TikTok Weighs On U.S.-China Relations… And The Big Risk In Debt Markets 3/14/24

0:01Live from the Nasdaq market site in the heart of New York City's Times Square this is fast Here's what's on tap tonight. Rate rebound. The 10-year rising sharply as fears mount that inflation isn't fading and the Fed could stay on the sidelines. The impact on stocks, debt markets, and the consumer coming up. Plus, TikTok trouble. Is the brewing ban of the Chinese social media app setting the stage for a major battle with Beijing? We'll debate that. And later, a sporting surge for the retail stock. The buzz on Altria's sale of Bud shares and Tesla's electric slide rolls on. I'm Melissa Lee coming to you live from Studio B at the NASDAQ.

0:33on the desk tonight. Tim Seymour, Karen Feinerman, Dan Nathan, and Guy Adami. We start off with the latest escalation of tensions between Washington and Beijing. China's foreign ministry responding with some sharp words to the U.S. House passing a TikTok crackdown bill. A spokesman saying today that the vote, quote, lets the United States stand on the opposite side of the principles of fair competition and international trade rules, and that if so-called national security reasons can be used to willfully suppress other countries' superior companies, there would be no fairness to speak of. The comments come as former U.S.

1:05Treasury Secretary Steve Mnuchin made a surprise announcement this morning that he is looking to buy TikTok from its parent company. But would a deal like this ever be allowed to even go through? Is it just a sign that we are on the precipice of a real blow to U.S.-China relations that the market isn't pricing in at this point? Tim, what do you think? I think there's no question we've had different points in the last couple of years where it felt like tensions were escalating to a point where almost Like, how could you not? Huawei, I thought, was the spot. And again, all the different ways in which we we pushed back on essentially the national champion mobile phone company in China.

1:40I think the dynamic here, the fact that I think TikTok felt like they were out of the woods. And the Journal has an interesting article today how officials at TikTok were kind of blindsided because when President Biden's, you know, re-election team, his campaign team actually signed up for a TikTok account, they're like, I guess we're good. We talk all the time about the companies, and it's not just Apple, Nike and Starbucks, that have listed China for the last decade as their key growth engine. Well, Karen will talk about Alta tonight. He's talking about international. I mean, there's there's a whole lot of dynamics here.

2:16You think of the spirits companies, a lot of consumer staples. But a lot of American brands have relied upon China to the extent that not only if the U.S. follows through on a ban, you can be pretty sure that that ban is going to be a domino that goes around the world, I think. And obviously that's going to only exacerbate the pain here. So I do think there are bigger ramifications. I do think that the political cycle is such that this bipartisan issue is one that I think there are folks from both sides that are going to push the buttons. The other thing that the China Foreign Ministry spokesperson said is that these actions will come back to bite the U.S., which sounds like retaliation.

2:55OK, but this is not this is actually I don't think it should be considered a unilateral move. Right. Google's not there. Facebook's not there. And so they weren't banned, per se. No, they are. Well, they are allowed to operate in a way that they operate. They would want to operate. Right. So I think of it as similar, unlike the tariffs, which we sort of did unilaterally, kind of the last administration, put that on. What if they operated in China and then China decided after a while, after they surpassed Alibaba and other homegrown companies, that they didn't want Google or Microsoft or any of these other companies to be there and then said, now you get out?

3:31I feel like that's sort of what they did, made it so, you know. Onerous? Yes, that they sort of had to leave. So I don't know. There's so much momentum around this now, as you said. I mean, it's a bipartisan issue. And so I think we'll see it. We'll get to the potential bid. But that was kind of shocking. But to Tim's point, there are companies that do operate. McDonald's spoke at a UBS conference yesterday and for different reasons. But China was mentioned due to the sluggish start at the beginning of the year. Their words, not mine. But you layer this on top of that. And that's a problem for some of these multinationals without question.

