China Stocks Rally Ahead Of Tariffs… And Gamestop Surges On Roaring Kitty Comeback 5/13/24

0:02Live from the Nasdaq market site in the heart of New York City's Times Square this is fast money Here's what's on tap. President Biden set to whack China with massive EV tariff increases. The levies for electric cars will quadruple and other key industries will be impacted, too. The reason for this move and how China might react straight ahead. Plus, roaring back. The man behind the meme stock mania, Roaring Kitty, posting a new series of messages today that sent the original meme stock, GameStop, soaring. But there could be more to Keith Gill's reemergence than meets the eye. We will explain.

0:32And later, a little retail, would you rather, ahead of earnings. Home Depot set to face off with Walmart will be the trader's pick in the big box battle royale. I'm Melissa Lee coming to you live from Studio B at the Nasdaq. On the desk tonight, Tim Seymour, Karen Feinerman, Dan Nathan and Guy Adami. And we start with the stealth rally in Chinese stocks, a large cap FXI ETF jumping another 2 percent today to post its highest close since last August. It is now at more than 35 percent from its January lows. Much of that strength coming in the last month. Take a look at some individual names have done in that stretch.

1:03J.D.com, Tencent Music both up more than 30 percent, Pinduoduo gaining more than 20 percent. The S &P meantime up less than 2 percent. But these gains come ahead of the expected announcement of what could be massive tariffs against Chinese EV makers, solar companies and semi-manufacturers. The Biden administration is set to lay out its plan tomorrow. Let's get more on what we could expect from this announcement from Megan Casella. She's in D.C. with the latest. Megan. Melissa, President Biden is set to quadruple tariffs on Chinese electric vehicles to more than 100 percent as soon as tomorrow.

1:39Now, that's a movement to protect American consumers and manufacturers of green technologies. NBC News is reporting that Biden will also be raising tariffs on Chinese solar panels and batteries. Now, these tariffs are going to be mostly symbolic, especially on the EV front. The U.S. imported less than$370 million worth of Chinese EVs last year. That's according to census data. But the goal is to protect the U.S. market from a flood of imports, even as Chinese production really starts to increase. Now, China has already threatened to retaliate here. But even if it imposes tariffs of its own, economists say the impact on American consumers should be fairly muted.

2:17This would be more of a gradual price effect over a longer period of time as sheltered producers in the United States then adjust their prices upward. Now, sources tell me that a host of other products are under consideration for tariffs as well, and that'll include critical minerals and semiconductors. We expect tariffs to take effect within weeks following the official announcement. Melissa? Megan, thanks. Megan Casella in Washington for us. So what can we expect, especially as we are witnessing this massive rally in Chinese stocks? Could this impact that dynamic, do you think, Guy? The rhetoric will continue.

2:53I mean, it's clearly campaign season. This is obviously somewhat bipartisan, I would imagine. So I get it. I get the rhetoric. I also don't think the market is pricing in the fact that Chinese will probably act in kind at some point. They should. They've already made comments. Dan flagged this earlier today about Chinese. I think it was the Chinese government telling their companies not to buy Nvidia chips or something along those lines. With all that said, yes, it will continue. But how do you trade it? And into the fall of last year, we said, look, the FXI looks like it wants to trade down to the October lows of 2022, 22, 21.

3:24That was a low, by the way, in the financial crisis. Well, guess what? That's what happened. We said from January on, you trade this from the long side. And Alibaba is taking a lot longer than I thought. It traded 70 for a long time. Very quietly now, that's on its horse, probably up some 23 percent. So as counterintuitive as it may seem, you stay with these Chinese stocks here. Would saying that the American consumer would likely not be impacted by any sort of tariffs, Is that under sort of estimating China at this point? Well, what you have to remember about Chinese stocks at this point, they've discounted a lot of bad China.

