Category Archives: Economy

Chinese Stock Investors Beware

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Florida U.S. Senator Marco Rubio was recently on CNBC warning American investors and public pension funds who invest in stocks of Peoples Republic of China businesses listed on U.S. stock exchanges to beware. Like Enron and Worldcom, the companies could potentially be fraudulent enterprises, or like they say in Texas, “big hat, no cattle” entities. Essentially, these Chinese “public” companies are not regulated by the Securities and Exchange Commission (SEC) like their American counterparts. And, these listed companies are not currently required to abide by U.S. or Western generally accepted accounting practices (GAAP) standards.

The SEC exists to protect U.S. investors from the shenanigans of public companies. Yet, trillions of dollars of U.S. capital from American investors and pension funds are invested and continue to flow into these highly risky non transparent companies that are not regulated by the SEC.

If there was ever a time for investors or buyers of stocks to beware, it would relate to investments in Chinese stocks. Even the large cap highly own stocks of Chinese companies such as Alibaba (BABA), Tencent (TCEHY), Nio (NIO) and Baidau (BIDU), pose major potential risks to U.S. investors since no independent accounting firm has audited their financial reports or filings to assess their veracity.

Just like the quarterly and annual numbers of gross domestic economic product provided by the Chinese Communist government are viewed as works of fiction by most Western economist, Chinese companies’ financials should be reviewed with similar, if not , more scrutiny and skepticism.

CNBC Mad Money host Jim Cramer has commented on many occasions to viewers that he personally avoids and would not recommend his viewers to invest in Chinese companies stocks. He cites their lack of financial transparency and unknown corporate governance as reasons to avoid all but the largest of these stocks.

Finally, Senator Marco Rubio and Hayman Capital Management founder Kyle Bass, have been sounding the alarm for years about the threat potentially posed to the U.S. financial markets and to the retirement pension plans of millions of Americans by these listed foreign companies. Senator Rubio, along with a bi-partisan group of Senators, have been both sounding the alarm and proposing that all companies listed on major U.S. security exchanges be required to follow the same reporting standards and independent audit requirements followed by U.S. public companies. And, those foreign companies found not in compliance with SEC regulations for public companies should be de-listed from American security exchanges.

Strong U.S. Consumers

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Most economists or financial pundits concede that it is difficult to have a U.S. economic recession in the next twelve to eighteen months with the historically low (3.5%) unemployment rate and strong consumer spending. Essentially, the U.S. consumers, who represents 70% of the U.S. economy, are coming to the rescue the economy.

Eventually, those predicting and appear to be even rooting for a recession prior to the 2020 Presidential elections will be correct someday in the future. Bottom line, since the business economic cycle has not been repealed, recessions are inevitable and a normal part of the cycle.

Business hiring and historical low unemployment rate are lagging economic indicators for forecasting the strength of the economy. Today’s strong U.S. consumers due to hiring and low unemployment rate have buoyed the economy and can mask moderating and slowing economic growth.

China trade talk uncertainty and threat of additional U.S. tariffs on China and the European Union continue to weigh on the global economic growth and health.

No one…repeat no one, is able to forecast the future direction of the economy.

Dow Jones Industrial Average Battles Back as Recession Fears Recede – Barron’s

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The Dow dropped more than 3% on Tuesday and Wednesday on fears of a recession, making it the worst start to a quarter since 2008. A more optimistic view prevailed by the end of the week.
— Read on www.barrons.com/articles/dow-jones-industrial-average-battles-back-as-recession-fears-recede-51570238255

Talking the Economy into Recession

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In the past four to six weeks, the financial forecasters and entertainment media hosts have been stoking fears of recession occurring in the next twelve to eighteen months. Additionally, numerous financial TV hosts and commentators have performed a Paul Revere like “recession is coming” warning (e.g., “Recession Countdown Clock) despite existing strong fundamentals of the U.S. economy. Essentially, they’re following the standard news media mantra that “if it bleeds (economy perceived to be falling into recession), it leads”.

Whether recession becomes the top trending financial search engine topic or fanned by the hysterical coverage by the financial entertainment media, Americans are succumbing to worry about recession. As a result, they are behaving and taking action that may be detrimental to their long term financial goals and health. Several reports indicated that investors have been moving from equities to less riskier asset classes of bonds, cash and cash equivalents.

Recently, a financial pundit commented that we’re in a peculiar environment of increased U.S. recession fears in the midst of a fundamentally strong economy. Anecdotally, the growing recession fears are due to the near constant media coverage about recession. This recession talk persist despite the strong economic fundamentals, an economy that is still growing, and a strong labor market and consumer spending. The pundit also commented when such dichotomous conditions are present, there are always opportunities present for the savvy and patient investor.