4:04And I still think the biggest bullseye is on the back of Apple, which has obviously sold off, seemingly found a bid here at 170 or so. But if the Chinese want to ratchet this thing up, I think Apple's the first place they go. Yeah. And then Tesla, obviously. So when you think about this, all right. So the great firewall, our companies, our digital companies can't operate in China the way they can in the West. So it makes it very unappealing to them. And so, you know, to me, when I think about this, let's be clear, this is not a ban. It's a divestiture. What TikTok is saying, that a divestiture bill that is approved and signed by our president is doing the things that will cause a ban and then the chain reaction, the retaliation.

4:40Again, that seems kind of odd to me, considering it is not a level playing field between our digital companies and their access to their consumers. But then you're going to ask yourself the question, why is the Chinese government so interested in this one situation? Maybe it is the thing that we can all agree on. We can agree on very little in this country right now, but we can agree on the fact that there is a potential threat of the Communist Party in China having full, you know, basically control over the company that has full ownership of this product. Right. And so if that's what is being agreed upon, then the idea of a divestiture and then some sort of firewall between what the Communist Party has access to makes perfect sense.

5:20Isn't it ban first or divestiture? No, I think it's basically then they'll be. It's ban or divest. Divest or ban. Divest or get out. Divest or ban. Yeah, but there's time in between that, which is the same thing that happened during the Trump administration, and then nothing happened. And then Trump got bought and paid for and flip-flopped on the whole thing. So my question to you is now that his boy Mnuchin is putting together a bid for the company, when does Trump flip-flop on this? How does he get bought and paid for a second time? Do you know what I mean? So, like, again, that's what this is coming down to, some cheesy politics and drifting.

5:46Well, the argument of the Chinese government is that basically they pass this bill or they're going to pass this bill and make it legislation. And it's going to allow the U.S. to effectively seize control of a very valuable asset. They're going to create the market conditions where this asset can be bought and put on the market. And that's sort of the argument. And they'll control that narrative and then they'll push back in ways that we probably haven't even talked about yet. Sure. And again, I don't think the market is pricing any of this in at all. Maybe it's starting to in the form of, I said, McDonald's, maybe Apple, maybe Tesla.

6:20But in terms of the broader market, absolutely not. And what's interesting about that, you can actually sort of make a bullish case for the FXI, which was lower today, and some of these individual names, as counterintuitive as that may seem. So I still think the China trade works here. Well, it's also a time when we have this deglobalization. Laurie brought that point up yesterday. It's exactly what's been going on. And you have a case where I just think they talk about a dynamic where either divest or ban. I've I've I've been investing in countries around the world where, you know, threat of takeover is something that was there always.

6:58So and the U.S., I mean, you can look at this from the other side and say there could be a real challenge to the sanctity of our markets and of our economy. If it's viewed that, you know, that any sector could be deemed a strategic sector. And this is what goes on, goes on around the world again. Natural resources, telecom and certainly in China, by the way. I mean, so, you know, this is a lot of consistency, but call it what it is. I mean, this stuff has been going on in other parts of the world. And as an investor, often when I've seen that happen to companies that were foreign companies in localities that I thought were great growth opportunities made me not want to invest there.

7:35So I do think this is not a threat to, you know, U.S. trade. But I do think we have to understand the context of this. And this has been going on in other parts of the world for a long time. Well, one of the things I thought was interesting was this. And I think you talked about it last night. Letter X, U.S. Steel. The idea of this company being not allowed to be purchased by what is considered a close ally of the United States. Right. Right. With no overlap, with no technology basically getting transferred to Japan. And I mean, it's a little bit that to me makes me far less comfortable than this.

8:12Right. The tick tock threat I can see is I agree. And there's tons of there's I mean, steel is not a strategic asset. You can make an argument that U.S. steel by its name seems strategic, but U.S. steel hasn't been strategic since the 60s. Right. For more on the tick tock fallout in the state of U.S.-China relations, let's bring in CNBC contributor to Wardrick McNeil. He's Longview Global's managing director, senior policy analyst. Warder, great to have you with us. It sounds like you're not as worried as maybe some here on the desk are about what is going on with TikTok. I'm certainly worried about the security concerns.

