The rumble of war drums is starting to resonate from the Far East.  They do not like the rhetoric coming out of the Republicans and are fortifying several key islands in the South China Sea with missiles and troops:

Beijing has always paired its military maneuvers in the sea with rhetorical bombast printed in state-run media, which offers a window into the Communist Party’s thinking.

But in the wake of the Hague tribunal’s verdict, the government’s mouthpiece media have spoken more forcefully about the prospects for war.

One op-ed from a state-run outlet asks, “Is there any chance of war in the South China Sea?” The same piece suggests that, if the United States did battle China over the sea, America may be vanquished: “The 21st century has witnessed a series of failures of U.S. military actions.”

Another column compares the tribunal’s South China Sea ruling to the U.S.-orchestrated campaign to convince the world that Iraq possessed “weapons of mass destruction” — thus making the case for invasion.

According to the op-ed, this is the “same trick” played by the U.S., which “believes in nothing but ‘might makes right.’” (For good measure, the state-run paper adds that former President George W. Bush should be charged as a war criminal.)

China has a long history of struggling in battle.  Although they have ‘the world’s largest military’ they do not have the strongest.  According to Credit Suisse, that title belongs to the U.S.A.

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Travel into the southern lands has become off limits for breeding families.  For the first time a baby was born inside a New York City hospital with an abnormally small brain and other problems associated with the Zika Virus:

For the first time, a baby has been born at a New York City hospital with birth defects from a Zika virus infection transmitted by the baby’s mother, the New York City Health Department said Friday.

The mother was infected with the Zika virus, commonly spread by bites from a particular species of mosquito while in a country where the virus was being actively transmitted.

These areas include nearly all of South and Central America and the Caribbean.

The baby was diagnosed with microcephaly, or a smaller than normal brain size and other brain problems, the health department said.

The baby tested positive for Zika, the city said. According to the federal Centers for Disease Control and Prevention, as of July 14th, 12 infants have been born in the U.S. with birth defects and evidence of possible Zika infection.

The mother was infected outside of the United States.

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Germany is coming under fire this evening.  Munich Police report several people are dead and wounded after a gunman opened fire at a shopping mall near the iconic Munich Olympic stadium.

Authorities are asking media and individuals not to post any footage of the police operations underway.  This is an odd request, incidentally, in the age of smartphones.

Some reports suggest a second location is being attacked, but the reporting thus far has been spotty due to most information being in German.

As summer drags on, Europe has become quite volatile.  Per the usual, the U.S. markets are showing no signs of reacting to this terrorist attack.  Old hat, priced in events, these shootings.

 

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Shares of Starbucks, the Seattle sugar-drink and coffee dispensary, initially spiked lower by -4% after the company reported earnings.  Since then trade has been volatile but investors are recuperating some of their losses.

Their earnings report was decent and inline with expectations.  Here are some highlights:

The company announced Shanghai, China as the location of its first  
international Starbucks Reserve Roastery and Tasting Room. Scheduled to open in  
late 2017, the 30,000 square-foot space will reflect a similar, immersive  
all-sensory experience as the company's first location, which debuted in its  
hometown of Seattle, Washington in 2014.

They’re opening a jumbo-roaster in China in hopes of having it knocked off my local Chinese merchants.

In May, Starbucks announced that it had closed an underwritten public  
offering of senior notes, including the first U.S. Corporate Sustainability  
Bond. The company will use the net proceeds from the offering of $500 million  
in 2.450% Senior Notes due 2026 to enhance its sustainability programs around  
coffee supply chain management through Eligible Sustainability Projects.

They sold some expensive looking debt.  Over in Japan they loan out millions for as little as 0.001% so they could have done better.

Net revenues for the China/Asia Pacific segment grew 18% over Q3 FY15 to  
$768.2 million in Q3 FY16. The increase was primarily driven by incremental  
revenues from 888 net new store openings over the past 12 months.

See Also: $SBUX Disappoints, Shares Fall in The After Hours

Incremental revenues, you say?  Are the existing China stores growing?  No word but wow, going all in on China and opening 209 new stores, yikes.

Q3 EPS $0.49 vs. Est. $0.49, Rev. $5.2B vs. Est. $5.3B

Q4 Adj. EPS $0.54-$0.55 vs $0.55 Est.

So inline on Q3 and in-line with guidance.  Boring normally, but when you’re priced for perfection, troublesome.

The earnings call is scheduled for 5pm EST.

 

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News of the coup or mutiny or staged political event trickled stateside right as the market was wrapping up a lazy week of drifting higher.  The summer breeze was making everyone feel fine.  Perhaps more than one liquid lunch was enjoyed to cap off the successful week.  Overall the news barely registered as a tingle by the sensory nerves living in our marketplace.