4:00And so I think about the China macro and I think about what people had expected. I think of the geopolitics and I think about China's China on China as it relates to the Chinese Internet sector. So Alibaba, which reports tomorrow, you know, at what point are we worried about Alibaba on the export front and on the tariff front? We're not. And it trades at nine and a half times. It's got a third of their market cap in cash. This is a company that if they're left alone, and again, it's not an extraordinary number, but their Q1 numbers expect to show year-over-year growth of about 5%. That's better than 2.5 % year-over-year growth of last quarter.

4:31And again, at 9.5 times, I think you're paid to take some risk here. And so my view is that ultimately Tencent Music is another name I own. They announced 43 % growth, especially in the segment, the music segment. Essentially, their online music segment, which is 115 million users. So there are companies that are continuing to grow. And I just think that the discount that's been put on not only Chinese equities, but, you know, we're talking about China. But let's be clear, global equities as a whole have outperformed U.S. equities for a long time. The DAX has outperformed the U.S. since the summer of 2023.

5:04So I think China is very interesting. I think it's priced to be interesting. And that's going to I think it's going to win out. So I think Tim is correct on the on the digital names, the K-Web. I think that they're going to be, you know, really focus is going to be on the Chinese consumer. Right. So they're not exporting here. But I would worry about some U.S. multinationals again, like like a Tesla, for instance, Giga Shanghai. You know, they export a lot of cars outside of China. Right. So they could be slapped with tariffs. And when you think about this, I think it was on the Q4 call when Elon Musk mentioned that if we don't have aggressive tariffs on Chinese EVs, they're going to just take over the world.

5:39And I think about that and I say, OK, well, you know what? careful what you wish for, to use a Guyadami phrase there, because, again, I just think that they're right in the firing line for all of this. And again, I don't believe that U.S. consumers anytime soon are going to be buying a 23 ,000 Chinese EV here in the U.S. So to me, it's really, I guess, protecting Detroit, not really that focused on Tesla, if you will. And obviously, Apple has some of the same issues here. So I don't think this gets any better any soon as far as the trade war and the tit for tat that keeps getting dialed up. I'm sort of wondering if this is a very strategic thing.

6:15We're going to do a tariff on something that doesn't matter because we want to look tough. Right. And so this is the stance we're going to take. They, the Biden administration, we're not. Right. No, I said who's they and it was said by an administration. But I kind of feel like both sides maybe. Well, so it reminds me we're not that far removed from when there was the attack on Israel that was ended up being more muted, not less of a deal than people thought. And then the people were very scared about the response. And then that ended up being far more muted than people thought. And that was the end.

6:47Everybody dropped it. I don't know if this is something like that kind of gamesmanship where, OK, as all talks about, we're not we're not big EV buyers of Chinese cars in America. So really, what difference does this make. And so are they going to respond in kind with something? Well, maybe we're thinking about it too much along the lines of tit for tat. Maybe there are other sort of ways of retaliation which aren't, you know, you raise tariffs on EVs, we'll raise tariffs on this. Maybe it's more we'll make it very difficult for a business like an Apple here. Maybe. We'll call for a national boycott of a Starbucks.

7:23Maybe. I think what the administration shouldn't get into things that will end up being very inflationary. That's not going to help. This might not. This isn't what that's never stopped them before. Well, that's true. I mean, again, you go back to some of those Trump tariffs and I just think that there's an element of this that's been playing out for a long time. Dan was right. He brought up this this big day. We were talking about other things. And Dan said, look at this. This is NVIDIA, folks. This is NVIDIA. It's the H20 chip. It's their way of finding their ways around the U.S.-driven export curbs.

7:55And what does this mean for NVIDIA? Well, NVIDIA, you know, basically went higher and is near all time high. Semis are within three percent or four percent of all time highs. But the comments that seem to have come out were that these were verbal instructions to companies that have been given over the last four or five months or six months or seven months. And it's no different than what we've been hearing for years. I mean, the Chinese national champion companies are something that the Chinese regulators and the Chinese government have been trying to support for a long time. Frankly, this goes on around the world.

