Trump-World

Inside this feeble brain resides a significant amount of skepticism.  Perhaps from age or maybe the result of life’s encounters – the result is there is a difficulty in accepting anything at face value.  Especially when it’s a moving target – otherwise known as a changing story line.  Another case in point is the curious case of ZTE (ZTCOY) which exploded into our consciousness in major form this past week due – in no small part – to tweets from the president.

To set the stage, ZTE agreed to enter a guilty plea and pay a fine to settle a 2017 case that they violated export sanctions by shipping products with US components to Iran.  On April 16, 2018 the Commerce Department enacted a ban on American companies conducting business with ZTE for seven years  as a result of ZTE allegedly breaching said settlement.  In addition, the US military had previously raised concerns of potential espionage by ZTE’s equipment on or near military bases.

This is where a typical sanctions violation  story would end.  But what can be considered ‘typical’ in this administration?  ZTE confirmed the closure of operations on May 9th.  Four days later, Mr. Trump was trying to ride to the rescue in a manner befitting his prior triumphs.  Making China Great Again?

Now this series of events had me wondering … what was this fascination with ZTE?  With about a third of the components sourced from US companies, was it US jobs?  Exports?  CapEx? Based on the suppliers I found

NOTABLE US ZTE SUPPLIERS

Company Ticker NOTE
Acacia Communications ACIA 92 US Employees
Oclaro Inc OCLR 1876 US Employees – pend merger (LITE)
Finisar Corporation FNSR primary mfg Malaysia, China (US-TX,CA,PA)
NeoPhotonics Corp NPTN mfg Japan, China (US-CA)
II-VI, Inc IIVI multiple US plants (plus China, VietNam, Philippines, Singapore, Germany, Switz.)
Infinera Corp. INFN 1142 US Employees (CA,PA)
Applied Optoelectronics AAOI mfg TX, GA, China, Taiwan
QUALCOMM, Inc. QCOM
Lumentum Holdings Inc LITE primary mfg Thailand

One item I noticed was the companies building lasers generally have those facilities stateside where other distance manual assembly work is outsourced overseas.  Ignoring Qualcomm, there appears to be limited current exposure to existing US jobs – some of which would be reallocated to other suppliers in the event the ban continues.  Also, Oclaro did file with the SEC of a possible material impact to earnings.  Others to follow?

This question was also raised by The Register, particularly when the inevitable backtracking by Trump began.  To highlight – minimal US job impact, major China job impact, a guilty plea entered (wrongdoing acknowledged) and now the narrative is being framed as a ‘trade issue’.  The genesis of the ‘fake news’ for this topic has at least been determined.

But the real question remained, “Why the potential easing of  ZTE sanctions”?  The answer may reside in reporting by the Jakarta Post.  Their report, subsequently picked up by some US news outlets, indicates a $500 million loan was recently provided to the Trump organization.  Cautionary notes: 1) this timing could be coincidental and 2) the Trump organization is a separate and distinct entity from Trump the president.  And how is quid pro quo currently defined?

You can’t be blamed if you missed the Jakarta report as its release coincided with the media show that Rudy Giuliani has embarked on in an attempt to distance the president from the issues with his attorney, Michael Cohen.  Which is an interesting story on its own.  If you have nerves of steel, you too could be front and center to the soap opera by adding First Republic Bank (FRC) to your portfolio!  

Update 22 May 2018: the WSJ reports an agreement has been reached between the US and China settling the dispute allowing US suppliers to resume sales.  Ed. note – obviously the Trump team was successful in reframing the issue as a trade spat rather than a sanction violation.  Early reports indicate no significant additional penalties other than a promise to abide by the agreement.

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9 thoughts on “Trump-World

  1. A decent dose of scepticism is a good thing I hear Charlie!

    So much of this stuff is just noise that I prefer to ignore (or else an excuse for my ignorance of the complexities of the world). But certainly some thought-provoking thoughts Charlie, definitely sounds like the makings of a good soap opera!

