China’s Big Boost… And Flying Into Southwest’s Investor Day 9/26/24

0:02Live from the Nasdaq market site on a day when the S &P500 closed at a fresh all time high yet again this is fast money. Here's what's on tap tonight. Beijing's bazooka. China flooding their economy with all sorts of stimulus, electrifying stocks on the mainland and causing one hedge fund titan to tell CNBC he's buying everything he can get his hands on in the country. Is it too late to piggyback on that trade? We're going to debate it. Plus, smooth skies ahead after a bumpy year. Is Southwest about to find its footing? We will hear from the CEO and go inside the numbers coming up. And then later, why energy stocks were at the bottom of the barrel today.

0:37Is Costco a name you can still buy in bulk? And HiHo Silver? Charting a milestone for the precious metal. I'm Sarah Eisen. In tonight for Melissa Lee, coming to you live from Studio B at the NASDAQ. On the desk tonight with me, Tim Seymour, Carter Worth, Dan Nathan, and Guy Adami. And we're going to start with another big boost for China. The country's large-cap ETF, the FXI, surging more than 7.5 % today, hitting its best level since February of last year. Combined with its move Tuesday, the fund is pacing for its best week on record. The K-Web Internet ETF trades here in the MCHI, also far outpacing the broader market today.

1:15The latest gains as top Chinese officials affirmed the government's efforts to support the economy, including rate cuts and a one-time cash allowance for those in extreme poverty. All that stimulus has billionaire hedge fund manager David Tepper breaking his own rules for how much he invests in one place. Listen. I went over that limit on the Fed announcement, okay, you know, in the last week. I went more when they said a day or two ago on their Fed. And last night, I did more. Just Alibaba? Are you talking JD, Baidu, PDB, two Chinese ETFs, everything China? ETF, you know, how we do futures, right?

1:57Everything. Everything. This is incredible stuff. for that place, okay? So it's everything. And everything includes U.S. companies that get a big chunk of their business from China, casinos like Las Vegas Sands and Winds, consumer names like Estee Lauder and Ralph Lauren, which hit a record high today for the first time since 2013. So is it time to go all in on China? And will its rising tide lift all boats? Tim, well, everything is, so for example, on Estee Lauder, and we know the troubles they've had, and they've had trouble for probably a year and a half to two years. We've heard it from Diageo.

2:31We've heard it from Ulta. We've heard it then from LVMH. We've heard it from Burberry's. You name the company, especially aspirational and luxury, we've heard it. I think this reaction in the stocks, and that's a 21 % move in Estee in three days, tells you that these stocks weren't trading on fundamentals at the bottom. In other words, we know about China. Every time we got a China headline, Estee was punished. I'm not telling you Estee, even at the lows, was a cheap company on valuation. I'm telling you the sentiment around their core business and where you had priced in China, I think, is extraordinary.

3:01The move we've seen in Alibaba, it's about 25 percent over the last six or seven sessions. You've got a dynamic that all of these, and this is what David Tepper said, really since the Fed, it's been a green light for emerging markets. Emerging markets which continue over a multi-year period to make relative lows against the S &P, at least since that Fed have outperformed the S &P by about 5 percent in an environment that's been good for the S &P. So I don't think that China changes overnight. I think when you get the Politburo, though, responding also to the fiscal policy and fiscal policy to the monetary policy discussion, you have rates coming, you have a 5 percent target.

3:38That impact on the rest of the world, especially commodities and those sectors that are not the obvious ones. I mean, we can talk all we want about the Chinese Internet names, and I think they're very interesting here, and I think they go higher. But I think it's the other parts of this. It's retail. It's commodities. It's the broader global play is what makes it interesting. Yeah, I mean, positioning was pretty ripe for a big move in China, right? This was a hated trade. The Chinese market underperformed for the last three years. So there's that when you read into the magnitude of the move. But it also, they're sending a powerful signal.

4:11100 percent. And I think it was JP Morgan. If it wasn't, I apologize. But I think it was them that said about a year and a half ago that China's uninvestable. But when you hear things like that, that's typically a bit of a bell. With that said, nothing really happened for a while. But we've been sitting on this desk, specifically Tim, but some others as well, saying FXI, for example. Look where it traded down to in February of this year. Made the same low it made in October of, I think, 2023, around 21. We said, there's your opportunity. That proved to be correct. And all this Alibaba trade took a lot longer than I thought.

