Book 15: The economy and the market

The economy usually follows the market in six months. However, the excessive printing of money such as in 2020 would pump the market up despite poor economy. I am political neutral as most investors should be. I criticize more on the current government disregarding which political party is in charge.

Section I: The economy

1 My Coconut Theory

Coconut Theory

In a tropical island, every one sleeps under a coconut tree assigned to him. He wakes up only when a coconut falls on his head once in a while. He eats the coconut and goes back to sleep. He is lazy due to the nice weather (no need to find shelter) and the nice resource (the coconut tree). He is happy and rich by his own standard. However, he is lazy, fat, and stupid due to the lack of any need to work, exercise, and think out of his ‘perfect’ environment.

The worst that happens to the natives is borrowing coconuts from other natives with the coconut tree as collateral or cut down the coconut tree to make a canoe without plans to replenish coconuts in the future.

This is a simple theory. It can be used to explain how and why many countries are rich, poor, and continue to be so. Let’s check how this theory stacks up with countries.

It also explains why people migrate to places with lots of coconuts. It is demonstrated by Chinese during war time to South East Asia and the Irish moving to the US during potato famine.

U.S.A.

The U.S. is one of the richest countries due to its development, highly educated citizens, hard-working immigrants and the huge natural resources per capita (i.e. having a lot of coconuts in my theory). The U.S. is declining as we spend more time enjoying our wealth (borrowing coconuts so he can eat more) rather than creating more wealth (i.e. not planting new coconut trees in my theory).

The wealth is equivalent to the bountiful of coconut trees that were available originally and the many that were planted by our ancestors. There were fewer natives to consume the total number of coconuts, so there was a surplus of coconuts grown, eventually to be given away (as welfare and entitlements). Many of our citizens have no incentive to plant more coconut trees (work) when they have unlimited coconuts to them (generous welfare).

Because of WW2, most coconut trees in the world were destroyed while ours were isolated from the war. We were rich to ship our better coconuts to the rest of the world.

God gave us plenty of natural resources, good soil and climatic wealth (coconuts hidden under the land) and hopefully we continue to be wealthy. Unfortunately, we’re now consumers (of coconuts) instead of producers (planting new coconut trees).

Norway

Norway is the richest to its population group (3 millions) while Brunei is richest in its own population group. Norway is rich due to its rich resources and its intelligently governed wealth. I hate to compare any country to Norway as most likely we are comparing Apples to Melons.

From its long coast line Norway has rich off-shore oil fields and abundant fish exports which is second in the world-- only 6% of its export, after China but far, far #1 per capita wise. Because of the world's oil addiction and food dependence secures its income flow.

Peru has a long coast line, but it is not wealthy. My theory does not apply fully here, as there are always exceptions. It could be Norway’s educated citizens, close location to its trade partners and buying assets around the world (planting more coconut trees). The dividend payments allow Norway to prosper for decades. They have about 600 billion sovereign fund to be shared by 3 million citizens. Simple math!

Norway will be rich for centuries to come as they plant the coconut trees all over the world.

Iceland

Some smart guys suggested cutting down all the coconut trees (their financial asset) make canoes (more global banks) so they can earn a rich life by fishing (lending). The world blindly loans them with coconuts. When the fishing (no global market esp. after 2008) fails, their land is lost with no coconuts and no coconut trees left. Do not bet all the coconuts in one venture and always have an exit strategy.

Singapore and SE Asia

Singapore is rich due to its important location for the sea route for trade and commerce, as well as being the cultural intersection between the east and the west and its industrious citizens (most are Chinese). When the hard-working folks land on a land of coconuts (i.e. resources), they naturally become rich.

Mekong River is a good resource providing fishing, irrigation, transportation, and fertile land in the delta for SE Asia. Hence, SE Asia should be rich, and at the same time attracts hard-working immigrants from India and China to enhance their wealth. However, the river is being polluted by industries and the future is cloudy.

Japan

Japan has few natural resources. Its only resource is the educated and hard-working citizens. With a decreasing population and the policy not welcoming immigrants, Japan will face problems.

Haiti

Haiti used to have enough coconuts for its small population. French imported African slaves to the sugar cane plantation and changed the allocation of natural resources per capita. Coupled with frequent natural disasters and bad governance, Haiti becomes the poorest country in the world.

Haiti and many countries have their coconut trees destroyed by hurricanes from time to time. That’s why they’re always poor. So are some states in the US that suffer from periodic flooding and hurricanes.

UAE

When the west helped UAE to explore its oil resources (the hidden coconuts under the sand) about 50 years ago, UAE becomes one of the richest countries. She expands in different areas and it could be over-expanded. When the oil dries up in 100 or so years and/or the shale energy competes better, they could be in big trouble. [Update: the problem appears as of 1/2015.]

Russia

Russia is a country full of resources (coconuts). Its citizens become lazy having a good time under the ‘coconut’ tree. Chinese are just the opposite. That’s why the Russians hire the hard-working Chinese to tender farm in the border while they enjoy life with plenty of Vodka.

The primary reason why USSR fell was the temporary low prices of their resources oil and timber (coconuts). Trying to be #1 was another reason.

China

China has roughly 20% of the world population, but it has far less than 20% of the world resources (coconuts). For example, it has only 6% of the world land area. The situation was worsened in the last 300 years during the Opium Wars, and then semi colonization by the eight countries (led by Brits, the opium pushers). It bankrupted China by their colonial masters. It caused massive migration to escape from the land without coconuts. It was followed by WW2, war lord era and then the bad governance. Their bitter lessons ensure this generation and the next generation to work hard and be smart. When they do not have ‘coconut trees’ (the colonial masters cut most of them down), you have to work hard or die.

China ranks #2 in the economy. It is only important to its trading partners. Its own citizens care about their living standard which is about the middle in the rank of all countries.

Greece

Greece has its natural resources: tourism (coconut). Euro gives them unlimited borrowing. Olympics boosted their dumb ego. The result is go bankrupt.

Caribbean islands

Literally a lot of their coconuts are destroyed from the hurricanes every year. It makes them poor even they have a lot of coconuts (ample sunshine and beaches for tourists). Many set up tax shelters for rich folks and corporations. It is similar to earthquake-prone countries. It is similar to Florida and the states in hurricane ally in the U.S.

Hong Kong & Singapore

Both have good governance learned from Britain and are supported by hard-working Chinese. Hong Kong is rich due to its proximity to China and Singapore due to the sea port location between the East and the West. Coconuts are in many forms.

Ancient civilizations too

Greece, Iran, India, China and Italy are among the oldest civilizations. Most do not do well in today’s economy and many of their citizens have immigrated to other countries. My theory suggests that they have exhausted their coconuts (farm land and metals) throughout the long history. Hence, they have to migrate to lands with more coconuts. To illustrate, there is a huge discrepancy in natural resources (oil, metal and farm land) between China and the U.S., which has a relatively short history.

Corporations too

Microsoft was a tougher company with more innovations fifteen years ago than today. However, they are enjoying easy profitability of upgrades of Windows and Office (coconuts planted by their ancestors). For a long time, she only has one successful new product, the Xbox. Her managers are counting their bonuses instead of taking risk. The Coconut Theory works again.

Rich families too

It is very rare to have rich families that last over three generations. The first generation grows the wealth (planting coconuts), the second generation enjoys the wealth, and the third or fourth generation usually becomes poor due to the easy life.

Conclusion

So far, no one tells me that this theory has been ‘discovered’ by others. Shamelessly I claim it is mine. To me, it is just common sense.

