No Stopping The China Rally… And Tesla Loses Charge After Deliveries Disappoint 10/2/24

0:03Live from the Nasdaq market side in the heart of New York City's Times Square this is fast Here's what's on tap tonight. China rising while the major averages in the U.S. are stuck in neutral stocks and the mainland are ripping. The large cap China ETF now up nearly 20 percent in a week. Is this party just getting started or should you take the money and run? We'll debate that. Plus man versus machine as a port strike rolls on. One of the key sticking points beyond money, automation. What the transportation secretary had to say about that coming up. And later Bill Ackman's Venti sized beef with Starbucks charting the next move for homebuilders.

0:37and is Tesla's recent rally powering down? I'm Melissa Lee coming to you live from Studio B at the NASDAQ on the desk tonight. Tim Seymour, Dan Nathan, Guy Adami and Chris Verone, head of technical analysis at Strategas, a Baird company. And we start off with the seemingly unstoppable surge in Chinese stocks. The country's Hang Seng Index jumping more than 6 % overnight, its biggest gain in nearly two years. Hit levels not seen since February 2022, up more than 30 % in just the last three weeks. names like Meituan, JD.com, Baidu, all soaring 9 % or more. ETFs in the U.S. also jumping with gains in the large-cap FXI and the MCHI helping drive emerging markets at 30-month highs.

1:18The recent run started last week after Chinese officials unveiled a series of stimulus measures to help jumpstart the economy. But is there more room for this rally to rise? And I guess embedded in that question is, is this stimulus actually going to take effect and work, Tim? I think it will. Well, I think it's all relative to what you think can structurally change, what we know are demographic issues in China, what we know to be a communist government, what we know to be dynamics that certainly allow us to believe that this economy has issues that aren't going to change. But this is balance.

1:48This is balance across fiscal, monetary, plugging straight into the banks, actually going. It's not just cutting small checks on a retail level. I really do believe this is something that will support GDP. They say two trillion renminbi is about one point six percent of GDP, supports this economy through kind of the mid twenty five. I don't know where it goes from there. And I don't really care when I consider that. I think global funds who can but don't have to be in China are as underweight China now, today, four days after we got this bonanza last week. Then they have been, you know, in other words, less, probably less underweight.

2:23But no question, still very underweight relative to the last 25 years, certainly since I've been investing in that part of the world. So I think it's very interesting. And I actually think that there's more to go here. And I do think that there's a dynamic here. We were naming a bunch of the Western companies that are being punished. We're continually punished. We talked about them. We've talked about Estee Lauder. We've talked about Alto. We've talked about Diageo. I think the Chinese companies themselves, if we know that there's policy coordination and there's clarity, some clarity, that's what these stocks have needed.

2:54And I said, I think it's not just Alibaba, Tencent, Baidu. I think some of the main names in the K-Web are ones you can own. I think the market's response here, guys, has been so definitive, where whatever your view was two weeks ago or three weeks ago, you at least have to be open to the idea that this is the real thing. And when I'm talking about how definitive this move has been, look at the internals. I've only seen these a couple times in my career. Coming off the March 2009 low, where you're getting advanced decline days of 30, 40, 50 to 1. You had about 90 percent of the Hang Seng make a one-month high this week.

3:28That is unprecedented type stuff. You have 100 percent of the index above the 50-day moving average. That is new cycle, early momentum, really explosion under the surface where you at least have to be open to this. I think the big test structurally, Tim, can the bond yields follow? If you look at every big rally in the FXI or the K-Web over the last 15 or so years, in every single one of them, you've seen the bond yields go up in confirm. So I want to see the Chinese yields reflect the message that, hey, this is the real deal. Yeah. Guy, what's your time? I don't know if it's going to fix the economy.

3:57It's clearly going to fix the stock market in the short term. And we have collectively been talking about this for quite some time. As a matter of fact, I think since February of this year when the FXI made a double bottom of 21, we've talked about it. Now, if you trade in the FXI, I think you've got to try to figure out, well, Alibaba's going because that's a big component of it. And 120, I mean, go back to the January 2023 high. I'm sure Chris can look at it right now. It's about 120 or so, and that's where I think it's headed. We've been pretty consistent on that. Alibaba has been a horrible stock since October, Halloween of 2020.