4:39Over the last four and a half years, Sarah, there's been at least seven or eight 35 to 50 percent bounces in this name that we're in the midst of now. So when David Tepper says that, people will say he's talking his book. Yeah, he is talking his book. And historically, his book is pretty damn good. So I agree with him on this one. You buy? I think you stay with. This is something we've talked about for a while. You're getting an accelerant now. You stay with this on the long side. What about you? Adding exposure? Well, listen, who's going to, you know, argue with David Tepper? The one thing I'll just say is the last bit of that, he's like, we're buying futures.

5:11We're doing it. David Tepper also has the ability to hedge with futures, too, right? So you have this huge move in such a short period of time. And I think Tim just said the jury's still out what this actually means for the economy. We know that this stuff takes a while to cycle through. So from a sentiment standpoint, I think it sounds great. The stocks ran ahead of it. I guess I'd be more focused on some U.S. multinationals. You just mentioned this in the top of the show that have a lot of exposure there. Apple in the last quarter, their sales in China, which are high teens, was down 6.5 % year over year.

5:38You know, you think about a company like GM. They sell more cars in China than they do here. And we know that they have a lot of problems here right now and that sort of thing. So I think there's a lot of, you know, Starbucks has 7 ,000 stores there. Their numbers were down 11 percent. Nike, you know, 11 percent year over year. So you're likely to see a turn there probably. We definitely think that aspirational sort of U.S. brands should get a bid off this fiscal stimulus, that sort of thing. So I'd probably be more focused on U.S. names that you could put together a narrative here given our monetary stimulus.

6:09Right. And one thing, I mean, you refer to if you're going to buy a theme, and that's what Tepper is really saying, maybe don't try the idiosyncratic pick. For instance, Tencent is up 37 percent year to date. Baidu's down maybe 20. Estee Lauder down 20. So I would do it as an aggregate. That's the beauty of an ETF, XFI or K-Web. But the casino stocks, that's different. We can look at some charts if we want, but I don't think that's a place to go. Why? They have the Macau exposure. Right. So one thing to note is that if you took it the S &P 500 casino and gaming index, do you know what it's done for 10 years?

6:42Flat. Imagine being nothing. So you could say, well, what's the problem? That's the opportunity. That's the problem. These are assets. Now, here's a two-year comparative. You can see how poorly those major stocks have done relative to the S &P. But let's look at a couple charts that put this in context. And so there is a five-year comparative chart, two lines, two colors, pretty straightforward. The orange line is not the pick. Let's look at a longer-term chart. Now, this goes back to 2009. Unchanged. If you have an asset class that has done nothing, adjusted for inflation, it's lost 50 % of its value.

7:12So either that's the great opportunity or there's something wrong. I think they've rallied already too much. We have two final charts here that we can look at. Another two gaming stocks. And if you see here, you've got Las Vegas Sands, a big move right to the penny to that downward sloping trend line. I'd fade it. And that's the same for Wynn. So China exposed ex-casinos. Well, Carter's right. I mean, there's no arguing against that relative underperformance. I'll say this. Macau, I think, is a trade. I think it's a trade here. And I think it's a trade of people assuming it was we're never going back there.

7:45I was buying Melco last week. I was buying some earlier this week. I didn't know they were going to make those announcements. Part of this is it's trading two times. At those lows, it was trading two times adjusted EBITDA. I don't think that Macau suddenly starts booming. I think there are elements here that also have a lot of overhang to risk. license renewals, dynamics like that. But I think there is a trade here, and it gets back to some of the positioning. BABA, to me, is more of an investment. I will say, if you're trading, and this is for the options, guys, and I'm sure Dan probably has a view on this, but the implied vol in BABA over the last couple of days on the upset, I sold some weeklies for next week at 115 where I was paid over 10 % in stock.