Perhaps it will introduce some volatility into an otherwise docile summer market?  Perhaps, but the cynic in me sees this blowing over fast.  Nobody wanted to entertain a conversation about Turkey over the weekend in real life–people would rather talk about Pokemon.

The model I build every week inside the Exodus Strategy session has been on a steady run, but this week it offers very little.  With no real edge heading into this week, a slow economic calendar, and only boring companies set to report earnings, there is little reason to engage the markets.

The Republican National Convention kicks off Monday–perhaps some ultra-violence down in the drive-through state of Ohio will put some life in the tape.

TBD

Exodus members – The 88th Edition of Exodus Strategy Session is live, go check it out!

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The benevolent and wise FTC is out this morning with a favorable ruling for Herbalife.  By their determination the company checks out.

No signs of a pyramid scheme here, folks.  Carry on, nothing to see here.

Herbalife will be subjected to a $200 million dollar wrist slap, however, for misrepresentation claims.

What’s $200 million between friends like drugs and government?

Shares of HLF are going berserk premarket, currently indicating a +10% gap up on the open.  Early reports from Montauk, New York of a grey-haired man running naked down the beach are beginning to surface.

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An Amazon share of stock will run you about $750 bucks a pop.  At that price the company is now the fifth largest company in the world.

Drop kicked out of the 5th slot was Berkshire Hathaway, a company lead by shrewd old Warren Buffet, a man who made a fortune by buying valuable stuff well below its value then selling it at a premium.  What a silly American pastime businessmen used to play, yes?

Ironic then, isn’t it, that Buffet is being kicked off the podium by a company that slashes away all premium associated with a brand or good?  A company, like Amazon, that is rapidly decaying the margin associated with retail?

Bezos is probably sitting at his giant Dr. Evil table right now, having a rousing laugh about this happening on his ‘Prime Day’ holiday.

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Germany’s Merkel dished out a left-handed compliment to self-driving cars today.  She was quoted by Bloomberg as saying, “humans are the most dangerous drivers,”.

This was her reply when asked about the fatal Tesla accident involving a self-driving car.

For whatever reason traders are attributing the +5% up day in Mobileye to this German blurb, but traders also think Mobileye has some proprietary technology when in reality they are the GoPro of the industry.

MBLY is a short, TSLA is a long, and Chancellor Merkel has zero respect for human drivers, despite being from the land of the autobahn.

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Once you become an adult life can be very boring.  Talks of revolution are noisy at best and recede just as soon as autumn takes its last breath.  The visionaries behind great companies die and the shell left behind turns corporate blue (see Apple).

So when a new thought leader emerges and promises to advance society into a better future, hope bubbles up and once again there is a reason to live.  Elon Musk is our liaison into the future and Wall Street 100% believes in him.

They believe in his vision so much, this Sunday tweet has Tesla shares up nearly 5% on the day:

Working on Top Secret Tesla Masterplan, Part 2. Hoping to publish later this week.

— Elon Musk (@elonmusk) July 10, 2016

So in preparation for the greatest announcement of the last decade, let’s review Elon’s original Masterplan.

Part One Of The ‘MasterPlan’ Summarized

 
  *   Step 1 - build a sports car (the Tesla Roadster.) 
 
  *   Step 2 - Use revenue from step 1 to build an "affordable car." 
 
  *   Step 3 - Use revenue from step 2 to build an "even more affordable car." 
 
  *   Step 4- While doing the above steps, provide "zero emission electric  
power generation options."

I would say he’s done a good job since writing this decree back on August 2nd, 2006.

Big ideas will always be met by dissonance, especially from the old-hats being disrupted by said big ideas.  Ignore them.  Better yet kick their door in and spear them off their plush leather chairs.

There is no better force in the universe than disruption and change is as normal as breathing.

Get excited, Our Leader will publish Masterplan, Part 2 this week.

 

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The bull market is back to asserting its dominance heading into the first official weekend of July.

Leading the charge is auto dealerships as cheap fuel inputs and low interest rates empower salesmen to sell vehicles like hotcakes.  The real story is what is happening with semiconductors.  This was a key focus of the Exodus Strategy Session last week, what the chips did.  They came into the week in a sketchy spot but alas, they are one of the strongest industries in show, BEHOLD:

One cannot ignore this event and stubbornly remain fixed on a bearish bias.

Furthermore, let it be known, the research team at iBankCoin was all over this move.  We were confident Tuesday would be weak but a headfake.  In short, iBC wins again.

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