8:45I understand those. But when I heard the announcement this morning by former Secretary of Treasury Mnuchin, my thought was pump our brakes because there's a lot left to go here before we get to divestiture. This thing has landed in the Senate. If it goes into committee, It is likely going to stall if it goes to the Senate Intelligence Committee. That's Warner and Rubio. Maybe it'll move faster. But if it goes through the committee for commerce, science and technology, Ted Cruz, who's a ranking member, has already said that he wants full amendments on this thing. So we're a long ways away from divestiture.

9:25So I am concerned about tick tock, but I'm not at the point yet where I think we're at divestiture. There's also, as I understand it, you know, China has to approve this deal. I mean, the algorithm, which is the secret sauce for TikTok, it's a key technology. And so China would have to agree to export, to have an export license for this technology in order for this deal to go through. I would think otherwise you're buying a shell of a company. That's the real question. Look, I think that the Chinese government has been very clear. They have no interest in having this algorithm owned by anyone in the U.S.

10:04If you listen to the announcement on our air this morning, Secretary Mnuchin kind of threw a crumb out by saying if this were to happen, we would use U.S. technology to do this, meaning not the algorithm. But then the question is, what do you have? Do you have TikTok that's so popular with creators and with teens? It's hard to say. It feels like some of the rhetoric around investing or trading in China was at its worst in January when everything bottomed out. And I think Tim agrees. I feel the same way that I think there's a trade there on the long side. I'm not suggesting long term investment.

10:40What are your thoughts on a short term trade in FXI or some of the individual names? As you well know, I'm going to be hesitant to get into trading advice. Let me just say that I don't believe, speaking at a macro level about the Chinese economy, that we're anywhere near being out of the water. None of the major problems have been solved. You have this new statement about new productive forces, EV, advanced manufacturing, those sectors. But those are the very sectors that you will find the U.S. is in direct competition with China on. So it's fuzzy to me in terms of what is available for long term investing in China.

11:19But I can say coming off the back of the National People's Congress, I'm not convinced that there's been any solvency in the short term or the long term for what's next in China to drive growth. Does what's going on with TikTok change your view of the state of U.S.-China relations? And how do you see the trajectory of those relations as we progress in the year, particularly as we approach the election? And if Donald Trump is reelected president, that would really I mean, he's already talked about a 60 percent plus tariff on Chinese goods. Yeah, that's a good question, Melissa. Let's park Trump as president for now.

11:56Just look at these next 235 days or so before the election. Look, I don't think the tick tock announcement has done anything to really upset the San Francisco agreement to maintain high level dialogue between the U.S. and China. I think what you have here is what we should always expect. This is not going to be a relationship that's without competition. It's not going to be a relationship without friction. But I don't see the TikTok divestiture bill as one that either side is prepared to blow up the bilateral relationship over. So I think we're holding serve from where we were after the APEC meeting between Biden and Xi and San Francisco.

12:34And then with a Trump presidency, what happens, do you think? Who knows? I can tell you right now it's going to be a lot of chaos for sure. I think trade is certainly going to be back on the table. The 60 percent tariff issues, people think that that's fantasy. But look, I have to take the former president at his word. He has been prepared to go farther than anyone else I've seen at total disruption. And so we should prepare ourselves with that again. Wow. All right. DeWordrick, thanks for joining us. We appreciate it. Thank you. DeWordrick McNeil of Longview. What do you think about what's going on here?

13:14I mean, I was just reading this in the information. I mean, you know, Rupert Murdoch had to become a U.S. citizen to own a media company here in the U.S. This was, you know, decades ago. This is the FCC has rules about indirect ownership of media companies, and they have caps on this sort of stuff. To me, it doesn't seem like this is so out of left field. And I just again, it's not. But it's so it's not. And I think everybody agrees it's not. And therefore, now what? Yeah, but I just go I just go back to the thing. Why is this such a hot button issue? Because, you know, the Chinese know that they have this thing that is captivated the world.

13:49It's an influencing tool. We've spent so much time since the 2016 election going over all of these different techniques in which different ways populations can be manipulated. This one seems very unique at a time where, you know, so again, I just think that they are actually confirming the worst fears that some of us have about the potential risk that this platform is on, you know, hundreds of Americans, 100 millions of Americans phones. Yeah, I mean, a couple of things on tariffs. Former President Trump definitely has loved using tariffs in the past. We've seen it in the steel industry and it wasn't great for U.S.