Afterthoughts

· I did not have a coconut tree (i.e. financial aid or money from my dad), and that is why I worked two jobs in my first summer while attending college here. The first one was a bus boy job from 5 pm to 10 pm. The other one was cleaning slot machines from 4 am to noon for 5 and usually 7 days a week. Lack of coconut makes you desire to work hard or you vanish. With an average IQ, I can make it by working hard in a land of coconuts.

My children have too many coconuts and they live in a more lavish life style than the old man. They ask me why I work that hard during my retirement or why I still go to Burger King with a coupon even they do not treat me like a king.

· According to my friend Norman, the problem with a small place filled with coconuts is someone would likely to colonize you and steal your coconuts as happened to Norway during WWII. Similar to China about 250 years ago. Once a while, need to cut down one among many coconut trees to make spears to protect the rest of the coconuts.

2 Our major problems

As of 2015, we’re running out of tools to stimulate the market. The zero interest rates has lost its effectiveness especially when most countries are using the same tool. We cannot pass our debts to the next generations forever.

We need to cut down expenses by:

· Ending our participation in the wars in Middle East.

· Not turning the illegals into legal.

· Reducing our generous welfare.

· Encouraging able folks to work.

· Encouraging constructions over consumptions.

# Filler:

$80 sneakers

Amazingly, some kids from welfare families show off their $80 sneakers that I cannot afford (or not too stupid) to buy. It is same as going to see a doctor for a minor cold.

Tufts is giving scholarships to children of illegals. How many want to disguise as illegals (no proofs are needed to be illegal)?

No one saves. When you save too much (like myself), you lose all the goodies from the government such as free health care. With more than 40% not working, we're a nation of free loaders.

Actually the rich can afford to buy good stuffs more as the stock market is great. It widens the wealth gap and causes disputes. The problem is 1% cannot support the rest even if they spend like no tomorrow as the rest of our citizens are doing.

What's wrong with this country (compared to 50s and 60s)?

3 The evils of printing money

I just explained to my grandchild that money does not fall from the sky or grow on trees. Every time we print money, it does the following:

1. An invisible tax is added especially to the rich as their purchasing power will be decreased via inflation.

2. Your children and grandchildren will pay for the new loans.

3. Selling a piece of our asset to foreigners.

4. Our products are less globally competitive as we have to add more taxes to pay for the loans. It is more competitive initially as our currency has been depreciated, but this will not last long.

5. The retirees would suffer due to inflation and low interest rate that usually follows.

6. Give more reasons for the rich to give up citizenship and move to another country. Besides via inheritance and/or marriage, most become rich by being hard working, smart and/or opportunistic.

7. The USD being a reserve currency is shaken.

The only winners are the lobbyists and politicians, who bought votes with the money from your pocket.

It will help the stock market in the short-term, but it is very damaging for the long-term economy. In 2020, our national debt suddenly jumped to almost 25T in May, 2020. With the easy money and the fixed amount of assets such as stocks and gold, the values of these assets would rise. That's also the primary reason why the recovery of our economy is taking forever. Printing money to the maximum is not a solution but a problem. Today most countries are printing money excessively.

Afterthoughts

· We have inflation (such as most products in the super market) and deflation (such as housing expenses) since 2008.

· As of 6/2012, we have 16 trillions of debt and it is substantially less depending on whether you include the entitlements. Besides the poor environment, unpromising economy, our children and grandchildren inherit our huge debts. So far, it is about $55,000 debt for each baby born today. However, many foreigners want their babies born here, so everything is relative.

4 Low interest rates

As of 2013, we have the lowest interest rate for a long while, which is normal in a recession. It is a great time to buy a house especially with the depressed house prices and / or borrow money. It happens today in 2020 and the rate is close to zero.

Low interest rates have many impacts on our investment:

· Usually they're better for the stock market as corporations can borrow at cheaper rates and hence improve the bottom line. In theory but not today, it should be great for the housing market and retailers.

· Corporations can borrow money at favorable rates to buy back their own stocks or acquire other companies to boost their own stock prices. Usually the fundamentals have not changed but the management would get a boost to their options and stocks they own.

However, prolonged period of low interest rates would damage the economy. Japan is one example.

· Folks including retirees, who depend on fix incomes, will suffer.

· Dividend stocks will prosper as the new bonds with low rates are less attractive. The long-term bonds become attractive.

· Eventually the current long-term bonds will suffer big time when interest rates moves up as the higher-interest bonds are more valuable.

The government has to lower the rate to stimulate business, but at the same time it cannot prolong the low rate too long.

Afterthoughts

· As of 8/2012, the yield of 10-year Treasury bill is about 1.75%, the lowest in my recent memory. It is better to keep cash now than CDs, so we do not miss any opportunity to move back to equity.

5 Inflation and deflation

The historical annual average is about 3% inflation. CPI is not a good gauge any more after energy and food have been excluded.

Inflation is:

· An invisible tax especially to the rich.

· A strategy to lessen the loan burden. To illustrate, your loan of $1 can buy a loaf of bread now, and you will pay back the $1 plus negligible interest that can buy only half a loaf of bread due to inflation.

· An invisible salary cut.

· An invisible cut to your entitlements/welfare. Social security is supposed to be adjusted to CPI, which can be manipulated by the government by not using food and energy to reduce social security payment increases.

· An invisible cut to your investment incomes (dividends and appreciation).

Deflation is no angel

Deflation is far worse than inflation to the economy. When the company produces a product and finds out they have to sell it for less due to deflation, then their profit would be cut and they might need to lay off employees.

Deflation would destroy all financial institutions. It makes all their collaterals on all loans less valuable and the borrowers may give up their collaterals as they’re worth less.

Inflation and deflation at the same time

As of 2014, we have both inflation and deflation at the same time for several years now.

We have inflation in most of our basic necessities: food, gasoline and heat (especially important for the NE) with the exception of rent due to the depressed house prices. Electronic stuffs and PCs are deflated considering how much we can buy today vs. last year. Cars have been slightly deflated when figuring in the extra features. They are due to technological advances.

As of 2016, our energy cost has been deflated due to OPEC’s dumping in order to finance their current projects in this poor global economy.

Outlook

The government should ensure inflation and deflation are within an acceptable range (3% to me). It has printed a lot of money and lowered interest rates to stimulate the economy. At the same time inflation has been accelerated in many sectors. When the economy does not improve, the government has run out of tools to improve our depressed economy.

However, beside time the shale energy may cure all problems. When the economy improves, the inflation and the interest rates would most likely increase. Oil price depends on supply and demand. The poor economy will decrease the supply and hence the oil price would be depressed.

Afterthoughts

· The dollar has lost more than 90% of its value since the FED was created due to inflation. However, it only affects you if you save your cash under the pillow. Our capitalism system punishes those who do not invest and take risk. If you invest in long-term CDs, you’re doing barely OK. If you buy any stock such as Edison’s new venture or a piece of real estate in your town in 1913, most likely it beats inflation by a good margin and Uncle Sam would be glad to share your fortune via capital gain taxes when you sell them.

· From my personal experiences.

The Big Mac Value Meal cost about $1 in 1970 and now (2020) it costs $7, 7 times in 45 years.

An average house in my hometown in 1980 cost $45,000, and now it costs $450,000, 10 times in about 30 years.

Houses in most cases are better deals. Besides paying the tax-deductible property tax and interest, we can live in them.

The $10,000 under my pillow in 1980 has no gain today, but it gives me a headache every time I sleep on it. LOL.

· In 2013, a bag of 10.5 ounce Lays potato ships is $4.25, and the next day it was downsized it to 9.5 ounces. All the items in the grocery store are just like that. The millionaires have no complaint as their stocks (as of 6/2013) have been up since 2008.

· Strong USD is bad for the stock market as our products would be more expensive in foreign countries.