Bottom line, the U.S. economy remains strong and is still growing, but the rate of economic growth is slowing (decelerating growth). Labor market remains healthy and the consumer is spending. The uncertainty of the trade turmoil has caused a slowdown in capital expenditures and business investment. One question disturbing economists is whether businesses have slowdown on hiring due to economic uncertainty. And, finally, Americans are working and Americans are getting paid, according to the August 2019 Payroll numbers.

Guide to the Markets Viewer – J.P. Morgan Asset Management

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J.P Morgan’s Guide to the Markets, illustrating compressive market & economic histories, trends & statistics
— Read on am.jpmorgan.com/us/en/asset-management/gim/adv/insights/guide-to-the-markets/viewer

Recessions and bear markets

Stock market since 1900

The Hype: CNBC Recession Countdown

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According to one CNBC strategist speaking on the CNBC show Fast Money, he implied that the “recession countdown” clock has started, but the market will rally before the downturn begins.

This coverage of the “recession countdown” clock is the epitome of financial entertainment media hype. It brings to minds a quote from Warren Buffett…

“WE HAVE LONG FELT THAT THE ONLY VALUE OF STOCK FORECASTERS IS TO MAKE FORTUNE-TELLERS LOOK GOOD. ”

Warren Buffett is skeptical of the predictions of economic and financial forecasters, and we should be, too.

www.cnbc.com/video/2019/08/28/recession-countdown-on-but-strategist-says-markets-will-rally-first.html

Understanding Bonds: Riding the Yield Curve

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Rates on bonds of different maturities behave independently of each other with short-term rates and long-term rates often moving in opposite directions. By comparing long- and short-term bond yields, the yield curve describes future trends in bond returns.
— Read on www.kiplinger.com/article/investing/T052-C000-S001-riding-the-yield-curve.html

Equity Volatility Does Not Spell Recession – TheStreet

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A Recession Is Not Imminent.

Equities and bonds are worried about a recession.

With the escalating trade war with China, the odds of a U.S. recession have risen a little, to say a one-in-three chance. Still, we are hard pressed to see an actual U.S. recession.
— Read on www.thestreet.com/markets/equity-volatility-does-not-spell-recession-15065765

Consumer Spending and Confidence

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U.S. Consumers remain confident, strong and spending.

Consumers haven’t cut back spending even as their worries grow. Consumer spending represents about 70% of U.S. economic activity. Nevertheless, U.S. Consumer cannot save rest of world economically, but they can insulate the U.S. economy from the slowing global economic growth particularly in Asia and Europe. The U.S. economy is relatively self contained, but it’s not an isolated island and it can be affected by what’s happening in the rest of the world.

U.S. consumer is in a good place because the labor market remain strong. Despite the silly talk from financial entertainment media pundits about U.S. economy going into recession during calendar year 2019, the main risk for consumers are the alarmist recession headlines which may create a self-fulfilling prophecy.

But waning confidence could cause them to cut back their spending in the months ahead, potentially weakening the economy. A measure of consumer confidence fell in August to the lowest level since the start of the year. Additionally, a gauge that measures what consumers think about their own financial situation and the current health of the economy fell to a nearly two-year low. Monetary and trade policies have heightened consumer uncertainty—but not pessimism—about their future financial prospects.

The main takeaway for consumers from the first cut in interest rates in a decade and from a brief inverted yield curve was to increase apprehensions about a possible recession. Consumers concluded, following the Fed’s lead, that they may need to reduce spending in anticipation of a potential recession. Falling interest rates and am inversion of the U.S. Treasury yield curve have long been associated with the start of recessions.

Source: Surveys of Consumers. University of Michigan, http://www.sca.isr.umich.edu/.

How grim is the future of retirement? – MarketWatch

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Dire jeremiads about America’s looming retirement crisis are so common that it seems “retirementcrisis” is one word. The doom-and-gloom narrative goes something like this: Spendthrift Americans aren’t saving enough, so their living standards will plunge in retirement, and Social Security will buckle from the financial strain of too few workers supporting too many retirees.

Dark visions about retirement in America may be somewhat understandable considering the following: the nation’s deeply flawed retirement savings system; the forecast that Social Security’s reserves will run out in 2035 and the fact that local government retirement systems’ obligations to public sector retirees are increasing faster than the assets set aside to pay for them.

Depressed? Then take a moment to learn about a new report by the nonpartisan Urban Institute think tank: “Nine Charts about the Future of Retirement.”
— Read on www.marketwatch.com/story/how-grim-is-the-future-of-retirement-2019-08-06