8:22So it's it's it's interesting. Our next guest says a U.S.-China trade war could come as soon as 2025. Let's bring in Leland Miller. He's the CEO of China Beige Book. Leland, great to have you with us. As we were discussing here on set, the potential tariff increase on EVs really is quite meaningless because Chinese EV makers don't really make any sort of a market here in the United States. But in terms of solar panels, you know, the issue here is China exporting through another country. Do you think that these increased tariffs would go as far as to actually stop that trade from happening? Well, that's going to be the big tell on whether any of this is serious.

8:58And it's not just solar. It's also EVs. Because if you look at what the potential issue is with Chinese EVs coming to the United States, it's not likely they are going to be exported directly here. The issue is whether they're going to be produced in Mexico, produced in Vietnam, produced in a third country, And then they're going to avoid regular tariffs by coming in through the back door. So the way to gauge how serious these are beyond the obvious political overlay that this action has is to see whether there's provisions on transshipment and whether they're doing things in order to set up a multi-year wall or whether this is an announcement that just sort of it's announced today and it doesn't have much economic effects into the future.

9:41Walk us through what you think will be the retaliatory impacts here. If it's the least, if it's the most benign, as you said, it's unveiled, nothing as much is done to actually enforce, what will China do versus setting up those walls that you're talking about, making sure that China is not getting into the United States market through third parties? Yeah, you know, obviously the benign response from China would be to do nothing or virtually nothing on this. They'll say they don't like it. But, you know, if you're looking at something which puts 100 percent tariffs on something that basically doesn't exist yet, you're not going to be hit with economic effects.

10:18The question is whether you want to send a political signal that we don't like this. So, you know, if there is not significant provisions around transshipment and other things that I wouldn't expect the Chinese response to be to be too much. They want to save their bullets down the line. They understand it's a presidential election year. If there's something more meaningful, then it's possible that a U.S. company could get hit in China. It's possible they could send signals through rare earth supply chains and other things like that. But look, China has fewer bullets than the U.S. does. They know it's a campaign season.

10:52So they're going to have to really look at this and see, is this something we want to try to respond to tit for tat? Leland, one of the bullets might be, and it happened in August of 2015, the devaluation of their currency. I don't think anybody's talking about it. I don't think it's imminent. But what are the chances of that happening in the foreseeable future? Well, we think it's pretty low. But look, you say that no one's talking about now. Three, four weeks ago, that's all anybody was talking about in my world. And so we were constantly having to talk about how it's not what Beijing's looking for to do a yuan devaluation.

11:23We understand the yuan is weak and pressy. It is a spot fixed divergence. understand that this rising dollar has caused havoc to the yuan as well as the yen and a lot of other currencies. So there is pressure there. But it's very much not in China's interest to do a yuan devaluation. They've been worried about capital outflows. They're in better shape than they were back in 2015, 2016. But look, it's not going to help anything to devalue, especially in an election year. It'll cause more problems than it's solved. So we don't expect that to happen any time in the near term. Hey, Leland, Tim, yeah, capital flight, I think, for China, especially during periods where we've crushed the economy, has been a big deal.

12:01But what are the rumblings? What are you hearing behind the scenes in terms of the apples of the world? What are U.S. companies really fearful of? And are they, because we can talk about this all we want, and we talk about it in a market context. But what are you hearing about some of the most important companies in our space that do a lot of business there? Well, a lot of them, like Apple, are stuck between a rock and a hard place because they They went all in on the China story years and years ago. And you couldn't tell them that they were putting all their eggs in a basket. They didn't want to hear it.

12:29They thought, we have very high-level Chinese contacts. Our economic model works. We will not be dissuaded. And now what they're seeing is there's problems on the Chinese side. Beijing doesn't want to use foreign tech, at least in the government world. There's problems on the U.S. side. There's worries over supply chains and obviously geopolitics. But these companies can't simply snap their fingers and just create a factory in India or Vietnam or somewhere else in Southeast Asia or Mexico that does what the Chinese factories do. This is a very long term transition. So they're very vulnerable in the medium term.

