Chinese mobile companies really do have the U.S. beat when it comes to 5G technology. Why? China holds 34% of all 5G related patents.
Let’s role play this out. Apple is likely going to report bad earnings and revenue next week. Apple has a large cash pile and has engaged in huge share buybacks to manipulate their EPS metric. Revenue isn’t so easily manipulated and that’s where Apple is going to get hit.
Apple is already experiencing weak Chinese sales as Chinese consumers buy Huawei phones. Apple does not have the kind of brand loyalty that they have in the U.S. when it comes to Chinese consumers.
Apple is desperate to maintain access to Chinese markets. Apple is also racing to bring a 5G phone to market by the end of 2020. China holds 34% of the patents related to 5G technology. It is likely that Apple will need access to Chinese patents for their 5G phone. If China were to become angry with the U.S., they could restrict Apple’s ability to use any of the patents Huawei holds. China really has Apple over a barrel. If Chinese Communist party members were to ask Apple to denounce President Trump or use their technology in a way to discredit the 45th President, Apple would have to comply or be forced out of business.
Now imagine many U.S. companies being dependent on China’s 5G patents like Apple. Check-mate, the Chinese win.
The only way U.S. companies have a chance is if China’s 5G patents are challenged and later revoked. If the U.S. can some how claw back these patents, there’s still a chance. Doing something drastic like not recognizing China’s patents on the grounds that it originally stole so much U.S. I.P. would definitely escalate the trade war and have other bad side-effects we can’t even imagine. It might even lead to a real war.
One of the devastating moves that the Chinese did to the U.S. was that in 2008 when our recession hit, China massively devalued its currency after taking it off the U.S. dollar peg. The result was that lower interest rates did not stimulate the economy much. The Chinese are most likely going to devalue the yuan when our central bank devalues the U.S. dollar to boost the economy because that’s what enemies do. China has been at war with the U.S. for decades and their goal has been to beat us and become the most powerful country on the planet. Where you really want to watch the actions of China is when we have the next recession. China will hit us in the currency war when we are most vulnerable during a recession. China did it to us in 2008 with devastating economic results that kept us in a barely growing economy for nearly a decade as China caught up to us and passed us in industries like rare earth metals, 5G technology, and manufacturing.
The chart setup on Apple looks compelling, especially if they report bad earnings next week and we get a chance to enter on a pullback. The real problem with Apple isn’t the chart, it’s the fundamentals.
Considering that Apple’s EPS growth Q2Q is -9.89%, imagine what their EPS growth would be without the massive share buybacks they have engaged in over the last few years.
You would think that Chinese mobile companies like China Telecom would be soaring higher with their corner on the 5G market but that’s not what’s happening.
This is where you have to understand the Chinese ADR scam. China lists on U.S. exchanges to raise money for China, not U.S. investors. Chinese mobile companies like China Telecom are under distribution. It doesn’t matter how good the fundamental catalyst is sometimes, if a stock is under distribution, you don’t want to jump in front of that freight-train.
For now, let’s stalk Apple and see if we can get an entry on a pullback.