· For those who have jobs, you have deflation when your same income can buy you more of your basic supplies / services than last year with the exception of food and gasoline as in 2013.

Most investments are beating the inflation from last several years. The wealth gap has been widened between the middle class and the rich. Five years ago, the gas price is less than $2 and now it is over $3 [Update: $2 as of 1/2015 and same in 2020]. We still have high unemployment and high under-employment. Most recent college graduates cannot find jobs or jobs in their choices. It happens all over the world.

· Inflation is controlled by the government via the rate of money being printed and / or easing credit. When we have more money chasing the same quantity of products / services, we have to pay more for them or we call it inflation. In shorter term, it may be distorted by other events such as the deteriorating housing prices. With excessive printing, I see hyperinflation in the coming years.

· Inflation is rising.

Labor

We have to divide it into two categories: labor that can't be outsourced and labor that can be.

Labor outsourced to China (your iPhone for example) and India is still relatively cheap.

Labor in the US like flipping burgers, fixing your plumbing problems, or your telephone services will be increased in cost. If they are not, they will be manipulated by the government via welfare (we pay for them via our taxes) or the unions. A worker at Burger King cannot survive without government subsidy or family largesse.

Commodities

All commodities including farm land will increase in value due to:

a. Supply and demand - the net growth of population is rising but it is offset by the poor economy.

b. Excessive printing of money. You will be able to buy half a loaf of bread with the dollar that used to buy you the full loaf.

· My official definition of Fed in my joke book.

The Fed acts more like a mistress to the president than an agency. The two are not officially related. But, they're on the same bed most of the day.

#Filler:

### Inflation meter

When the beggar asked me for a spare dollar, I felt the inflation pinch. That's the real inflation meter. Forget what the government tells you.

6 Education by example

A good economy has to be supported by an educated workforce. We still have the best higher education system in both quantity and quality. Our pre-college education is failing with a high percent of dropouts.

When you find out your store under charged you by $1, do you go back to pay them back?

I do not for two reasons:

1. The store has cheated me before intentionally or unintentionally, so it breaks even.

2. We also need to teach our children to conserve energy. J

Despite the above reasons, I’ll go back to set up an example for my children. The primary problem with our education system is education should start at home. No matter how much money you throw into the system, it will not work if the students do not want to learn. With so many single-parent and teenage-mother families, I do not see a bright future.

It happens all the time that you have a convict and a doctor in the same class as indicated by this video. It proves my point again that education should start at home.

(http://www.YouTube.com/watch?v=Xu1Q0E7oGQU)

Some of our discrimination and biases are passed to our children unknowingly. That will hurt them eventually. Be careful what we talk / act in front of our children.

Education by example is the most powerful and most effective, but unfortunately it is the most neglected. It is about time for the politicians resolve our root problems NOT by throwing our money (not their money) recklessly at the problem. Everyone with a first grade education can write a check and we do not pay our leaders to write checks.

We need to limit the generous welfare for teenage mothers and preach family value to stop the vicious cycle.

No homework?

I am furious that my grandchildren do not have homework. It is not only my town, but it is for the most of the nation.

If it is used to lower the education gap between poor and rich, it is the STUPIDEST argument I ever heard.

We have to compete with Europe and Far East students. They routinely study at least two more hours already. If you believe the student without the extra two hours study would accomplish the same in life, you believe in miracle.

The extra hours will be used most likely in watching TV and/or playing video games. Some Chinese 10-year-olds are programming video games and assembling PCs.

Yes, some students do not need to homework. Personally I know one or two in one hundred. They're the exception, not the norm. My granddaughter is one of them too. In kindergarten she can read and answers correctly on how many minutes left to pick up my other grandchild giving her the current time. She was bored in doing the compulsory homework.

I do not know whose stupid idea is this. It would drive us far behind from the top rank (Singapore, S. Korea, Taiwan, Hong Kong and some EU countries). I would fire that decision maker right away.

Afterthoughts

This short article attracted a lot of feedbacks.

· My elementary class in Hong Kong of 45 students produced one world-known chef, one movie director, one MIT Ph.D., one pharmacist, one doctor… I am the under achiever or the black sheep of my class. Our teachers were not from Hong Kong University (the best there). The incentive to learn is simple: If you do not study hard, you will be a nobody. No one will bail you out. Our average class size is 45, so do not use class size as another excuse.

· We need to select college trainings in the fields that the society or the corporations need. It is a luxury to take a major you’re interested in but is not demanded by the society. I did not have that luxury. However, even though I could not speak English well, I managed to start a professional job as a programmer while some college graduates with perfect English Xeroxed manuals for me.

· The problem of many high school students is the loss of respect to their teachers. You cannot learn from someone you do not respect. I feel bad for the teachers in many urban cities as your lives could be at risk every day and many lose their initial enthusiasm to teach after they face their cruel reality.

My friend Norman added and it never happens in the city I grew up:

My wife taught reform school in Richmond and was threatened several times. Once the girls in her food service class grabbed her and held a pair of scissors to her throat.

· The U.S. college education is a big export. It does not seem to be counted in our GDP and it should be. In addition to the highly–qualified professors, we have the best research (both on equipment, procedures and systems).

The landscape has been changed. Though most professors are still born here for more than one generation, a lot of students are foreigners and the children of the first generation of immigrants. Our high school systems are not graduating qualified students in the same scale as the last generation and foreign countries especially Asians are catching up and some are even passing us.

· Some Chinese students here are tutored by their parents on science and mathematics every night and a lot of students in China go to tutor schools after regular school. If we do not have the dedication and support to our children, we cannot catch up with them.

· 'Leave no one behind', 'Race to the top', 'No homework '... are just ideals and bear no fruits in the real world except for the big-mouth politicians.

After our best effort to educate the problem kids, should we still leave them to disturb the rest of the class?

China’s one-child policy gives rise to better education of the next generation. The child is raised by two parents and four grandparents. It is all good as long the child is not spoiled.

· One guy who was among the top in the unified examination for high schools in Hong Kong drove a bus to make a statement. We need these geniuses to create more jobs such as discovering a new drug to save many lives, not driving a bus.

· One child plays video game for two hours extra and one studies two hours extra every day. Do you believe they will achieve the same in life provided the last names of them are not Kennedy?

One Chinese high school has an average class size of 70 and has equipment below our standard. The difference is the students study at least three hours after dinner. It is in Tier III city and it is just a typical school.

· Why Mass. is rich? It is due to the large number of high tech companies including those involved in bio tech formed by former researchers of higher-learning institutions such as MIT and Harvard. It proves my point that we need about .5% of geniuses to provide jobs for the mass.

· Robots will be harmful to the employment of the unskilled workers. In next five years after 2015, we can see the more replacement by the robots.

Five years ago, robots could not do much. Now, they can do something useful from vacuum cleaners to bionic limbs. In ten years, they can do almost everything like a human being except one task (i.e. reproduce but they can assemble robots).

Robots are still expensive for many jobs today. To illustrate, Apple can assemble thousands of workers to manufacture a new product in China. They cannot have that large number of robots and program them in a short time.

· Non-correlation of education and the economy.

Brazil’s booming economy (due to high natural resources including oil) can benefit more with better education and harder working citizens. The education is lacking in Brazil. It gives rise to corruption and widens the wealth gap.

Brazil is one of the major countries participating in today’s globalization. When China slows down, Brazil will feel the pain too.

Philippines has the opposite problem. It has a lot of college graduates working at factories. The economy does not support enough professionals. The poor economy is due to lack of natural resources, long-term corruption, poor governance, etc.

Hong Kongers hire nurses and teachers from Philippines to be their household servants. It appears to be inequality, but actually it reduces inequality by providing them the best jobs they can find.