13:05There could be some cyclical good stories, but the structural story is pretty scary. So you were talking before about how few bullets China actually has. Isn't that one of the major bullets, the fact that Apple cannot snap its fingers and just create a factory elsewhere, that it's still dependent on China? And so is the case for a lot of other American companies depending on China for growth, that that is sort of the bullet that may not exist in the form of a tariff, but can exist in the form of just making business very difficult to do there. That is exactly right. And about a decade ago, we made this, you know, we pushed very hard for companies, certain companies in particular, to understand that just because they're very friendly with Beijing right now doesn't mean that geopolitical tensions were going to get worse.

13:49Trade tensions were going to get worse. And even though Beijing may not want to punish some of these companies, which are as close to a friend in Washington, D.C. as they have, at the end of the day, they're going to have a limited amount of bullets. So if tensions rise past a certain level, they will have no choice but to act against these foreign firms in China, even if they've been traditionally friendly with these firms, because they have to cause some sort of policy chaos in order to push back against whatever the U.S. is doing at the time. Leland, great to get your perspective. Thank you.

14:18Thanks for having me. Leland Miller. So what do we think now? I mean, should we put a further discount on a Starbucks or an Apple because of the China issue as we enter this political season? Well, again, this isn't the first time we've thought about this, and I'd like to think we've thought about this a lot. And if you look at Apple, Apple at least, you look at the trading range and certainly more importantly, the relative performance of Apple to the index. Apple's actually outperformed the index by about 5 percent since September. So, again, we're talking about 67 percent of the S &P that's trading pretty well with a lot of bad China news around it.

14:50So this is kind of what markets do, right? And the Starbucks, which also has put China also at the top of its kind of key growth markets, their issues are not really China here. They're other places. You know, it's interesting when you think about this on a day that we saw a headline this morning that China is prepared to sell 50-year bonds, right? You think about this. There was also a long read. I think it was The New York Times talking about demographics in some of these countries like China and South Korea. Obviously, here in the U.S., we have some issues. I mean, China's got a lot of problems.

15:18I mean, China has some long-term problems when you think about this. And it just doesn't seem that investable relative to what's going on. In my opinion, I said it, that investable. I just think on a relative basis, it just doesn't look that interesting. Essentially planned economy that's totally muffed everything. And then our multinationals are having a tough time over there. You think about GDP at like 5 % or something like that. That doesn't really compensate, I don't think, for the sort of risks that are out there that we're speaking to. So to me, I just don't find it that interesting other than the digital companies that can leverage off of these hundreds of millions of dollars of, you know what I mean, like of their own citizens.

15:54So that is the question. If you believe in a China story, is it you no longer invest in the Starbucks or the McDonald's or the companies that say China is our growth market. You invest in China. We've gotten to that point where you go back into the Chinese stock market. I believe so. And I understand the investable part. I don't, you know, but it's tradable as hell. And it's been tradable. I mean, if you thought before your chart of Alibaba, I mean, you see upper left, lower right. With that said, at least seven, if not 10 times along the way, you've seen 25 to 50, 50 percent bounces in the stock.

16:27And I think we're on sort of the verge of one of those right now in Baba. I mean, from a valuation perspective, you know, as they all said, it's very, very, very attractive. I just don't know what to put on. What is the discount one should have for this? You never know what's going to happen. We've seen them do for China stocks or China's own stocks. OK, remember Alipay, right? Where that, you know, and that who did that hurt? That hurt Alibaba. That didn't that wasn't a U.S. thing. Right. So I don't know what the right multiple do or what the right discount is. And so I'm not in it. And that's been wrong the last couple of months.

16:59Coming up, details from OpenAI Spring Update. The company demoing its latest AI model, a new desktop version of ChatGPT. But they are not the only ones announcing new developments in the AI space. What more to watch for tomorrow? Plus, airlines taking off as Wall Street gets bullish on travel. The tailwinds driving this trade when Fast Money returns.

17:21This is Fast Money with Melissa Lee, right here on CNBC.