14:25steel, who we've just talked about. China plays the long game. So China doesn't need to react right here and now. And I realize that's kind of a cliche. This is an event. They do need to react. There's certainly been some discussion. And within our government, certain I think some elected officials have been either urged or told not to use TikTok and open accounts. Sounds sounds like SOEs and companies, state owned companies inside of China told not to use Apple products. The one thing I'd say, and Dwardrick really is great at speaking about this, is that the diplomatic channel between the U.S.

14:59and China is something that if that breaks down, that's a big problem. In other words, like even in our worst of times. And by the way, I feel concerned about this with a lot of other bilateral relationships. In our country, our diplomatic core is key to keeping people talking and communicating. And that breakdown in communication, which, you know, I think has been exacerbated in the last five to ten years, is something that we can't break down right now. You mentioned McDonald's is one company operating dependent on China growth. 100%. Are you worried about multinationals like a McDonald's or a Starbucks under a Biden administration if he is reelected or under a Trump administration, or both?

15:39Well, and it's not political. I'd be more concerned under a Trump administration. So that's the answer to the question. But it's interesting Tim brought up the tariffs, Because if you want a little history lesson, go back to U.S. Steel into basically the winter of 2018, February to be exact. I think that's when a lot of these – U.S. Steel was lower left, upper right, doing amazingly well. Tariffs get announced, and that stock went from$48 down to about$15 in pretty much a straight line. So you can say tariffs are good, but they have ramifications for the multinationals and our domestic companies here.

16:15So we try to translate all this. What's the trade? I do think, you know, the on-shoring, the re-shoring, near-shoring, all of the infrastructure bill beneficiaries, all of that trade continues to work. We have an earnings alert here on Adobe. The software company sinking in the after hours despite a top and a bottom line beat now down to almost 11 percent. Adobe missing Wall Street estimates for quarterly revenue guidance as well. The CEO just on CNBC in the last hour reacting to the quarter. Christina Parson, I will discuss the details. Hey, Christina. Hi, Melissa. So there was caution heading into this print with Adobe shares underperforming the IGF software ETF month to date.

16:49And then further caution post earnings with, like you mentioned, the stock down double digits. Even after the CEO came on our airwaves to talk about record revenues and digital marketing. But what we saw, despite the Q1 bead and the$25 billion share buyback program, investors noted the miss for Q2 revenue guidance and a slight miss for net new digital media annual reoccurring revenue, which came in at 432 million, which is higher than faxed estimates, but less than buy side estimates of 440 million. And that's a key metric for Adobe investors. A major overhang is competition from OpenAI's new text to video generator, Sora.

17:25Adobe's CEO was on in just the last hour and he said he believes competition will create a, quote, explosion in the amount of video and Adobe is going to be one of the beneficiaries. So it seems like he's not too worried. Adobe also has a summit at the end of the month, March 26th, with expected new product announcements to calm those fears that it could be losing market share to open AI and fall behind in the AI race. Stock, though, says otherwise. Christina, thank you. Christina Parts Nevelis. Before the show, we were talking, we were saying it seems like every quarter, Adobe reports, whatever they say, the stock goes down immediately.

18:03And this is another one of those situations. So quarter is fine. The guidance was a tad light. I think Adobe, and please don't at me, but I think they're the 40th largest company on the planet for context. Stock moves 12 percent on what was light guidance. That, to me, speaks to a lot of things that David Einhorn was talking about. But the fact that they're implementing$25 billion stock, it's 10 percent of the market cap of the company. You're looking for a place to buy the stock, not sell it. And you're getting pretty close. Yeah, I would say that, you know, down at$500, it's been, you know, technical support for the last six, seven months or so.

18:38And you do have this user event or, you know, where they're going to be detailing some products. And if the kind of story is, is that they're not keeping up the pace with what's coming out of OpenAI, we get it. Like that's OpenAI is in front of so many incumbents right now on so many different levels. The problem is that you have a company or you have a stock that's trading at 32 times expected earnings and sales growth, about 11 or 12 percent for the next couple of years. And so, you know, it's interesting that there's parts of this generative AI trade in the public markets where people don't care about valuation.