· More.

http://ebmyth.blogspot.com/2013/11/more-on-education.html

Links

· Click here for Asian education model.

http://tonyp4idea.blogspot.com/2012/10/asian-model-for-education.html

· Stuffs that college do not teach.

http://tonyp4idea.blogspot.com/2012/11/stuffs-school-does-not-teach.html

Another example.

http://www.huffingtonpost.com/2015/01/30/rescue-leftover-cuisine_n_6563516.html

· Click here for more Afterthoughts.

http://ebnation.blogspot.com/2012/11/afterthoughts-education-by-example.html

# Filler:

### Tips ###

· You need to know both value investing and the basic technical analysis to be successful in today’s market.

· Buy in fears and sell in greed instead of the other way round.

· An inflated sector will return to the average value.

· Be conservative and diversified. The turtles are always the winners in the long run.

7 Effective health care delivery

Note. This article was written many years ago before ObamaCare but all of the points are still valid. ObamaCare will have an impact on businesses. Large businesses will gain an edge over small businesses unless there will be subsidy and that will add to our deficit. Small businesses will suffer with several side effects:

· They will need to work around the requirements of forced health care insurance by limiting the number of hours for an employee and the number of employees.

· Most of the new ventures are seeded from money from their home equity loans. With falling home prices, they will have less new businesses. The banks already have more restrictions in loaning money since 2007.

Most proposals on health care delivery do not care about how to cut down costs (we pay more than most developed countries), and how to make it fair and practical. We need to know how to pay for it first, how much, and the consequences to businesses and employment. My proposal and comments are as follows:

1. Basic treatments for all.

Better coverage is paid by an individual. We should encourage folks to work hard and then there is no more free lunch. It is abnormal for the poor to have free health care while the middle class does not enjoy the same. The poor in many states receive free health care. I hesitate to visit a doctor as I have to pay even after the insurance.

2. Fair regulation for nursing home.

Those with low income and/or those without a house most likely can receive free nursing home care, free drugs and a free doctor visit in most states. Those on the borderline qualify for the free nursing home care by giving their houses to their children, hiding their income and/or just quit working. They are lazy but not stupid.

The government should spend an agreed percentage of the GDP on public health care. We can use the average percent from developed countries or let the voters decide. We cannot ignore other spending such as education or keep the budget unbalanced which is not responsible.

When we over spend on any entitlement, there needs to be a corresponding hike in taxes. High taxes reduce the United States’ global competitiveness and lead to more unemployment.

3. Prevention: Voluntary and non-voluntary (via taxes) on smoking, fast food, soda, etc. It is fair for the citizens to take care of their own health. You can select to live recklessly in an unhealthy life style, but the rest of us should not be burdened with your bad habits. In his book The China Study, Dr. Campbell recommends a whole food, plant-based diet that would reduce a lot of diseases.

When we ban smoking totally, many hospitals ought to free up many resources. In addition, the second-hand smoke kills too. Why should the rest die from your bad behavior? The children of parents with drug problems have a higher chance of birth defects and problems than the average person.

4. Limit lawsuit awards on malpractice.

Our health care cost is being jacked up partly due to the legal expenses.

Most do not realize these lawsuit awards will pass back to each of us. It is also the reason why the doctor would hesitate to care for us when we fall and lie in the street or why our clinical charges are so high. Lawyers and insurers get their share.

5. State-of-the-art treatments are less effective than prevention such as a low-dosage aspirin for all those over 50 years of age and the routine shots for babies / children. Aspirin is the miracle drug that is hated by all drug companies due to the low profit margin.

6. Outsourcing the expensive treatments in foreign countries and drug development / clinical tests.

Our costs are outrageously high. Try some Caribbean countries, Thailand or Shanghai for example. The money we save pays for a free vacation, not mentioning the free massage every day for the entire trip in Thailand. Many Caribbean countries offer some dentistry services at half the cost.

This is a temporary solution until we solve our high cost problem.

7. Cut down the expensive drug marketing (such as giving money / goodies to doctors).

Personally I know of doctors receiving free golf trips to some of the most expensive golf courses for the entire family. They also got unlimited lobsters at medical conventions in Boston. Should doctors receive the 'lecture fees' giving phony lectures, or sales pitches in return for recommending the drugs, or prescribing them to their patients?

Guess who ends up paying for all these goodies eventually?

8. Stop the illegal aliens and foreigners from using our medical systems for free. Their employers or the patients should pay for their expenses. It is nice to help the rest of the world, but we do not have money to do that right now.

The emergency room is the most expensive delivery method and its usage has been abused by many.

9. Before we send soldiers abroad or explore space (both have some merits but the average citizen does not benefit from these ventures), should we solve our problems at home first such as health care? Let’s get our priorities straight.

10. The average last two years of one's life would be the most expensive health care cost. Many do not want to live through pains and sufferings. Should we let them pass away in peace if they want to?

11. Stem cell research has proven to be promising.

We should not let our politicians dictate the policy for religious reasons. The desperate will go to foreign countries to receive the riskiest treatments anyway. Why let them know their risk and do the treatments here in a better environment?

12. Stop all the insurance and Medicare fraud. If you spend $10,000 on inspectors and get back $1 million, it is a great investment. Whistle blowing is the most efficient way to prosecute violators. Each successful, publicized prosecution warns thousands of potential violators.

13. Importing foreign doctors and nurses here is the worst thing we can do to a poor country. These foreign medical professionals are seeking a better economic life for themselves to come here, but they forget their original purpose in seeking these noble professions. Why do we send aid to these poor countries and steal their medical professional resources?

Afterthoughts

Finally we have a national health care system. Give it a chance to succeed. I have to give credit to Obama in starting ObamaCare in a recession. It may have many holes as most big systems have. Fix the holes instead of rejecting the entire system with all our investments just because of the politician you do not agree with.

Roughly we spend double the average of a developed country on health care per capita but our health care system is rated as average.

# Filler: A joke on outsourcing our medical delivery to China:

The hurting patient pleaded painfully to the outsourced doctor to get him someone who could speak English. The doctor said, “If I not English, what language I talking? [Note. The bad grammar here is intentional.]

8 A prolonged recession

As of 2014, we're in the 6th year of this recession even the market recovers fully. It is the longest from my memory. We tried too many short-term solutions such as massively printing money and rescuing big companies that should have failed. They work for the short term especially for the stock market, but it does not work in the long term. The temporary fixes are definitely not beneficial for the economy and its capitalist system. Politicians want to buy votes and voters do not want to bite the bullet. In addition, our economy is globally connected. What happens in foreign countries including EU and China would affects us.

Sometimes no solution is the best solution and let nature take care of itself. No companies are too big to fall. We cannot spend recklessly to solve our problems, and that is the main reason to get us into this recession on the first place.

When we let big banks or corporations fail, the job unemployment would rise and their buildings will be empty. It is a temporary problem. Companies with better management will take over, start hiring and fill the buildings. It is called capitalism and it lets the fittest to survive. The lessons will be told but we never learn.

Our money has been used unproductively on unemployment and welfare. I’m glad we did not bail out Lehman Brothers. Otherwise, their former clients all over the world would ask them to pay back for misinterpreting the safety of their derivatives with some of them bundled as ‘mini bonds’. Many of the banks selling these derivatives would be liable since Lehman Brothers had gone.

As of 2014, the investors are doing fine in the market as it is close to the 2007 level. It is still a depression when you lose your job and/or your house.

I'm looking and longing for a prolonged bull market when the two wars will finally and completely end. The U.S. is still full of natural resources especially per capita wise. Everyone who wants to work should have a job. The environmentalists should allow the oil companies to drill unless the concerns are real. The politicians should have a longer vision beyond four years and we cannot pass our debts to the next generations forever.

