“Here, if you have a milkshake, and I have a milkshake, and I have a straw.
There it is, it’s a straw, you see? Watch it.
Now my straw reaches across the room and starts to drink your milkshake. I… drink… your… milkshake. I drink it up!”
This is not a trade war. This a redistribution of trade.
I am all for free trade. I am all for emerging countries. But that’s also only true if the playing field is level for everyone involved. No gimmicks. I have no political opinion here, just a report on how I see things and what it means for my portfolio going forward. Or what I will be looking to add and what I’ll be looking to sell.
Today, there is nonstop talk about “tariffs.” You can practically hear Jay-Z from the rafters at the Barclays Center, “I’m not a tariff man, I’m a tariff, man.”
Not long ago, we spoke almost equally as much about “TPP.” Remember the TPP? Many have forgotten that already. The two are similar, they just have different names and approaches. But at the end of the day, they accomplish two of the same goals:
1. Level the playing field for other emerging countries who want to trade, build infrastructure, and manufacture goods and services at a similar competitive rate.
2. Slow down aggressions, for example into the South China Sea, and give others a chance to participate and act unilaterally.
South East Asia is a remarkable region of the world. I have travelled to several countries there. Walked the streets, ate the food, and mingled with their people. I have seen the boom and economic movements first-hand. In Vietnam, more than half of its population is under the age of 25. That’s 88 million people under 25. I’m not sure any other country has a demographic as exciting as that.
But something is off in the region. And it’s been off for a number of years. It expands to Taiwan and Tibet – we’ve all seen these protestors at some point. It even reaches Japan.
I think any sensible person can look at the map above and see something is wrong. It would appear that one person is trying to drink everyone’s milkshake. You cannot forget about Australia, either, which is not far from this drama and a major ally.
If history has taught any important lessons it’s to be proactive rather than reactive toward aggression. Someone has to step in, at some point, and change the course. Lately, trade has been a method of doing so. One way to do that is to change the direction of trade to favor others while slowing it down against those who you don’t work nicely with. You can’t be a bully on an empty stomach. And you can’t be a bully for long when the other kids start getting fed steak.
That’s also why I think the “trade war” narrative is fear mongering at its best. As I wrote earlier, this is not a war of any means. It’s a redistribution – let’s do more trading with these parties and less with this one. As an investor, what does that mean for me?
I’m increasingly interested in emerging South East Asian countries like Vietnam, Thailand, Singapore, and others. As tariffs hit China, competing countries in the area should rush to fill demand. That means infrastructure and a population that will gladly soak up new and redistributed business. I even think of Mexico. Why do so much trade with China when we can simply turn south, and pose such an opportunity to our neighbors.
I have several companies in mind, but won’t be sharing them until I have a better grasp and timeframe. There’s a link to my email list at the bottom, and perhaps I’ll reveal a few over time. Each of these companies has a significant presence in South East Asia excluding China.
American multinational stocks have a lot of work to do going forward. Apple, for example, could have a few road bumps in its supply chain and legal departments. It will be slightly choppy if you hold these names. The biggest companies may scale back operations and investment in China. But, over time, new opportunity will present itself in surrounding regions. I think often about Cambodia – a dangerously poor country that has been through some of the worst civil wars ever recorded. But today, they have a functional government, vast amounts of land, and increasing tourism.
I would not go near Chinese companies right now. That includes tech names Alibaba, Tencent and others.
I would be worried about their government literally “taking” and “infiltrating” them. I would be worried about any additional sanctions. If you think the trade dynamics will impact the US, which I think is entirely improbably to think the US will be impacted long-term at all, multiply that number by 100 and that’s how much worse it could be for them. Maybe a great short opportunity is arising. Maybe all the money managers who tried to short China over the last 10 years might actually, and finally, have a chance. Chanos, Hendry, the names go on.
I occasionally entertain myself with wild theories. I don’t believe them, but I am often interested in how they get started and who started it. I’ve seen two predictions related to China from friends and investors I follow Twitter. Perhaps some of you have also seen these, but here we go.
Jack Ma, out of nowhere, recently converted to the Communist Party. One investor who I follow, and at times disagree with, has a theory I can’t shake: why did Jack Ma make his announcement so public? Was he forced? Why now?
The CFO of Huwaii was recently arrested in Canada for reasons related to sanctions and dealing with trade in Iran. But this CFO has also been incredibly cooperative with both governments. They’ve agreed to seal and not report on any reasons why she was detained. Maybe she wants a freebie trip to the US.
Or now, maybe Canada is sending a message. Earlier in 2018, the Chinese government seized and took control of a private company based in China called Anbang Insurance. Anbang happens to own several of the largest buildings in Vancouver and Toronto, worth more than $1 billion collectively. So yes, the Chinese Government currently owns massive real estate in Canada. What the?
Moving on…
If you look hard enough and push yourself to look deeply into the world events around you, you will find opportunity. This is the route I am heading. I will keep you posted if I find any success. You can join my email list here.
Thank you for reading.