4:28Mel, boo. Thank you, Tim. But with that said, and we've said this dozens of times, I mean, look how many 50 % bounces we've seen off lows, and we're in the midst of one now. Yeah, I'm going to say the same thing I said a couple nights ago. I mean, at the end of the day, you know, what's the pull forward in the stock market relative to what's going on in the equity market, the property markets? I mean, like, you know, Tim just mentioned, you know, if the stimulus is equivalent to one and a half percent of their GDP, you know, they're supporting the housing market. They're supporting the stock market.

4:57They're going after the consumer, that sort of thing. I get it. But when you see this sort of move, I mean, to Chris's point, I've never seen a major index go up nearly 30 percent in a straight line in a trading days. And so, you know, at some point, you know, Karen said it really well the other night. She's like, I stuck my toe in the water because it's a theme I kind of believe in. It's going to be a much longer term thing to play out if it works. But I want to see it come in a bit. I just don't chase things like this. I get why folks are doing that. But, you know, to me, it's not my game. Well, it's interesting because so many people like Dan Oslo's on last night.

5:29He was saying at the beginning of the year he was, you know, advocating for the China story, believing that a stimulus would come. Didn't happen. Drips and drabs didn't come. Didn't come. Didn't come. And then finally it is here. And he sort of got caught out of it. And so I guess the question here is a lot of people said, you know, we thought this story was going to materialize. It didn't seem to materialize. And all of a sudden it happened. We're up 20 percent. Is it too late? And I guess you're saying no. It's not too late. I was listening to Evercore had their China strategists out. There's been different strategists out there that have pointed out everyone knows the structural challenges in China.

6:00He referenced this as the most impressive or in terms of terms of size and the sheer bazooka element of this since the four trillion dollar U.S. stimulus back in 2008. So if we're comparing these two and again, it's not as if the U.S. economy was expected to jump out of bed in early 2009. It didn't. But the stock market had one of the greatest rallies, as we say all the time. Things when they go from just bad from terrible is when you make the most money. And in China, that's clearly the move we've had here so far. So I like it. Again, I like coordination and I like clarity, which I think is something that at least I don't know where that property market is going.

6:36And we know there's so many problems out there and things that will blow up at some point. But the fact of the matter is they're not going to support that. As Chris said, also rising bond yields. You want to see PPI go higher. You want to see actually some wholesale inflation in China. That's what you're rallying. And by the way, emerging markets, not just China, which is 40 percent of the index, as you mentioned in the open, are up 30 month highs. It's a dynamic of a more benign Fed and global growth that's better. and commodities that will be supported here. All right. One Asia expert warns China's explosive rally ignores the risk of a Japanese-like quagmire.

7:07Yale senior fellow Stephen Roach is formerly Morgan Stanley, Asia's chairman. He wrote a Financial Times op-ed this week titled, Why China Needs a Three Arrows Strategy. Stephen, great to have you with us. You know, you heard Tim reference an Evercore analyst, China strategist, making the comparison to the U.S. fiscal stimulus of 2008. You're actually making the comparison to the lost decade in Japan. Why is that? Well, thanks, Melissa. And I always hesitate to take on the firepower of the fast money crowd. But I'm still on the skeptical side. I think the China-Japan comparison is simply too close for comfort.

7:51Bursting of a major debt-fueled asset bubble. the demographic and productivity challenges and a whiff of deflation right now and a growth shock that is very Japanese-like. So I think we have to look at this story from a Japanese-like perspective, and that's the title of my piece, The Three Arrows of Abinomics. And I don't see all three arrows in the air right now, especially on the structural and fiscal side. So again, count me a skeptic. Right. And just for the audience's sake, you know, the three arrows that you're naming fiscal, monetary, as well as structural. So you named two of them that you don't think are really robust.