Afterthoughts

· From Eric: I think you are completely on the spot on with this point. The system needs to cleanse itself once and for all, and current policies are only prolonging the agony at this point. I was OK with QE1, as a chaotic unraveling could not have been allowed, but I still wonder if we wouldn't be much further along in putting the crisis behind us if QE2 was left on the shelf back in 2010. Sure the adjustment process is painful, but so are many things in life that must inevitably be endured before things can get better.

· From Wheels: Recession for 4 years...hmmm...sounds like a depression to me...And we all know the reason why nature will never be allowed to take care of itself: because it's not politically tenable. No politician can stand up and speak to the dumb masses that we’re in trouble.

On the investing front, can someone please tell me how it is possible to get real valuations for the market with all the juice that global central banks have put in? Trying to invest with "fundamentals" in mind is making my brain hurt, because there is no such thing as fundamentals with all this intervention. And, 2008 is still staring us in the face, and scares me. And I think I'm a pretty average Joe investor out there.

# Filler:

### Politics. It is very seldom we have the third term won by the same political party; based on this I predict Republican will win. Republican is pro-business but statistically the market does not fare well under the Republican leadership. Will it be true this time? Only time can tell. ###

9 W-shaped recession?

As of 2013, this recovery is different from the previous ones:

1. For most job seekers, it is still a recession. If you lose a job, it is a depression. No matter how the government dresses up the employment picture for election, employment is still not promising.

As of 2014, we have improving employment. However, the median wage is still lacking. If you get a job that pays half your previous job, you will not spend recklessly like our government.

Many quit looking for jobs. The sign-up bonus for recent graduates is replaced by years of under-employment in jobs that they do not have to go to college for.

Globalization changes the entire picture from your daddy’s days. Corporations can hire the best candidate (slave wages and good education with the right skills) any place in the world. Globalization is also the reason makes many corporations and their investors rich. Hence, the wealth gap has been widened.

2. Corporate profits are good after the bare bone cuts. They need to spend more and hire more to ensure future earnings. Employment is still low today.

They can move their ‘headquarters’ to any place in the world to seek the best tax benefits. We’re forcing the golden geese to fly away. It is similar to taxing the rich excessively.

3. Large money supply drives down the interest rates. It should be good for business for several years to come. However, the money supply does not stimulate business investment and hiring as it is supposed to. The government is running out of tools to stimulate the economy.

4. We've inflation for most commodities and food but deflation for housing.

I do not want to ignore the slim chance of a W-shaped recession even the market is doing great lately. A W-shaped recession means two recessions one after the other without recovery in a short time. It is very rare but we have the perfect storm coming our way with the EU crisis and China’s slow down.

Very often time cures all our problems including the EU crisis, our reckless spending… This time it just takes longer than usual.

As of 1/2013, the chance of a W-shaped recession is very slim, but the economy is recovering very slowly. We have a non-correlation between the stock market and the economy. However, it will return to the normal correlation.

10 My economic theories

I read this article predicting the “End of the economic cycle”.

https://seekingalpha.com/article/4253126-weighing-week-ahead-near-end-economic-cycle?v=1554645177&comments=show

Why most market predictions by economists are wrong

It is interesting. The market cycle usually is 6 months ahead of the economic cycle. Based on this, the ‘end’ argument does not hold true. However, as of 4/09/2019, the market fundamentals are bad. I would move more to CDs after the settling of the trade war with China. To be warned, all markets are different.

I have about 10 hints for a potential market crash. The most deciding factor for me is the SMA, Simple Moving Average. When it turns negative, it is time to exit the market. The number of days in SMA depends on your risk tolerance. It is described in my book “Profit from coming market crash”. SMA does not pin point the market peaks / bottoms as it depends on past data.

Most economists are wrong in predicting the market. The former Fed chairman said the economy was great and after a few months in 2008 the market crashed. There are many other factors such as politics and geopolitics. To illustrate, if there is a major war in the Middle East, the market would tank no matter how good the economy is.

The good job report is good for the economy as it would reduce the chance of a recession. However, if it is too good, the Fed would raise interest rates to cool down the over-heated economy and hence it would reduce corporate profits. Historically the market usually responds unfavorably to extreme low unemployment reports.

The job report on April, 2019 is fine for both the economy and the stock market. However, mathematically incorrect, it is close to a practical zero unemployment.

Grouping world’s economies

The world’s leading economies are US/EU (with Canada and Australia) and the challengers are Japan, S. Korea and China in the last two decades. The first group’s success is due to technology starting in the Industrial Revolution in Britain. The U.S. joined the group after WW2 when Europe was destroyed.

Eliminating resource-rich countries and small countries, we have about 25 countries leading the global economies. There are no strict rules on how to define a leading country. Most use GDP. I use GDP per capita adjusted for purchase power. U.S.’s GNP is higher than GDP as she owns a lot of foreign investments. China may not be counted as one by GDP per capita alone. However, China is the #2 economy due to its huge population and will be within the coming decade I expect.

The first group is declining slowly and is being replaced by the second group. It will take decades to be totally replaced judging from the decline of Spain and Italy which is described next.

In 1850s, Spain and Italy were the richest countries with the ‘loots’ from South American and other colonies. When the country is rich, the citizens want to enjoy life by asking for higher salaries, more vacation days, better social welfare, more protection for the workers and the environment. Hence, they lack the incentive to work harder and their products are less competitive. Are the U.S. and the EU countries repeating history?

The other factor is population size. Populations in most of the mentioned countries are shrinking. Aging population makes the problem worse. You need more educated and productive citizens. They solve part of the problem by immigration. EU is learning the hard way from many incidents caused by terrorists from immigration. The U.S. needs to immigrate top scientists to make us more competitive and the workers who are taking farm jobs and jobs not wanted by the social welfare recipients.

Most of these countries are borrowing heavily – a common trick by politicians in buying votes. It solves the current problems and buys some votes, but it will be a big burden for next generations. Watch out when the national debt is about twice the GDP. Japan has the lost decades. We and many EU countries have not learned from Japan. China has the same problem now. In addition, China’s population has been surprisingly reduced even with the new two-child policy.

Most countries not included in the two groups will remain poor for decades to come. Many countries in Africa and S. America have high fertility rates. They may consume all the limited resources.

Most countries in the second group of the advanced economies are influenced by Confucius who teaches them to serve man and their family (actually the emperor to be precise). Confucius teaches them to be frugal (saving money for investing) and better educated for innovation.

It could be the climate too. Folks in the north have to work hard to prepare and save food for the winter. In warm climates, folks are lazier as described in my Coconut Theory. It does not explain why Australians are wealthy.

Another factor is life style. Many countries not included in the two group enjoy their life style by not chasing material stuff. They are happy by singing and dancing without fancy smart phones. Lack of consumption of fancy products would not make them an advanced economy. Good or bad? You decide. That’s one reason Mao’s era was backward as they’re not chasing satisfaction from these consumers’ products.

Globalization

During Reagan’s era, globalization was preached and practiced. You do not want to grow sugar cane in Alaska. With the reduced cost of transportation and cheap labor in many countries, globalization has more benefits than drawbacks.

Many of our global companies have been making profits and GM may be saved from the second bankruptcy with the profits from China. We can find many U.S. fast food chains, U.S. movies and music and retail stores all over the world even in China.

The drawbacks are numerous. One major one is our huge trade deficit with China as she becomes the manufacturing capital of the world. As a result we have been losing a lot of factory jobs. The major drawbacks in China are both the air and water pollution. The other drawbacks are the lack of selection of products as price always favors over value for most consumers.

Both countries are addressing the problems. China will be more aligned with EU if she is being punished by us. China will buy more jets from Airbus than Boeing.

