that.

6:38And the government's going to need to get paid along the way. But that's the government is is inviting a process that they actually believe is going to add value. And to be clear, none of this would be happening if the government wasn't all in for this happening. So I think this is good news. This hasn't happened overnight. This isn't a headline today. This is a headline that's been taking place over the last year, year and a half. So I'm not going to tell you it's pound the table. I'm going to tell you that there are technical ways to trade this. We've talked about Bava as a trade. I think at 95, you break that downtrend from March.

7:10And I think you've got some more room up to the 120s. But on valuation, it's not even close. It's very cheap. Yep. Let's get back to the broader markets now. Volatile day here at home. The major indices closing near session lows, all locking in a losing week. the Dow down nearly 2 % since Monday. It's worst week since early March. The loss is coming after the release of the June jobs report. Non-farm payrolls rose at the slowest pace in two and a half years. So is this going to be interpreted by the Fed as a slowdown, the one that they've been looking for? Will they still feel like they need some hiking here?

7:40Grasso. No, well, and the revisions were revised lower as well. So this is going to be, I think they're going to raise. I think they're going to give take whatever the market is going to give them. And I think it's in the cards for them to raise. Do they raise two more times, though? That's the question for me. Yeah. Tim, we were talking to Dave Rosenberg, who is definitively bearish at this point, but he was saying take a look at things like the work week, things under the hood of the headline numbers that really give you some concern. Yeah. Yeah, he did say that. In fact, it was kind of a little relief on the deathbed of the work week because he was right to point out it was at lows, but you take up one tenth on the work week and suddenly it gets you back to the middle of the range.

8:22When you look at the wage gains, they were up four tenths, three tenths was expected. So you still have a little heat there for the Fed. You have, as Steve pointed out, downward revisions on top of a lighter number. U6 ticks up, so unemployed and underemployed. And I think you have a little something in here for everybody. 25, 50 basis points by the Fed, I don't think it really matters here. And yes, Yes, maybe they will overstay the party. But it was a week where you had a better ISM. You had the employment numbers we had. You had a auto sales number. I think we're going to talk later in this show where you're up 20 percent year over year on SARS.

8:58I mean, you can't tell me that the economy is falling out of bed here. And that explains some of the dynamic with this equity market. So Goldman's got a note out there. They're saying this is basically market Goldilocks. You've got better inflation. You've got inflation easing, outstripping the growth easing. And that's the kind of market momentum that's giving this market the fuel it needs. Yeah. And the setup here is much better ahead of earnings season, Vano. And I mean, any sort of pullback that we see ahead of earnings season, what could be some disappointments, I'm sure there will be some, will give us better price action.

9:29Yeah, I also think expectations are drastically different than they have been the past two earnings seasons. Essentially, we've been calling for this apocalypse, this real pullback in terms of earnings growth. And I don't really think the market is expecting that. The economic data to date has been pretty robust. To the data point today, listen, I just don't think you can have it both ways. Either you believe that the economy is strong and as a result, the Fed will continue to push on the gas, or you think there's a declining economic situation and a declining labor market. So for me, I think the Fed is still going to continue to take this as a singular data point, which it is, continue to raise rates higher.

10:05For once, it seems like the market is actually pricing that in versus taking the contrarian side of this. And I think, you know, next week, getting into earnings, it'll give us something else to focus on. But, you know, the Fed still looms large. And of course, CPI as well. Oh, look, Karen Feynerman has joined the conversation. We had some difficulty with her shot, but I believe she's here now. Are you here, Karen? No, I don't think I am. We tried. We tried. But I was saying, Grasso, that it's not just earnings. It's also CPI that we're expecting next week that we're looking forward to and PPI, of course.

10:37This this one. Oh, are we going to Karen? Is she there? She gave us a thumbs down. So now does she know we can hear her and see her? So so this is this is one data point to Bono and his point. There's going to be others that are going to fuel the necessity for the Fed to raise. And the truth is, we all know it. It's so telegraphed. The Fed is always late to act and they're always late to stop acting. And you know who knows it the most? The Fed. Yet they continue to do it. So I would expect nothing other than the same that we've seen from the Fed. We at least got a little bit of a respite from the climate in yields that we've seen, Tim.

11:18Well, there's there's you can make an argument that that two year needed to close above that 506 March 8th level yesterday. And it didn't. And I think we're kind of range bound. The curves actually flattened out a little bit over the last couple of days. So the yield curve watchers have a little ammunition for their story. Again, it was a week where the economic data, for the most part, was was friendly, friendly for at least a world where when you have inflation. And again, I'd go back to that ISM number. The prices paid component of that ISM was the lowest it was. Or so the inflationary component of it was back to kind of March 2020.

