Why there’s no such thing as a China Deal…But The Volatility is Great


Dear Reader,

Please take your seat on the Wall Street Merry-Go-Round…

You’ve Seen the Headlines.

“S&P 500 settles below intraday high sparked by U.S.-China trade truce” – July 1st, 2019 – MarketWatch

“Stocks See Worst Decline of 2019 as China Raises Trade Tensions With U.S.” – August 5th – NY Times

“Stocks rebound on U.S. plan to delay some China tariffs” – August 13th – Los Angeles Times

“Dow surges more than 300 points after China hints it won’t retaliate for now in trade war” – August 29th, 2019 – CNBC

“Stocks drop to begin September amid new US-China tariffs, weak US manufacturing data” – September 3rd, 2019 – CNBC

“Stock Market Soars On China Tariff News; Apple Surges 5%” – Investors Business Daily – October 13th, 2019

“Mixed word on US-China trade talks roil markets again” – Detroit Free Press – October 13, 2019

Up and down and around and around…

Are you sick yet?

I was sick to my stomach until I took a step back, picked up a history book and realized that the China deal is simply a trip to fantasy land.

The clear fact is that China is a communist country with extraordinary ambitions.  They literally just celebrated the 70th anniversary of the founding of the People’s Republic of China and are trying to fulfill “Made in China 2025” their state led industrial policy.

According to a NY Times article, “The World Built by China” November 18th, 2018, they are building a global network of trade, investment and infrastructure that will reshape financial and geopolitical ties.  They have found over 112 countries where China has financed projects which fall under their “Belt and Road Initiative”.

Beijing has outlined plans to become the world’s biggest superpower within the next 30 years and China’s national strategy of “military-civil fusion” is causing serious security concerns, especially with rollouts of 5G networks.

Companies like Baidu, Alibaba, Tencent, and Huawei are going head to head with American tech giants on research and development including areas like artificial intelligence, where many believe China is beginning to surpass the United States.

Can we, or better yet, WHY would we EVER make a deal with a country that has clear and distinct opposition to our economic system and core beliefs?

Hmm, maybe I should ask that question to Bernie Sanders, Elizabeth Warren or better yet AOC.  If you are wondering, we just posted an article about “What a Socialist President Would Do“, you might want to read this.

Let’s just sell them some soybeans and pork products and call it a day.

We know they need them as prices of pork have risen 50% over the last year due to the African swine fever that has destroyed more than a million pigs according to the Chinese agricultural ministry.

So now we know the future…There will never be a “Real” China-U.S. agreement, now what?

Hopefully companies will consider diversifying their supply chains but here are a few ideas for you to consider…

Services Stocks
Stock investors looking for equities that can withstand the trade war may want to consider looking at companies that provide services instead of hard goods. Service based stocks will be much more resilient and likely to outperform.

According to a recent Goldman Sachs report, Goldman’s analysts, led by chief equity strategist David Kostin, are recommending that investors target services firms like McDonald’s Corp. (MCD), Netflix Inc. (NFLX), Comcast Corp. (CMCSA), Walt Disney Co. (DIS), MasterCard Inc. (MA), Visa Inc. (V), UnitedHealth Group Inc. (UNH) and Verizon Communications Inc. (VZ).(CNBC).

Domestic Stocks
Domestic stocks, especially healthcare and tech would face less exposure to trade issues. Software companies are shielded by tarriffs from an input-cost perspective and health insurance stocks (while may present some risk after the 2020 Election) are all safe from tariffs as they are service companies and are domestic. Companies like UnitedHealth Group Inc (UNH), Centene (CNC), Adobe (ADBE) and Intuit (INTU) could be viable options.

Reconsider real estate
Real estate investment trusts (REITs) offer income investors some protection against that trade-related volatility. Real estate investment companies can be exposed to tariffs if they are active developers and must source construction supplies. But not all REITs are builders; some buy and manage properties, reducing their vulnerability to a trade war. According to a recent U.S. News & World Report article “7 Ways to Shelter From a Trade War”, real estate can take a hit if a trade war causes inflation to spike, but certain sectors may be able to cope better than others. Jordan Farris, head of ETF product and development at Nuveen, says real estate investment trusts, such as the Nushares Short-Term REIT ETF (NURE), can help overcome trade war fears. “NURE is a passively managed ETF tracking an index of hotel REITs, apartment REITs, manufactured home REITs and self-storage REITs. These four segments of the publicly listed REIT market have historically outperformed during periods of rising interest rates and are less impacted by trade than are other areas of the REIT market.” NURE is up 17.7% so far in 2019.

Value Companies that are exiting China
Turn towards value companies that have already made the move to exit manufacturing in China. Over a year into the trade war, more than 50 global companies, including Apple and Nintendo, have announced or are considering plans to move production out of China, Nikkei research has found. American PC makers HP and Dell are thinking of moving up to 30% of their notebook production in China to Southeast Asia and elsewhere. Japan’s Nintendo will also shift a portion of its Nintendo Switch game system production from China to Vietnam. – “Not Made in China” Nikkei Asian Review (July 19th, 2019).

So now you know the truth about the trade war with China, you can stop panicking with the daily headlines and plan your investment strategy without the noise.

To your financial future!

The Editor

P.S. Not sure if you have been watching the latest Democratic debates.  Here’s the first step Socialists will take to go after YOUR savings. We are witnessing a raging Socialist movement in America today. If you care about your health… your wealth… your family… and your future… it’s critical for you to understand what’s really happening and what is most likely coming next. This written analysis will help you see these events in a different light.

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