GDP and global trades

GDP normally means GDP growth after inflation.

Inflation is important. If the inflation is 10%, the GDP of 10 without including inflation is actually GDP of 0.

If the GDP is calculated in the U.S. currency, the currency conversion rate is important.

The average GDP for developing countries is about 5.5% and that for developed countries like the U.S. is about 3%.

China was about 6.2% in 2018. It is not a fully developed country. It used to be around 10 digits for many years after joining WTO in 2001. It is down from 2017’s 6.9%. I predict it will be down below 6% if the trade war with the U.S. continues.

WTO rules have not been enforced fully on China esp. on subsidies and exporting their excessive capacity (product dumping for some). Most countries subsidized in some of their industries. Product dumping will in theory benefit the importing countries. We make sure that they will not raise prices after the local competitors have been driven out of business. Microsoft did dump their Office products one time. In addition, Microsoft and Apple copied many ideas from PARC.

China’s GDP depends on the GDPs reported from the provinces. Most likely most provinces over-reported their GDPs.

Absolute GDP takes a back seat to GDP growth. The Debt / Absolute GDP ratio is important. Absolute GDP per capita is important when a living standard is concerned.

China is #1 in global trade. China owns less farm land and many natural resources such as oil per capita. China can use her trading position for political gains. During the current trade war with the U.S., Australia who is siding with the U.S. would lose a lot of Australia imports to China.

11 Global economies as of 2016

When I look at the East, Europe is burning. When I look at the West, China is burning. I’m still playing my mandolin. The majority of the global economies are connected. When one suffers, the rest suffer too. Let me review some economies briefly.

The U.S.

I have to postpone the secular bull market prediction to two years later. The market for 2016 is risky. The election year is the second-best year for the market statistically. I do not bet on this one as there are too many challenges. The only bright spot is the Fed may postpone an interest hike. In addition, we have produced a lot of jobs for the last four years even their median wage is far lower than the one in 2007.

I bet the market will be correlated with the economy finally next year. They have not had a correlation since 2009 due to the excessive printing of money. Obama did NOT save the economy as no one can by simply printing money. Hopefully the simulation would bring the economy around. However, it creates more debt for the next generations to deal with.

The tool has been copied all over the world and it is no longer effective. Our relatively strong USD (less as of 5/2016), our huge war expenses, strict regulations, high national debts, generous welfare, taxes and entitlements dampen our competitive edge. The strong USD would reduce the profits of our most global companies when the profits are converted to USD. A heavy blow would be legalizing the illegal workers by politicians who want to buy votes.

Asia

China is suffering economically. Given enough time, China’s market-driven economy will work. The current downfall drags down many resource-rich countries such as Brazil. After a taste of capitalism, no Chinese people want to return to communism, which discourages folks to work hard – who will work harder when everyone is paid the same?

Japan is declining due to the ageing population and their poor relationship with China. Contrary to popular belief, India’s demographics do not help. The growing population with a lot of youths is consuming all the resources.

Things will be hopeless for at least another year. The Euro is a good concept especially for tourists. Yet in reality, it does not work. There are too many free loaders such as Greece taking advantage of the unified currency and foreign loans. The influx of Syrian refugees is a big burden for them. Tens of thousands will help reduce their labor costs but not a million refugees.

What should we do?

· Not legalize the illegals.

· Cut down on entitlements.

· Reduce taxes (both corporate and personal).

· Reduce the role of being the global policeman.

· Invest in tomorrow’s technologies such as 5G, AI and cybersecurity.

The reality

Politicians will stay away from most of “What should we do” as that would hurt their elections. We have a record-high national debt. Borrowing endlessly (i.e. printing money excessively) is a solution to satisfy the voters.

With the state-of-the-art weapons, we may not win the Middle East wars. We should work to negotiate peace and let them resolve their own conflicts.

As of 2016, investors should be cautious about the market. However, we may have over-reacted to the problems in China and the falling oil prices. Today’s low oil price is due to Saudis and Russia’s dumping of oil via the Sovereign Wealth funds (SWF) to rescue their own economies.

The U.S. unemployment is at 5% (virtually full employment from the government’s yardstick) although the median salary was still not comparable to the one in 2007. In 2007, the unemployment is huge. The recession could be spared at least for now as long as the oil price and the unemployment remain stable.

12 The economy as of 2017

After Trump was elected, we have had a brief stock market rally. The market is usually ahead of the economy by about 6 months. However, they have been non-correlated since 2009. Let’s examine the US economy briefly here.

Reduction of individual tax and corporate tax

The reduced corporate tax could stimulate the economy and it could lure some corporations to return their HQs to the US. The downside is that we need the revenues after tax reductions to finance the infrastructure projects.

China

We have been financed by the Chinese via selling our treasuries. China is switching some of their reserves to the “One Belt, One Road” projects.

Easy money is going away

CEOs should manage their corporations instead of boosting the stock prices via some easy financing and buybacks.

Interest rates will be up

Investors should be careful about the hikes of the interest rates. As long as it is 1% or less for 2017, it should have little impact. To illustrate this, if the rate hike is 1%, you lose 10% interest on a 10-year bond. However, you only lose 2% if it is a 2-year bond. With our recent record-high of margin in buying stocks, the market could crash when interest rates surge.

Inflation

Historically it is about 3% and currently it is about 2%. If your CD returns 1% and inflation is 2%, you lose 1% in buying power, but you need to pay taxes on the interest of the CD. Uncle Sam is always the winner. When too much money is chasing a limited number of goods, we should have a higher inflation rate.

Bankruptcy & loan delinquencies

Corporations will bankrupt if they cannot pay back their loans, or are not be able to pay their lawsuit claims. Personal bankruptcies increase if there are more failing small businesses. There are two other kinds of failing loans: mortgages and autos. Both would depress the economy and the market.

Section II The stock market

1 When will DOW double?

As of 2015, I predicted Dow will double to about 25,000 before the end of 2020, if most of the following materialize. My prediction is more realistic than the book Dow 40,000.

· The two wars will finally end by then and the U.S. will not start another one. We cannot afford to be the world’s policeman fighting for our idealism. Let others fight for their own freedom, their own humanity and their own ideology. Being a big brother means nothing when we have 15% unemployment / under employment. Does Vietnam today threaten us and the world?

· Again avoid any physical war at all cost.

Japan and several Asian countries are dragging us to a war with China on the disputes of oil resources in some islets in China Sea. Throughout history, Japan has been a fierce aggressor to its neighbors and its navy is growing fast. Why should we protect Japan militarily with our money while Japan passes us in living standard? When Japan and S. Korea fight, which side should we take? Learn from our lessons from the endless wars in Middle East.

· Be friendly with China.

Avoid any trade war which has the risk of them pulling out their debts of over a trillion dollar. If it happens, it would damage our economy. Globalization is the reason why our big companies are making good profits.

· Printing more money.

It would lead to super high inflation (so $20,000 today would only buy $10,000 goods in 2020). In this case, Dow doubles but not in real purchasing power except for the tax collectors. It will harm the economy long term. It would damage the banks that lend with today’s money and will get back the money with less purchasing power.

· Cut down entitlements.

In addition, force those able, long-term welfare recipients to work on jobs taken by illegal aliens now. Clinton’s work bill does not work in many states with too many misinterpretations.

· No more bailouts.
No one including the state government is too big to fail. Cut the government size to half. It will not be degrade the service as most government workers have tiny workloads. I hope we’ll not bail out Detroit. If we do, we will have to bail out other cities such as Chicago and many cities in California. It is easy to ask for money than to work for money. Laziness is a human nature.

· Help small businesses.