19:05And then in a situation where these will clearly be a beneficiary and they will clearly make good M &A decisions and the like here and have good product offerings and the like. But in the meantime, it's just not being appreciated because there's no there there. All right. Coming up, the earnings train keeps rolling on. Beauty retailer Ulta reversing lower on its latest report. The numbers and more from the quarter next. Plus, Lithium America shares surging after the miner got a big boost in its attempts to boost production. the headline that is options traders salivating right after this. This is Fast Money with Melissa Lee, right here on CNBC.

19:46Welcome back to Fast Money. We've got an earnings alert on Ulta Beauty after hitting an all-time high earlier today. Shares of the makeup retailer down in extended trading. That's despite reporting a beat on the top and bottom line for its latest quarter. Let's get to CNBC's Courtney Reagan for the details. Hey, Court. Hi, Melissa. Yeah, so Alta actually putting up a stronger than expected quarter for earnings, for revenue, for comparable sales. The retailer's full year revenue forecast also stronger than consensus, though it's earnings guidance range. That is a little light, so that could be part of the reason that we're seeing the share sell off here, or it could also be some sell on the news, some profit taking.

20:18Shares have been up about 14 percent over the last three months, over this last quarter they just reported, which is well above the retail ETF, the XRT, and the broader S &P 500 index. CEO Dave Kimball says Alta is forming a new joint venture with AXO to open Alta Beauty in Mexico in 2025 and notes international expansion represents an incremental long-term opportunity as it evaluates different operating models, partners, and geographies. Didn't share much more than that on the call, they said, right now for competitive reasons, but will tell us more when they are able to. Also on the call, Kimball said that skincare was the strongest category of double digits when you're talking about sales growth there.

20:55Makeup comms did fall single digits, but also called out some strength in the higher end, almost luxury names like Dior and Pat McGrath at Ulta this past quarter. Melissa, back over to you. All right, Courtney, thanks. Courtney Reagan. And these results come after Dick's Sporting Goods posted their biggest gain in nearly three years after their results this morning. So, Karen, what do you make of this Ulta trade? I know you follow this one. I do. I'm long Ulta. I'm short a little bit of upside calls, not enough, but I thought it was fine. I thought, as Courtney said, I mean, it's had a huge run, all-time highs going into this earnings, higher PE multiple than they've had taking out the pandemic, which was sort of a one-off situation.

21:34So I think also of them as under-promise, over-delivered. They're doing everything right. The margins look good. I thought the revenue was good. I thought it was all good, actually, just not enough in this tape with that run. But I'm happy to be long. Wish I could buy some. Actually, I could shortly where it is right now. I think the call is going on as we speak. The full year. So this was the fourth quarter. The full year guide scared be$26.20 to$27 wide. Below, I think,$27.10 was consensus. OK. But margins, operating margins beat by 80 basis points. Their sales outpaced their inventory. I think inventories only grew about 8.5 % year over year.

22:13So that's in line, which theoretically should mean margins continue to probably do very well. Valuation isn't nuts. I mean, it's probably, what, 24 times-ish, maybe 25 times? A little lower, I think. Maybe even a little lower. So I think, again, like we talked about Adobe, you're looking for a place to buy the stock, not sell it. Well, it's cheaper than the E in Blysep, which is Estee Lauder, which is mine. And I'll tell you, I mean, we just referenced this in the last block, which is that I think beauty suffers significantly from TikTok, man. And it's partially because that channel has proven to be gold for a lot of the beauty companies.

22:46And there's a view that Ulta, with their UB media, is so far ahead of everybody else and has some of the size and scale to pass it. But, you know, to me, I look at some of the other players. So Estee Lauder is a story where we've known all about the China problem. And if anything, I think there's some innovation. I think it's a company that clearly recognizes they need to move quickly. I think some of the channel dynamics have cleaned themselves up a bit. So to me, it's hard. I mean, Alta is so far like the best in class in that space. And Estee Lauder is not. But often I find that an interesting trade.

23:19Nobody wants to talk about dicks.