11:51You're actually seeing inflation, at least in some measures, really behave here. And for a market that that's been driving a lot of the momentum around these these numbers, I think you've you've had more. You've got CPI next Wednesday. And I think until we get a Fed meeting at the end of July, I think there's more room for this market. It doesn't mean equity valuations make any sense to me here. doesn't mean that I think you don't have leading indicators telling the story of a recession. It's the market I have, and I think it's a market that can go a bit higher. Coming up, the EV race heating up and a couple of clear winners are emerging.

12:23Will Tesla take the crown or are legacy automakers ready to catch up? We'll take a look for some answers. Plus, we tasked the chart master with coming up with his own chart of the week. We'll find out what caught Carter's eye and why he says this one is so bad it's good. More Fast Money in two.

12:43Welcome back to Fast Money. Rivian all revved up. The EV maker up eight days in a row, tying for its longest winning streak since going public. The stock rallying more than 80 percent in just that period and locked in its best week ever. Tesla also having a good week, the second best performer in the Nasdaq 100. But how do these EV darlings stack up against the legacy automakers? Phil LeBeau is here with that story. Hey, Phil. Well, here in the U.S., Melissa, EV sales for Tesla, nothing's changed. They still dominate the market. This is the latest data from Motor Intelligence, which tracks auto sales for all the automakers, not just EVs, but we ask them, just pull the EV numbers for the first half.

13:20What does it show us? Tesla still controls this market. 60.4 % of all EVs sold in the U.S. are made by Tesla, and they're way, way ahead of the competition. Hyundai has moved past GM, become number two. There you see VEW. Then there's Ford. By the way, number five is Rivian. So three stocks we want to look at here. Let's start first off with Tesla this year. They are adding some incentives. There's a report out of China that even though there's been this discussion about putting a floor in on EVs because of the pricing battle that's over there, there are some reports out of China that Tesla may have been adding some incentives there to further move the metal, if you will, out of the Gigafactory in Shanghai.

14:02high, no confirmation from the company. But this is going to be one of these brutally competitive markets, I think, for some time to come, despite the fact that there's talk about a truce, if you will, when it comes to EVs. Next, let's talk about GM and Ford. Now, both of these stocks moved higher today after Morgan Stanley increased the price targets for both of these stocks. But they didn't do it because of the EV business. They did it because of the legacy business and the fact that They still see pricing, strong pricing for the vehicles from GM and Ford. And especially when you look at where they are on trucks and SUVs, the internal combustion engine market remains very strong.

14:39And finally, you talked about Rivian at the top, Melissa. Rivian has the best selling electric truck in this country right now. And I want to say that again because I hear from people all the time. They go, well, the F-150 Lightning is doing great. Yes, they have strong demand, but they don't have the production there yet. And as a result, when you look at the first half sales, Rivian's R1T easily outsells the F-150 Lightning. One more data point that gave a little momentum behind shares of Rivian, which are up 50, 50 percent in the last five days. I wonder how the introduction of the Cybertruck or the eventual, you know, when it finally comes to market is going to impact the battle there.

15:19And if people think of that as an actual pickup. Well, it will have some impact, but the bigger impact is going to be two things. One, what happens when you really start to see production ramp up for the F-150 Lightning and then the electric Silverado? And then after that, you got the electric Ram pickup truck. So it's coming, but it's not coming real soon. Yeah. Phil, thanks. Phil LeBeau. You bet. Karen, I think, is back. I'm back. I was ready early. And then, I don't know, I screwed you up. Apparently, Padcat, your thing wasn't charged. Anyway, you're here now. We're happy to have you. What are your thoughts on GM?

15:58Should we count them out? Well, no, you can't count them out. I mean, it is GM after all, but it is disappointing. So the internal combustion engine business is a melting ice cube, so it seems, but it's trading at just a ridiculously low multiple. But the problem is GM has said for a while, we're going to be all EV, and they've said it and they've had to continually delay that. And even though they're putting up great numbers, the frustration for me is, you know, anyone who's buying GM crossovers, trucks, whatever now, is sort of a new EV customer lost for however many years they're going to have that car.

16:37So that's a little bit frustrating. And clearly, you know, the pandemic in the middle, that didn't help. The supply side issues are real, but it's very frustrating that this isn't further along in terms of production. Same for Ford, but Tim can talk to that. Right. In case you missed the show yesterday, I know you guys out there have not, but Grasso sold all of his Apple. He got into Rivian. So the first question I asked you when you came into the door today was, did you sell any after this crazy run? The answer is no, because now I do believe in trading around your core position. Yes, you could do it with options as well.