Give incentives to businesses to invest here such as low tax rates, less complicated regulations / laws, low legal claims, etc. We cannot compete if our wages, taxes and regulations to do business here are too high or too restrictive. We need to bring our living standard down to how much we earn, and not to how much we can borrow.

· Incentives to big corporations.

No more corporate welfare. At least tax the profits made in the U.S. Give them incentives to hire here.

· Reward folks taking the risk by lowering taxes on investment incomes. Taxing the rich excessively will drive them to leave the U.S. We seldom have high taxes and business growth at the same time.

· With the shale oil and gas, the U.S. could be energy independent if there is minimal damage to our environment.

· Reform our election system. There are too many holes in our system. Buying votes should not be a priority.

· Emphasize on the economy.

Is being #1 more than employment? Is consumption (via borrowing) more important than production (improving our deteriorating infrastructure to start)?

We need a law to balance the budget to be implemented after this recession. Most of the above will not materialize as the politicians cannot buy votes with many measures and no voter wants to bite the bullet. It seems we’re heading to more government spending and loans. Dow will double only due to higher inflation.

2 Why market rises or falls

It is a billion dollar question. The institutional investors drive the market. Their trades are more than 70% of the total trades. They switch to bond /cash when the market is risky, switch to rising sectors and stocks with more profit potential.

Market direction

There are two cycles: the longer secular cycle and the shorter market cycle (do not confuse with business cycle a.k.a. the economic cycle). The shorter market cycle exists within the secular cycle.

For simplicity for illustration, roughly the duration of a secular cycle is 20 years and the 4 years for market cycle.

Some may argue we’re in the 9^th year of the secular bull market cycle as of 2016. However, the economy is still down. It is partly due to the major wars that are draining our resources that should be devoted to the economy.

I define the market cycle into the following phases: Peak, Bottom, Early Recovery and Up. I recommend buying selected sectors in each phase.

Sectors and countries

Very seldom sectors and countries continue its upward swing for years. They follow their own sectors with the above phases too. With the growing and aging population, some sectors such as health care should be in the secular bull market.

Today’s market

As of 2014, there are many positive signs and negative signs. I would predict we will have a fierce correction for the market to take a breather. We cannot print money (affecting interest rates, inflation, credit, margin accounts) at the current pace. We should not pass our liabilities to the next generation forever. When the printing is eased, we will have a correction. Hopefully the economy will be strong enough to prevent a market plunge.

3 Politics and the stock market

Republicans are usually pro-business, but the democratic presidency has better track record for better market performance.

The Dow index was up 56% (from 7,949 to 12,418) in the less than 3 years since the day when Obama took office. As of 8/2012, it is 13,100, so the market has been fully recovered from 2007-2008, but not the economy. If you still collect unemployment or your house has been foreclosed, you're still in deep trouble.

The S&P500 performance under Republicans vs. Democrats since 1926:

Annualized return under Democratic presidencies: 13.74%
Annualized return under Republican presidencies: 6.25%

The President's appointees for the economy are the ones to watch as they set up the policies, if they turn out not to be the puppet of the president. As of 2012 (and also 2020), the interest rates is not a factor as it cannot go much lower. The cut in military expenses and the ending of the two wars will be good for the economy. In 2020, the trade war with our partners especially China will bring the global economies down after we have enjoyed globalization for the last 30 years.

The problem of the two major political parties is that they do not agree with each other, so they have to make too many compromises and waste a lot of time and effort. The efforts spent in impeaching the president in 2019 were just a waste of time as it was not feasible. These efforts should be used to improve our economy.

Afterthoughts

· Since we have more people depend on the welfare / entitlements and the government jobs, they will vote accordingly and that will not cut down deficits in the foreseeable future especially the baby boomers are starting to collect the entitlements.

· Do not blame the news media. They broadcast what you want to hear.
Do not blame the politicians. They do what you want them to do.

Do not blame me. I am speaking the truth.

So blame you yourself.

· However, 40% (45% soon in our deteriorating economy) do not pay Federal income taxes and they take back more via welfare benefits and entitlements from the society.

The rich (1%) can blame the poor (40%), and the poor can blame the rich for the ‘welfare’ for the rich. They are both right and both wrong.
If we divide the society into 3 groups: the rich, the middle class and the poor, the middle class (I and most of you belong to this 59%) is really being squeezed by both sides

· Capitalism encourages folks to work hard, communism encourages folks to be lazy, and socialism encourages folks to steal. Now, we are more socialists.

· It is obvious that the 2012 was partly won by the Hispanic votes with the promise of legalizing the illegal aliens. We’re the only country on earth that welcomes illegals. We need them to do jobs such as in farming no welfare recipients want.

· A good president does not have to be an expert in every field except being a good communicator. He should delegate his power and know whom he hires for a specific job. Unfortunately his personal objective is to get re-elected during his first term. In the second term if reelected, build his legacy to sell his books/speeches and reserve a space in history. Actually he has about 18 months to do so in the second term.

From my definition, Obama is not a great president. Reagan had good acting skills. Bush was not. Carter was too gentlemanly. Nixon was tougher but his hand was caught in the cookie jar. Clinton invented or gave new meanings to some terms in our dictionary (such as interns, inhale and sex) and got away. Basically I cannot find too many great presidents in recent history. We may have to blame our election system. If I want to be one of them, I would choose Clinton for all the funs he had.

· Whenever I make any political remark or any remark against the government, I have a chance of offending half of the population; assuming that we are evenly distributed into the two political parties. A good discussion even against any politician is better than no discussion. We are not a member in Bush’s cabinet (same for Trump’s cabinet) who has to agree everything with the chief in order to survive.

4 Momentum and volatility

Take advantage of the fluctuations and the short-term trends of the market. Volatility and Momentum work opposite of each other. Select the fluctuation (volatility) or short-term trend (momentum) according to the current market conditions.

When we've so many 3% fluctuations and the S&P stays flat, you can take advantage of fluctuations by buying a market ETF at the dips (3% down in this example) and selling at the temporary surges (3% up in this example). 2015 (so is 2020) is a market good for this sideward market.

Bollinger Bands supposedly indicates stocks normally trading within the bands (upper and lower). This technical indicator is available in most charts such as Yahoo!Finance. For example, enter SPY (an ETF simulating the S&P 500 stocks) for the stock and select the Bollinger Bands. You should see the two bands and the stock price in between. Buy when its price is closer to the lower band and sell when it is closer to the higher band.

Momentum is profitable by buying when the last n days is up by x% (you define your n and x and adjust it according to the past data for the stock). You need to protect your portfolio with stops as momentum can reverse. Do the opposite (via a contra ETF) when the momentum goes in the opposite direction. When the SMA-20 and/or SMA-50 (Simple Moving Average) in Finviz are positive, it indicates the stock is in a short-term uptrend.

Design tests using historical data from Yahoo!Finance and implement your strategy accordingly. It can also be used to test the direction of the current market. Volatility may happen for a very long period before the market changes direction.

Momentum works better in a rising market especially not using contra ETFs. Monitor whether the market peak is close, as it could plunge very fast and very steep. In this case use stop orders to limit big losses due to market plunge.

Links

Volatility:

http://en.wikipedia.org/wiki/Volatility_%28finance%29

Momentum:

http://en.wikipedia.org/wiki/Momentum_%28finance%29

5 Investors’ psychology 101

Emotions control our investment decisions. We buy in greed and / or excessive optimism and sell in fears and / or excessive pessimism. They are just human natures that we have to avoid in investing. Here are some pointers:

· Emotionally detached.
Investing is about making money at the least risk with emotions detached. Never fall in love in a stock or a group of stocks. Never be bothered by failed stocks and do not be too excited with successful trades.