8:34Structural in particular, the demographic challenges in China, that's certainly not being addressed in any of the stimulus right now. Guy's got a question. Mr. Roach, I like that high powered fast money crew. That's a first. But I'll ask, you know, I think it's fine to be skeptical of the economy. I agree with you there. But can you be skeptical of the economy, but bullish on some of these underlying stocks and their stock market for the foreseeable future? When I say the foreseeable future to the end of the year. Sure you can. I mean, you know, we know this was a seriously oversold market and it's turned around dramatically.

9:09But again, I'm going to take you back to the Japan story. The Nikkei 225 fell 66 % from December of 1989 through September of 1998. During that extraordinary plunge, probably the biggest plunge in a major asset market we've ever seen, there were four dead cat bounces that averaged 34%. So if you believe in the Japan comparison, you got to be a little wary of what's happening to China if you think China is following the Japan template. Stephen, we talk about the wealth effect when you have stock market going up, when you have housing going up. When you consider the sort of losses that consumers and investors have in China, in the property market, in the stock market, does this sort of move change anything in that regard as you think about the consumer?

10:11Because some of the names that moved first and they've been relentless are these consumer-facing businesses, whether it's Alibaba, Medawan, JD, Tencent, that sort of thing. And it just seems to be that this is kind of a beta chase. And if you go back to 21, that's exactly what was happening there. They had a bubble not too different than the one that we had here, and valuations got stretched and the like. So curious about the wealth effect that is or is not created by this sort of stimulus. Well, for a wealth effect to really have traction for consumers, it's got to be sustained. And we've had eight days.

10:48I mean, this is not something that I think wealth-strapped investors really believe is permanent. And if this rally lasts, as you guys think, then it'll start to have an impact. But it's not just wealth that drives consumers. They need income. And the job problem in China is tough, especially for younger people where the youth unemployment rate is high and still rising, no matter how many times they redefine the numbers. So we'll have to wait and see on that. I mean, you know, right now it's encouraging, but far too soon to tell. Stephen, it's Tim. You spent so much time in China. You've worked across the table from the Chinese government.

11:37You've been involved in tons of banking deals out there. Do you sense that there's any even small philosophical change in the Chinese government's approach to markets and a market economy? I'm not holding out some unrealistic expectation that the Communist Party is changing their stripes. I am saying that the Chinese recognize where innovation is coming from. They recognize the geopolitics and the war they're at with the United States, which is an economic war. And they recognize the strength of U.S. companies. Strengthening their own companies and changing the environment a little bit could be.

12:07If you're getting any of that here, I think they could go a lot higher. Well, I agree they could, but I'm looking for the evidence, Tim. I mean, Xi Jinping is the most ideologically driven leader of China since Mao. And, you know, if anything, he's digging in his heels, especially in the area that you pointed to, the restraints on the once very dynamic private companies. companies. And that's a worrisome development. And, you know, they talk a lot about the fact that they appreciate the dynamism of entrepreneurs, but, you know, they've done very little to alleviate the constraints they put on that private sector now more than three years ago.

13:01Stephen, we always enjoy your analysis. Thanks so much for joining us. Thanks, guys. Stephen Roach of Yale. And just to underscore what Stephen had mentioned in terms of the stats, a 66 % cumulative decline during that lost decade, but we had four bounces of an on average 34%. So you can make a lot, if you're nimble, you can make a lot of money. Which stocks to you look the best within these indices? I don't think we're done on Baba yet, Guy. You noted it. There's a big gap from November of 21 near about 155 on that chart. Stock trades 115 today. I think there's room to go there. But one of the big things that we've noticed these last few weeks, really last several months before the rally took hold, Chinese consumer discretionary, despite being in this apocalyptic recession, was outperforming the staples by a very, very wide margin.

13:49When do you tend to see that? You tend to see that when the market begins to anticipate some type of turn. So I think we got that there. Two things can be true at one time. You can be skeptical on the structural, but also very much involved in the near term. I think you have to be the latter here. At what point, though, does the rubber meet the road? As the emerging market specialist here on the desk, we have a demographic problem in China. We have a housing overhang, tremendous amounts of inventory. And that seems to create a real disconnect there. How does that housing inventory get absorbed if no one has the answer to that?