17:11I think that this stock has been so beaten down. I think that they're the ones that are going to make up the most ground. Could you see a little bit of a retracement of the stock price? Of course you can. But I also can see the stock at$50, and nobody would even ask question why. Coming up, it's Friday, so you know what that means. We've got a chart of the week for you, and this time the chart master himself will give us his pick for a trade he thinks is building up for some big gains. And later in options action, we're counting down to the kickoff of earnings season. Pepsi, Delta, UNH all on the calendar for next week.

17:42We've got some strategies on how to play these reports. More Fast Money right after this.

17:54Welcome back to Fast Money. Time to reveal our chart of the week. And who better to pick that out than the chart master himself? He's got a trade on what he thinks is on the up and up. Let's bring Carter Praxen worth of worth charting. Carter, what is it? Well, I could have thrown a curveball and done a chart on CPI maybe or GDP, but I didn't. That's true. So, look, I wanted to look at REITs, and we've got actually two charts. But before we look at them, it's important to say this, that there is a common assertion, right, that REITs are destined to underperform when rates are rising. But that is not really the case.

18:26The first chart you see here is the chart of the week, if you will, at least as picked by me. It is showing a ratio of IYR to SPY. And, of course, it's down and down and down to the right. But it's down to the point where you're at the lower band of that channel. And so I'm thinking you play for mean reversion. Let's also look at a chart of IYR itself and then discuss the bet here. So we have a series of well-defined higher lows since October, similar to the S &P. And now we're starting to move above that downtrend line in effect over the past 18 months. But here's the thing. Back to that notion that if rates are rising, you have to have underperformance.

19:04Let's take 2021, right? Ten-year yields went from 1 % to 2%. they doubled, and IYR crushed the S &P. Or let's take 2009, coming off an epic low, right? Interest rates 10-year went from two to four. They doubled. And IYR paced the S &P. So a big move up in interest rates is not sort of a guarantee that REITs underperform. And here's the thing. Are rates really moving up that much more or are generally in the peaking process? If that's the case, and I would point this out, guess what was the best performing sector this week? REITs. with interest rates moving aggressively higher. Karen, this is like music to your ears, I think.

19:44Yes, that's exactly what I was going to say. It is music to my ears. I mean, you know, I look at things differently than Carter, but it's interesting when the two things meld, which was part of my thesis was the sentiment couldn't be worse. You couldn't have picked a sector that had more reasons to short it and was shorted. And so, you know, I went in with Boston Properties because they are the premier name. They never missed a dividend. They were able to do a debt deal. They own extraordinary properties. But the stock had also gotten crushed. And so it seemed like a decent time to buy. So I'm happy that Carter confirms that.

20:20Yeah, so, you know, I think it's interesting. I think I might actually look at this from the other way around. Listen, I think this stuff has been so beaten down. And you look at name like SLG, which has actually outperformed recently. I think there are going to be opportunities to do that. And we talked about this earlier on our previous show, where they're able to kind of move some things on SPVs. And so, like, your on-balance sheet assets and write-downs don't necessarily hit one for one. With that said, I do expect there to be continued challenges, particularly with, you know, debt ballooning in the next few years.

20:51So I think that if you want to take a speculative bet, I'm with the two of them, it wouldn't be a core position for me quite yet. Last word, Carter. Right. So obviously there are a lot of disparity. There are hotel rates, there are apartment rates, there are storage rates, and so forth. So obviously picking the right ones will matter. Good caveat. Carter, we'll see you soon on Options Action. Meantime, time for the final trade. Let's go around the horn. Tim Seymour. I'll just emphasize the Alibaba conversation and a chart that, yes, you can trade it, you can invest it. I think the tide has turned, and I think you don't have to jump in there tomorrow because these themes are going to continue to play out.

21:26Alibaba. Karen Feinerman. Yes, so next week we're seeing bank earnings. I'm going to go home with the girl that brought me, Jamie Dimon, so JP Morgan. Bono and Eisen. So the same things that were challenges for the EV makers, production issues, supply chain issues, are now issues for the historical GMs and Fords of the world. So I'm going to go with GM here. Steve Grasso. You started to see value get a little bit of a bid today. Trinseo, a stock that I've owned forever, TSE, has been underperforming to say the least. Caught a bid. I think it goes higher. All right. Don't go anywhere. Options action.

22:03is up next.

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