- Rainbow Unicorns
- Where Have You Gone, Neville Chamberlain?
- My China Zero-Investment Policy
- Buy Low, Sell High
There was a time, not so long ago, when American geopolitics ideology was anchored by the belief that there was a greater good that could be achieved through economics.
That iPhones and Netflix would entice China to play by international trade rules?
That inclusion on the global stage might encourage Turkey, Iran, or Russia to be better neighbors?
If we feed a terrorist, then maybe he won’t be so angry?
The Neocon wing of the Republican Party thought that Iraq would welcome the democratic process with open arms and open voting booths. Instead, the removal of Sadaam’s iron fist paved the way for a band of lunatics to create their hell-on-earth religious state, complete with its own ESPN for cutting off people's heads…
And some Democrats heard the words “defund the police” as the tonic for a corrupt and broken law enforcement system that left cops with a simple choice: you can be personally sued for laying hands on a “suspect,” or you can sit in your squad cars …
Well, guess what, ladies and gents – this isn’t the “Rainbow Unicorn” in the year 2020. We are in the first chapter of a brand new Cold War. But it’s not just America vs. the Soviet Union this time around.
You can see the breakdown of the whole superpower thing with the likes of Joe Manchin, who can hold 49 votes hostage because a few of his supporters think coal has a viable future each time a backwater oil state tries to decide an election with the amount of oil it pumps, with every missile that a psycho-narco-state fires over a demilitarized nation, with every colonel that has to turn a blind eye to a massive poppy field to gain warlords help against Stone Age religious kooks that would rather pour acid in a girls’ eyes than let her see actual words.
Whew…I need a second to breathe.
Strangely enough, I keep coming back to a scene in Christopher Nolan’s brilliant Batman Begins, where Bruce Wayne’s nemesis, Ra's al Ghul, observes that “Criminals thrive on the indulgence of society’s understanding.”
Where Have You Gone, Neville Chamberlain?
Before you get your hackles up, let me say that I am well aware of how capitalism has lifted billions of people out of poverty, slashed infant mortality rates, and boosted literacy around the world. And I know that coal does have something of a future in the world’s energy mix.
(Editor’s Note: It's not a future I’d want to hitch my wagon to, and for the same reason that I wouldn’t own shares of General Electric (NYSE: GE) or Intel (NASDAQ: INTC). I like growth that’s based on a solid grasp of the future and not mired in the status quo of a bygone era.)
Western ideals and the capitalist system have been a powerful one-two punch. But it’s not a perfect combo. And if there’s one event that has opened our eyes to the precarious state of the global peace dividend the world has enjoyed over the last 30 or so years, it would be Vladimir Putin’s decision to invade Ukraine.
It’s like Neville Chamberlain and the Nazis all over again.
Even when 150,000 Russian troops were amassed at the Ukraine border, plenty of smart people around the world still thought, “naaah, he’s not going to turn back the clock 70 years and invade a sovereign nation.”
But here we are…
Now we’ve got Vlad’s rape, torture, and murder machine on the news every night. Suddenly the world looks a lot more ominous.
Maybe I’ve veered out of my lane taking on today’s tangled geopolitics, but I have to say that if you think the current bear market is just about interest rates, think again.
My China Zero-Investment Policy
Even before Alibaba (NASDAQ: BABA) founder Jack Ma was temporarily “disappeared” by the Chinese Communist Party for re-education back in 2020, I’ve been telling my readers that Chinese stocks should be 100% off limits for anyone that values money.
Alibaba shares were selling for $250-$275 back when Ma took his little vacation. Today, Alibaba shares go for $62 and change. Ouch.
Alibaba stock fell over 10% just this week. So did Tencent (OTC: THECY) and New Oriental Education (NYSE: EDU). Chinese companies lost $90 billion in market value Monday. It wasn’t earnings. It was the fact that Chinese president Xi Jingpeng consolidated his power and will be China’s leader for life. And Xi is not a friend to the stock market, capitalism, investing, or to the U.S.
I just read an investment note from JP Morgan’s Chief Global Strategist, Marko Kolanovic. He wrote, “The swift decline in Chinese equities is “disconnected from fundamentals” and presents a buying opportunity for stock investors….”
I wonder what “fundamentals” he’s talking about…
Maybe it’s the fact that there’s already a de facto moratorium on any new Chinese stocks getting listed on the New York Stock Exchange or the Nasdaq. Maybe he doesn’t agree with the two main reasons for this moratorium.
One, China does not allow its companies' accounting to be verified, and Chinese companies routinely lie about their numbers. And two, it’s difficult to know which Chinese companies are Trojan Horses for the Chinese Communist Party.
I’ll bet you dollars to donuts that all Chinese stocks currently available here in the U.S. get delisted and moved to the Hong Kong stock market, which China now owns.
Not only that, China’s tech industry has been severely impacted by the Biden administration's new rules on semiconductor sales to China. I’ve written about that in detail, but the gist of it is:
In a nutshell, the situation is that China can’t make and use any semiconductors without at least some imported equipment. And the Biden administration just made it nearly impossible for China to import any of this equipment.
Without U.S. technology, China’s ambitions for AI, hypersonic weapons, and automation will, as one expert put it, “…wither on the vine and go away.”
I don’t know what China’s response will be to this semiconductor embargo. Maybe it intensifies Xi’s desire to make Taiwan part of China again. Whatever the response, I doubt it will be good…
Buy Low, Sell High
I know I’ve shared my thoughts on the Wall Street mantra “buy low, sell high” plenty of times. But let me reiterate that anytime I see an investment telling individual investors that now is the time to buy low, I figure there’s an ulterior motive at work. Namely, they are telling their top clients the exact opposite, that now is the time to sell high on Chinese stocks because they are about to head lower.
And what better way to try and keep those stock prices at current levels – while the fat cats unload – than to tell you and me to buy them?
So, I don’t think it’s a coincidence that JP Morgan called a report that one of its analysts released back in March “a mistake.” The title of that mistake? “Chinese Stocks are Uninvestible.”
“As risk management becomes the most important consideration among global investors in relation to their China investment strategy, as they price in China's geopolitical risks, we view China Internet as uninvestable on a six-12-month view with a binary share price outlook.”
JP Morgan called it a mistake, but the genie had already been let out of the bottle. After the initial report, U.S. and Asian markets shed roughly $200 billion.
Geopolitics has suddenly reared a pretty ugly head. It has important ramifications for your investments. And China is at the epicenter.
As Chairman Mao himself wrote, “In waking a tiger, use a long stick.”
Until next time,
The Profit Sector