14:22They don't have the answer to that. And I'm not worried about that. This is all about positioning for me. This is also valuations. Chinese companies traded a 30 percent price to book discount to EMPers, which are cheap. So I like it. Again, part of this is cheaper oil prices, a Fed that's benign, global growth that isn't falling apart. That's a great recipe for China and it's a great recipe for EM. All right. Day two of the East and Gulf Coast port strikes. President Biden saying today he will not intervene. The dock workers union fighting for a massive pay raise and to keep machines from taking their jobs.

14:53CNBC's Frank Holland reports.

14:57As the port worker strike continues, the main sticking point is the size of the raise. The East Coast and Gulf Coast workers won over 60 percent and the protection of union jobs from automation. Right now, it's estimated that about 4 percent of ports are automated or semi-automated globally. One of the best known, the port of Rotterdam in the Netherlands, consider one of the most automated in the world. The Yangsheng port in Shanghai, China, was named the most efficient global port this year and is considered the largest of all the automated ports. There is automation at U.S. ports as well. The port of L.A.

15:30Long Beach is considered fully automated. There are also semi-automated ports in Virginia and New Jersey, where the union is based and is actively demonstrating today. Pay is still a primary issue in these negotiations. Top-scale port workers make approximately$39 an hour or$81 ,000 a year. However, However, with overtime and other benefits, longshoremen can make over$200 ,000 a year. According to Fed data, the median salary in the U.S. was just under$59 ,500. One issue that's caught the eye of many people following the port strike, the pay of union president Harold Daggett. According to tax filings, Daggett was paid$728 ,000 by the ILA union in 2023.

16:12Also another$173 ,000 is the president emeritus of a local union chapter. We reached out to the ILA. They said they did not want to comment. about Mr. Daggett's pay. Melissa, back over to you. All right, Frank, thank you. Transportation Secretary Pete Buttigieg addressing fears about robots taking over dock workers' jobs during the exchange today. A lot of port operations in Europe, they're very high tech, but they were able to get that implemented in partnership with their trade unions in a way that didn't lead to any job loss. I think those are the kinds of protections that these workers are interested in as well.

16:50You know, they want to be safe. They want to work with good, safe technology. But they want to make sure that that's not being used to basically squeeze their livelihoods out. And the ILA, the Union for the Longshoremen, their statement specifically says they are against any technological advances that deprive any of their members of their livelihood. I saw Gary Cullen on Swalkbox this morning. I mean, the thing about history is littered with, I'm sure, conversations and statements like that. But guess what? There's an inevitability of all this. You've got to sort of embrace it. There are ways around this.

17:25It doesn't have to be sort of binary. You know, and Gary spoke about it on Squawk Box this morning. You know, a three-year deal and then you sort of move on to the integration, retrain. So they're dug in. I get it. I'll say this again. I think it's going to last longer than the market thinks. But again, today the market doesn't seem to care. The Rotterdam port, which is fully automated and has been for the past 30-plus years, they basically offered huge payouts to their workers in order to get them to move on. So there are ways to move forward. Yeah, there are. And I think that's why the market is not addressing this as a near-term dynamic.

17:58It's something that obviously has to change more long-term. And I think that that's part of what we're pricing into some of those sectors even, but not necessarily what the market's doing. And look, markets aren't paying attention to it today as it did yesterday. Yeah, I think the retraining thing is the most important thing. Right now we're really focused on Gen.AI. If they're going to take jobs, now we have automation. Automation has been around for a long time. People have been worried about it. It would be great if you could find a near-term deal and retrain some of these folks to do these jobs or do other jobs that are similar.

18:25Coming up, the big plans for Eli Lilly, the pharma giant investing billions in a new research hub. How it will impact their drug pipeline and what the CEO had to say about the plans next. Plus, a billionaire blend. Bill Ackman roasting Starbucks. You almost spit out your candy bar, Tim. Even as new chief Brian Nicol looks to turn things around, why the hedge funder is so bitter on the name ahead. Don't go anywhere. Fast Money is back in two.