17:32Welcome back to Fast Money. Open AI launching a new flagship model during its spring update today. Our Steve Kovach watched the announcement. It's here right now with all the details. Hey, Steve. Hey, Melissa. Yeah. OpenAI actually front running Google's big developer conference, which is happening tomorrow with an announcement of its own revealed its latest AI model called GPT-4-0, which is capable of having natural conversations with you. No more asking a question and then waiting for an answer before you can ask another like you may with assistants like Siri and Alexa today. Just talk to it like you would a friend or a coworker.

18:03You can even interrupt it and ask it to speak in a different tone, do live translations and so much more. It's also multimodal, that's a term you're going to hear a lot. It means it can process images, text, or voice. OpenAI says it's going to be rolling out over the coming weeks, and the company's CTO tees, there's even more coming with a, quote, next big thing to be revealed soon. CEO Sam Altman was not part of the event, but he did publish a blog post about GPT-40, calling it, quote, the best computer interface I've ever used. Also of note, Altman called OpenAI a business and will, quote, find plenty of things to charge for.

18:40Now, remember, OpenAI is structured as a nonprofit organization and has been sued by co-founder Elon Musk for allegedly abandoning its original mission and focusing on profit instead. We'll see how that one shakes out. In the meantime, expecting Google, which has had multiple stumbles trying to launch its Gemini AI system, to show off similar AI features at its developers conference tomorrow. In fact, coinciding with that OpenAI event today. They shared this video I was just showing you on X that appeared to be a demo of that update. Mel? How finished is this product, Steve, in that how long has it been in beta?

19:14Has it been actually tested for quite some time? And so this is really ready to hit the ground running. Oh, it's launching now. People are already using it. In fact, it's being used so much right now, Melissa. The servers at OpenAI are kind of struggling with all the demand that they're seeing. So it's being used. It's rolling out slowly to users. There's some paid users already have it, and it's going to be available for free users as well. Is that next big thing, could that be a search engine or no? I read that as GPT-5, which would be the next large language model. They've been teasing that for ages.

19:45Brad Leikap, who is the COO, I believe, at Opening Eye, he was at a Bloomberg event last week and kind of talked about, like, forget about having to prompt people. You don't have to prompt your best friend, I think was this quote. So it's going to be even more natural language and even more capable of what we're already seeing today. So I feel like that's the next thing. But look, this is also part search, too. I mean, it can answer questions. It can do math formulas for you. It can do a whole bunch of stuff that we already use traditional search for. I can't wait to try to tell it that it's speaking to me in like a mean tone or something like that to change the tone.

20:19It can do that. They had it sing today in the demo. They had it talk in a more dramatic tone. There are multiple voices you can choose. So they're really playing around with it. And also to point out that Sam Altman in that blog post he posted was talking about how this new model can be used to just imagine integrating it with like your personal data. And it can really become that real assistant that we've all been talking about for so long, but it hasn't been possible yet. So we'll see. We'll see how that turns out, too. All right. Steve, thanks. Good thing. Steve Kovach and Alphabet shares finish the day higher.

20:55Yeah, I was quite surprised by that, actually. It was more about that they wouldn't be partnered with Apple, right? And so I was very surprised to see that. We'll see what they come out with tomorrow. I think it starts at 1 p.m. our time. I just think, though, that that video portion, first of all, I got to think it takes a huge amount of power. Yes. Yeah, huge. What that'll do. I mean, it's fairly exciting. I hope this is the end of Siri, which is really one of the worst products ever. and it's just amazing to me that Apple has allowed that to be so bad. I mean, this is nothing I wouldn't say to her face.

21:31I do all the time because she's so terrible, but it's, I mean, I don't know how they could have allowed it. I say it to her face all the time. In fact, I've done it on air. We could do it right now if you want. But this is the point. This has been, I think, one of the greatest things for Google. All of this criticism of Google means, first of all, forget the summer of AI. It's been the year of AI, and during that year, Google's outperformed. That's right. Microsoft, supposedly, you know, the partner to chat GPT, by 8%, about 13.5 % over six months. And since kind of that recent nadir of Google sentiment, Google's outperformed Microsoft by 27%.