8:23So, I mean, it's a dynamic where I think in the short run, the move they've had, I'd be a seller of BABA at 115 next Friday, and I think I was paid to do it. I was going to say, is the trade already gone? Because Las Vegas Sands is up 24 % now. But that's why you're selling upside vol here, I think. Because the market doesn't price in the last 25. It looks at it and says it could do that going forward. Not in all names, but in a name that's such a coiled spring. I think that's interesting here. Have you ever been to Macau? Yeah. Yeah. It's very serious. I've been there. You say it as if you had a fun experience there.

8:54Is there something you want to say? No, I thought it's very serious. It's very different than Vegas to me. It kind of sucks. I've been there. I couldn't find any alcohol. No, it really does. It does. I mean, it's just, it's like, it's, it's like a lot of little rooms, high rollers. Okay. I don't, we don't need to go to them. You're probably. Can I ask you one thing? Yes, you can. I want to say one thing. We're nine minutes into the show. We haven't properly welcomed Sarah. Oh, that's exactly right. I thought you guys were being a little serious. No, it's great to have you here. We welcome you back to Fast Money.

9:20I'm happy to be here. Go ahead. Ask me a question. Here's my question on China. So everybody's excited. They're finally talking about stimulus. They did it on the monetary side. They're hinting at fiscal stimulus. which is what economists think they really need to stimulate the consumer there. But one of the reasons people have been skeptical about China hasn't just been growth. It's been geopolitics. And it's U.S., China getting worse. They're punching bag in this election. There are tariffs being thrown about on both sides and potentially more restrictions on investment, too. So how do you process those risks with the excitement that we're feeling now?

9:53I think you're 100 percent right to bring it up. I'll say this as well. I don't think this is necessarily going to do that much to help their economy. I think they're probably past that a little bit. What I do think it's and I do think a lot of this is targeted at their markets. And if you listen to some of the press conferences, they've specifically said, you know, we're doing this to help and bolster our markets. So you can divorce yourself, I think, from whether or not it's going to help their economy and whether or not U.S. relations with China are going to improve and whether or not Alibaba can continue to go high from here.

10:23I'm with Tim. I understand why you take some money off the table selling upside calls. I don't even know we're going to get there. But this stock, these stocks, FXI, I think, can surprise people the upside much more so than it's done over the last couple of weeks. By the way, the Chinese currency? Yeah. All the way, going up. Well, and that's something that I think you have to always be watching. Because, again, when policymakers in China, they're never going to act like they're scrambling. But this feels like a scramble. And I don't know if it's Michael Hartman that said, I mean, when policymakers start scrambling, you start buying.

10:52And I think this is a case where they're not going to structurally change the dynamics of their economy overnight. night. I do think sentiment on China, positioning on China. And then in Alibaba's case, I actually think that the fundamentals in the company are things I can own here. Well, I mean, I think the Fed brought them a little breathing room with their super ease. The whole asset class. Yeah. Our next guest is a little more skeptical, though, that the China rally is sustainable. Riedel, research founder and president, David Riedel, joins us now. David, welcome. What are you watching as far as the sustainability of a move like this?

11:21This is obviously good news. It's great for traders. It's good for people who have positions in China or people looking to get in and so on and so forth. I wonder what this looks like in 2025 and 2026. You know, one of your hosts just said, this really doesn't change the structure of their economy. It doesn't fix anything. It sort of band-aids things. It makes for a good trade. It makes them probably hit their numbers for this year. But does it really make them more competitive and better positioned for 2025 and 2026? It remains to be seen. Competitive relative to the U.S.? Relative to the U.S.

11:55or other emerging market opportunities. I mean, do you think other economies have the opportunity to surprise to the upside, like in India, for example, in the coming years more than China? I think maybe. They're still talking about, I mean, they have a 5 % growth target. And I feel like the measures in the last few days indicate that they're pretty serious about hitting that. And that's still very decent growth, even if you look across the world right now. Absolutely. Second largest or maybe the largest economy in the world, posting 5 percent growth. But this is a little late in their year to make such a dramatic set of policy changes.