    Cheers, Frankie

    Liked by 1 person

    • Now I really don’t go looking for this stuff – my initial intent being to identify the impact of ZTE sanctions on US companies. This topic wound up being like a car wreck you can’t take your eyes off of. And you’re right that the tweets are mostly bark and minimal bite (noise). It appears ZTE got in hot water with the Aussies as well! Anyway, other than QCOM (which I own) none pay a dividend so the DGI community should see minimal impact 🙂

      Thanks for visiting!

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    • Well sir, that makes two of us. The only conclusion I can form is that QCOM may take another hit (on top of their patent fight with AAPL) if it remains a sanction issue. Telus (TU) is a ZTE customer. Apple could gain additional sales (as could Nokia and Ericcson). If Trump is successful in parlaying it into a trade issue then the winners and losers could be reversed. As is becoming the norm, any path forward for investors is clear as mud.

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  2. He tweeted too many jobs lost [in china], …. since when he switched from American first to China first. Either way, money talks. And the broke Trump family needed the money and they’re bought.

    Liked by 1 person

    • I would have expected at least an incentive package for the US companies I listed to bring back outsourced jobs and only one (so far) has dared to negatively reference the issue. “political conditions continue to impede business” pg 35 10Q 3/31/18 INFN.

      Now I have to chastise you a little for jumping to a conclusion without all the facts being available. 🙂 The politically correct phrasing would’ve been to refer to the organization as “highly leveraged”. Oops – my bad. Political correctness is not in vogue anymore, is it? 🙂

      Liked by 1 person

      • The first thing the Chinese did was to grant the Trump their trademarks that they’ve been fighting since early 2000s. Ivanka has some subsequent visit to China, Japan … anyhow, the Chinese are super tricky and calculating. While American is sleeping in the South China Sea, they’ve taken over the Spratty Islands and built misle launcher, sonic rada interception.

        Here is a conspiracy, the disappearance of the Malaysian Airplane 777’s radar was disable and disoriented when they “tested” how effective it was. The CIA/Military probably know about the attack, hence the reaction from Obama and Trump when they get the security briefing that the Chinese have done a number of things.

        Even Guilliani says Ivanka husband is a bit too shady, and they owe a lot of money. He’s Jewish, thus, the recent US Embassy in Isarel…. On the other hand, Obama wasn’t clean either, he bowed to the king of Arab, there were $400M of undisclosed foreign campaign money …

        I’m not speculating, these are the things that in the news.

        Next year, American will be in for a rude awakening of the tax reduction of … almost $0 when they file their taxes.

        On the side note, Mr.W says Bill Clinton was well-like because he was advertising himself as a conservative democrats. LOL 🙂 I guess, nowadays, we have people who’s super left, and super right wing, it’s too hard to fix the government when people don’t meet in the middle. Says, this morning, I read an article where the Lift driver kicked a gay couple off because they kiss in the car. They’d probably missed out a few things … more like all out made-outs. Anyhow, Donald Trump might made the “fake news” theme famous, but he’s probably on the right track as EVERYONE can be a reporter. We don’t have months long news reporter research, go to the front line to do the real reporting anymore.

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      • First, let me clarify I was teasing you 🙂

        All that you present may be – and in some cases is – accurate. But I prefer to remain grounded on possible investment themes/opportunities if (or as) they arrive while attempting to leave the legal/political/geopolitical issues to better minds. That said, there is one investment theme in your response (Guilliani). Check this out: https://www.bisnow.com/new-york/news/capital-markets/kushner-paying-120m-to-buyout-vornado-at-666-fifth-report-88619/

        (And I 100% agree on the tax issue though most won’t come to that realization until tax time.) Thanks for the discussion!

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      • , I know you were teasing. I’m the youngest of 10. I can “survive” my siblings growing up, so little tease here and there is no problem.

        I’m not sure what my take on Guilliani, when he was New York mayor he really cleaned out the street vendors. The things that made New York, the New York. Like you say, you can read the policies to see which way the wind blows.

        Say last year, we should only make $175k or so to remain 28%, this year we can take profit and increase income to~$300k to remain at 24%.

        Say if Trump wants to canca, the Iran deal, this summer the gas price can go $4-5,so retail gas stations like CASY, XOM, BP , cxv are all in good position to gain another 20% from the current share price. 🙂

        My family have a strong military backgrounds, naturally I like to talk politics, but I’m not crazy and certainly can stand opposing views.

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