18:57Welcome back to Fast Money. Eli Lilly looking to pump up its drug pipeline, the company investing$4.5 billion to build a new research and manufacturing center in Lebanon, Indiana. Angelica Peoples has sat down with CEO David Ricks for more on the company's plans. Angelica. Hey, Melissa, that's right. Lilly is focusing on this center to come up with new ways to make its medicines. Now, the goal here is to replicate some of the success that it's found with its drug trisepatide. The company found a more efficient way to make that drug, and that is going to allow it to make more of it. And it's going to implement that process at a$9 billion manufacturing site that it's building in Lebanon, close to that new center that it's building.

19:39And that's about a 40-minute drive from where we are today at Lilly's headquarters in Indianapolis. Now, Mel, you know how important supply is for Lilly. The company is really focused on trying to build off the supply, but right now there's just not enough to launch it all over the world. Eli Lilly CEO Dave Ricks telling me that there are 40 countries where the drug is approved but not launched because they just don't have enough of it. Take a listen. I know people get upset because we haven't produced enough. That's a, you know, pressure's a privilege. We're doing everything we can to produce more.

20:12Right now in the U.S., we're in supply across the board, but we're waiting to launch in other places till we have more buffer to make sure we won't run out. Still, we're growing dramatically, both our supply but demand as well. Now, Ricks is also interested in finding new technologies that can help alleviate some of those problems. things like pills as well as longer-acting injectables. Melissa? And Angelica, some of the sort of next-generation weight loss drugs, those are more complicated to manufacture. So is this sort of their answer to that problem? This is one answer. So today we were actually at a lab where they were making one of those experimental obesity drugs.

20:52They wouldn't tell us which one, but it was a peptide. And the problem is that these are really complicated molecules to make. And so Lily is looking for more efficient ways to make that. Again, it already found a new system with trisepatide, but not all manufacturers can do that. So that's why Lilly is trying to find new ways to do it and also bring that capability internally. They also specifically said that this is their way of getting off the dependence of third-party manufacturers. This is also sort of their answer to Novo Nordic's acquisition of some of the Catalan facilities. Yeah, and that's one thing that Rix and also the company's chief scientific talked about, excuse me, chief scientific officer talked about the fact that there is a hard time getting supply or getting availability at these contract manufacturing sites, also in part because of the constraints with the GLP-1s that are in development.

21:44And so they're saying that by doing more of this in-house, they can potentially speed up some of those clinical trials because they don't have to rely on those third-party manufacturers. They can just go ahead as they need and dial up the manufacturing as needed, depending on which drugs are showing the most promise. All right. Angelica, thank you. Angelica Peebles, live from Indianapolis, where Eli Lilly's headquarters are. So both of these stocks have had some trouble of late. There's concerns about prescriptions going into their quarters. They both report end of the month, beginning of next month.

22:16What do you see in the charts? Let's talk about the charts. So I think Lilly's tired. It's been tired since July. The big day was September 27th, Gap through the 50-day moving average. That's a big level. We gave it up. It's 9.05. I think as long as you're below 9.05, continue to play as this is in correction mode. 8.10 to 8.15 is big support. I think ultimately that's what you see here. Novo already broke. Novo broke pretty hard. I think it's down 22, 23 from the highs. It's probably oversold. I could see it bounce. But we've got to get more skeptical of that one as it rallies. Really an opportunity to be reducing exposure.

22:471.23 in Novo is the level we talked about. It's obviously threw that down to 1.16 today. Yeah, you might catch a bounce, maybe back to that prior resistance. However, I mean, you look at a chart and there's a very good chance you have a bit of a head and shoulders formation here, Melissa Lee. So keep that in mind. All right. There's a lot more fast money to come. Here's what's coming up next. Roasting Starbucks. What billionaire investor Bill Ackman had to say about the coffee chain as the company looks to percolate things with a new CEO at the helm. Plus, a shock to Tesla's stock. Shares heading downhill after the EV maker's latest delivery numbers.

23:23What the metrics mean for the business. And the next catalyst for the name. You're watching Fast Money, live from the NASDAQ market site in Times Square. We're back right after this.