12:30And really, the language that I picked up on through the readout was they stand ready to do whatever it takes, whatever it takes to bail out the banks, whatever it takes to save the real estate investors, whatever it takes to save consumer sentiment. So I think they've got they still have a lot of dry powder. But I just wonder that they're tinkering around the edges and really treating the symptom rather than the underlying disease. Markets love whatever it takes, Tim. Well, I was going to say, David, but investors were saying whatever it takes, I will not be in China. And so I'm curious, your view, you spend a lot of time in China over the years.

13:01You have a lot of institutional clients that at times don't have to invest in China, but certainly are opportunistically able to. Where are they now? Because, again, six months ago, Guy referenced the JP Morgan note. China was so far out of the radar because people who didn't have to be there did whatever it took to not be there. Yeah, we walked our clients back into it in the second quarter of this year. We really thought the big tech pressures were behind us at that point. So we saw people taking improving positions there and larger positions there in some of the names that we've already talked about, Bava and some of the ones where the fundamentals really make sense.

13:35But people were underexposed last year in China and the year before, which was right when Beijing was really targeting those big tech big tech names that were so easy for people to trade. But, you know, China is a huge economy. They already have a lot of control over levers of their economy. They can do a lot of things to make their economy work. I just wonder if this is tinkering around the edges rather than making the fundamental changes to make them more competitive longer term. David, although we're in the NBC family, I occasionally watch other networks. And I watched 60 Minutes a few weeks ago, and they did a whole story about China, Singapore, and the fact that nobody's really talking about it.

14:14You have been talking about it. And you're concerned at the sort of the markets, I don't know, just lack of focus and what potentially could happen. Thoughts? That's exactly right. I mean, we've been watching the South China Seas for a long time. I think especially the Philippines, it's a real flashpoint right now. Every week you get some sort of blow up between the Chinese Coast Guard or fishing fleets and the Filipinos. And any one of those could go sideways, could turn into a fatal accident, a sinking of a boat and so on and so forth. And the U.S. has stated that they have a security interest in the Philippines.

14:49Not a guarantee, not an Article 5, lucky UN, but they will, I'll be sorry, like NATO, but they will make moves to protect their allies in the region. And I worry about that. I think everyone's been distracted by the Middle East, rightfully so, and by Ukraine. And they're missing a huge section of geopolitical risk in the South China Sea. I mean, just today there's a headline, China test fires intercontinental ballistic missile into Pacific Ocean for the first time in decades. David, thank you very much for your insight on this one. Appreciate it. Great. Thank you. Dan. We're in an economic war with China.

15:22OK, it's not going to get any better anytime soon. You talk about the geopolitical stuff. None of us know when it's going to happen. It's been on the offing for a long time. So you think about some of the restrictions that we have from a trade standpoint with them for our high-end technology and the like. They've been ripping off our technology for a long time. The trade war that was started in 2017 doesn't look like it's going to abate anytime soon. So when I think about this sort of reaction to the sort of stimulus that we've had over the last week, it's probably as good as it gets for right now.

15:49I mean, you know, if you tell me they're going to throw a bunch of fiscal at this and it's structural and they're not going to be able to fix the housing debt bomb that they have, I mean, that's the thing. We just had a conversation with Dan Greenhouse of Solace, and he put it like in a really good fashion. It's like, you know, there's no wealth effect when the Chinese stock market goes up because a lot of their citizens don't own it. What they do is they own a lot of housing and real estate that's way underwater and it's going to be a big donut. So to me, I just don't find it particularly interesting.

16:16But the signals that they took, I mean, they made moves on mortgages, incentives for second homes, at least signal that they understand the problem and they're finally ready to do something about it. That's what the market, that's what Wall Street has been waiting for for a long time. It didn't feel like they had the will to fight it. I think that's right. And remember, China has the ability to paper over a lot of their problems, and it doesn't change the structural issues at hand here. And that's why I would get back to the commodity space, because China will, if left to their own devices, just start building stuff again.

16:45Look at the move in copper. Look at the move in Freeport. Freeport's moved 16 percent since China made that first announcement. We do believe, Guy talks about this. I think copper has real supply-demand dynamics that actually will support copper prices, even without China here. But if China is reassertive, if we're seeing PPI in China go higher, you want to buy commodities. You're going to hate this, Sarah, because you know where I'm going. No, I don't. Oh, gold. It goes up every day. Yeah, it goes up every day. I don't hate it. I'm happy for you. Think about what central banks have been buying gold in a meaningful way the last couple of years.

17:17But I feel like every story we talk about, you bring it back to gold. Well, I mean, I just do it. The way you try to get under my skin, I do the same thing with you. Meanwhile, you should bring it up because it's been doing extraordinarily well. And the gold mining stocks are finally catching a bit. And the resource trade, they've just given you the green light for, I think, all these resource trades as well, Sarah. 41st record close of 2024 gold. Congratulations. It's outperformed the S &P since October of 22. I mean, in a world where people would have said the S &P's had maybe its greatest bull market ever, Gold's done better than the S &P.

17:51True. Let's turn to chips because that's been a part of the story. Certainly today, Micron surging nearly 15 percent for its best day since 2011. The move coming after last night's earnings where the company beat estimates, raised guidance, easing some concerns over the resilience of AI demand. And then there's Supermicro dropping 12 percent on a Wall Street Journal report that the Justice Department has opened a probe into the company over its accounting practices. This, of course, follows Hindenburg Research's short seller report, which raised similar allegations. Kind of a mixed bag for the chips today.

18:25Yeah, I mean, the microphone, we were talking about it as it came out last night. It was a pretty decent beat. It was a pretty decent raise. I mean, when I say decent. You're not impressed by 93 % revenue growth? No. Well, first of all, this company, like, look at what they're doing. Price is in a lot more. Yeah, but think about what their revenue growth declined from the prior year. I mean, this company, you know, again, we know it's a commoditized product. We know that there's a lot of demand for memory as it goes into these servers that are going to these data centers that are training these models.

18:50But, you know, the stock was in a euphoric sort of state just a few months ago. It sold off 40-some percent from those highs because the guidance wasn't good enough then. The guidance isn't great now. They've signaled some better, like, demand situations here. But, you know, the stock did close 5 % off of its highs. It closed or, you know, it opened on the highs there and didn't see too many upticks for the rest of the day. What is a chart show? So a rally to a difficult level, right? You went to the penny to a declining 150 moving average. And I think the point, Dan, you're making, it faded intraday, meaning its high was its open.

19:21That was euphoric, and it didn't follow through. I think you fade it right here. You fade it. Fade it. Does anyone like Micron? Look where it got to. So August 5th, everything sold off. Look at the subsequent bounce in Micron. Look where it traded up to by the middle of August. And then look where it sold off to. Again, look at what the high was today. Basically, to Carter's point just now, just traded up to that prior high a month or so ago, and it did it on four times normal volume. The quarter was fine. I mean, there was nothing not to like. But, again, this is a stock that's round-tripped the entire move this year.

19:50People will point to valuation. It's always cheap. I mean, I look at this and say maybe it's a little too much too fast, and maybe that trajectory of the downside is still intact. And it's crazy cheap on a trailing multiple. Obviously, their business has changed. Sure, let's give it that. But I don't think there's that moat around their business. I said this last night. I'll say it forever. I still think they're in a bit of a commoditized business. I also think that this management team has been less than conservative about what they forecast for their business. I mean, I think they've been cheerleading.

20:18I think they've been out there saying good. I was going to say, did you see Sanjay on the show this morning with us? Every time. He was so bullish. Every time. And I think, you know, this is a company that at times suffers from being oversold. Investor sentiment in this stock has been awful. So the opposite, and it's prone to that, is true as well. You know who else has been that way? It's AMD. And, like, they threw up the AMD chart. You could overlay it with Micron. It had this euphoric period in the spring. They were talking a really big story. As a percentage of their total sales, you know, high-end GPUs were not particularly great.

20:45It didn't live up to the thing, and it round-tripped the entire move. So people are going to go for the stuff that hasn't moved. You have Taiwan Semi, which has 85 % of the manufacturing of these high-end chips. You have NVIDIA that obviously has 85%. They're almost back towards their prior highs. But some of this other stuff, which is kind of the garbage trade in the space, I mean, I think you kind of faded a little bit because I don't think the results and the guidance are really meaningful enough as we see a move like this up 15%. I said last night, a final call, I wouldn't chase it up 15%.