· Every asset/class will return to the average value with one or two minor exceptions (gold is one but most likely it is due to the depreciation of USD). As previously stated, when a strategy has been over-used, it will lose its performance.

· Do not risk the money you cannot afford to lose.
One retiree lost most of his money in a market downturn and he died due to too much worry. After a year, the market recovered and he should have recovered all his losses except his life.

Older investors should have a rainy day fund in cash. This could be 10-30% of your total portfolio depending on its size. Younger families should have enough emergency fund for at least 6 months.

· Buy when the market is bleeding and sell when everyone is buying. Buy low and sell high is the best strategy, but it is hard to do so as our emotions do not allow us to do so.

· Diversifying your portfolio will improve your mental health besides your investment performance. Stocks could plunge with unexpected events and / or being manipulated. I had many examples in 2012. I can sleep better with one bad loss among 20, but not one among 2.

· Do not buy sin stocks like tobacco companies unless the potential profit is more important than your moral can allow. One option is to donate the ‘loot’ to the cause such as Lung Cancer Society for this example.

· Do not follow the herd without an exit strategy. If you are against the herd (contrarian), make sure you have good reasons to do so.

The flow to money fund proves that the average retail investor is usually wrong in market timing.

### Tips from my book Best Stocks 2014 ###

Be warned that it is not always sustainable all the time; it is partly skill and partly luck. From 12/16/13 (publish date) to 3/29/14 (today), the performances of the entire list of 9 small micro-cap stocks (RAS is not a micro-cap by my definition) are:

Stock	Market Cap (M)¹	Annualized Return
ARTX	52	234%
CPSS	176	6%
RAS	602	-19%
GST	329	83%
EVC	515	65%
LEE	171	293%
SGU	313	16%
HILL	166	491%
MNTG	147	12%

Average		131%
SPY		22%
Beat SPY by		496%

¹ As of 12/16/13

6 Earnings nightmare

A bad earning would cause a stock to nose dive. As of 9/26/2014, FINL is such an example. It lost 14% in one day to $25.11. I looked at all the fundamentals, ratings from many sources and analysts’ recommendations before today. They are really great. It is not a small company that would swing widely.

Here are some of the metrics on the day. It belongs to the Specialty Retail sector which is not great during a recession.

Metric	Value
Forward P/E	12
Debt /Equity	0
ROE	16%
Market Cap	1.2 B
Insider Trans	-16%
Short float	6%
EV/EBIT	8
Shiller P/E	21
Analyst Rating	9/10
F-Score	8
Revenue Growth	15
EBITA Growth	8
Zacks	Hold
PEY	6%
PScore	4
Score – ST	6
Score – LT	21

Explanation:

· PEY – Pow’s Earning Yield (replaced by True Earnings yield = EV considering cash and debt. The passing grade is 4%. The higher, the better.

· PScore – My scoring system and 2 is the passing grade. The higher, the better.

· Score – Short Term. Based on PScore plus metrics from my subscriptions. LT for long term. Passing grade is 15 for both.

The only metric that shows problem is Insider Trans. Before we buy a stock, take a look at this ratio. If it is negative by more than 10%, watch out. Insiders know the earnings before the announcement. As long as they follow the rules, it is legal. The other warning is the big drop of institutional ownership (changing from almost 100% to 6%) in 3/31/14.

The above figures are from Finviz.com, Fidelity (customer required) GuruFocus.com and Zacks (subscription required for both). Zacks is supposedly good for predicting stocks before their earnings.

I consider buying it after this plunge. I cannot tell it is a trap or an opportunity to make money.

It went further down to almost $24, and as of 11/20/2014, it is back up to $27.74 shortly.

Missing or exceeding earnings estimate would cause the stock to swing 10% in either way.

For long-term investments (over a year), ignore the announcement as long as the fundamentals have not changed. The price swing is usually short term. Missing or exceeding the consensus by one penny has no meaning to me but usually a lot to the stock price. However, recheck the fundamentals based on the new information such as the earnings.

Section III: The USA

1 Actions to fix our problems

1. We consume more than we produce. Cut down on consumption, applied to both citizens and government. Our false prosperity depends too much on consumer spending. It has created all imbalances including a Federal deficit and trade deficit.

Raising the interest rates would reduce consumer loans and investment loans at the expense of the stock market, building industry and big-ticket sales. We have to bite the bullet before it is too late.

2. We borrow more than we save. U.S. citizens save about 2% while Chinese save about 15%. Save more and do not max out your credit cards. We cannot postpone our debts to the next generations. Once-the-richest country borrows from the once-poorest country to support our spending.

3. We are not as competitive as we were in the 50s and 60s. Do not give out money generously to foreign countries. It made sense in the old days, but not anymore while EU, Japan, Israel and many have about the same wealth as us. When the government spends more in paying dividends on our gigantic national debts, we have less money to invest in infrastructure, education... that are important to boost our competitive edge.

4. The expenses of endless wars should go to investment for our future such as infrastructure.

We no longer depend on oil from the Middle East, so we do not need to use military force to protect our oil route.

Does Vietnam being a communist country today threaten us?

We need to concentrate on cyber security. The lack of it would collapse our financial systems and expose our secrets / technologies.

5. The world is more competitive (esp. China) and it looks like it is getting worse. We can do better negotiations with our trade partners. The trade war is not the solution but taking out trade barriers on our products are. We have to understand why we are not competitive. However, doing too much and too fast could lead to a global recession.

6. We need to give up some sectors such as those that are labor- intensive and/or environmentally harmful, and evaluate the benefits and losses.

7. We need to motivate our able welfare recipients to work to take up the jobs currently performed by illegal aliens. Our generous welfare system encourages folks not to work. If they work, they would lose all the subsidies. They are lazy but not stupid.

8. We need MORE (not less) H-1B visas to attract top scientists, engineers... to remain to have a competitive edge. However, only let immediate children come. Many of their parents come here and collect welfare to further burden our entitlement system.

We also need international collaboration, relax restrictions on science-based research such as those in stem cells and promote starting new enterprises. Government should fund basic research. That’s what we were leading the world in science and technology. China would eclipse us in a matter of years if we do not think long term and take corrective actions now!

9. We need to balance the budgets, cut down entitlements, rebuild our school system, fund research, fund infrastructure (including security to protect our IP), etc. Make our broken health care delivery efficient.

10. We need to be doers instead of talkers. While we talked about the high speed rail (HSR) in California (that may not be useful here), China has over 60% of the global HSR. To start with, get the two parties to work together more. They disagree frequently with each other if the idea has not come from their own party.

11. Our children cannot compete with the Chinese, Japanese and Koreans. They spend too much time just enjoying life. If you believe they will achieve the same in life, you believe in fairy tales. Education starts at home. When we have too many single parent families and teenage mothers, where is our future? We need to protect our youth from shootings, strong drugs and violence.

We need to bring back discipline and strong work ethics. The school must be a place to learn. Have we learned from too many shootings? We have to love our children more than our guns.

12. The military might should be supported by a strong economy but not in our case. If we were a company, we have been bankrupt with debts and entitlements. We have to put our priority and effort in improving our economy and be competitive.

13. We need to look at long term. Investing in infrastructure today cannot buy votes as the payback is too long.

14. We need to control the excessive claims of the lawsuits. The juror naturally agreed with fining MacDonald’s for spilling hot coffee on the customer. They did not know it would pass the claim back to the consumers. It also discourages citizens to start new businesses.

15. The country should be united. I do not like everything Trump is doing. However, some of his actions are good and he has the gut to challenge problems such as trade war that his precedents avoided. I was with the folks in Views. However, when their views are ALWAYS opposite to Trump no matter what he does, the Views loses credibility to me.

Stop blaming others especially China for our problems that the politicians fail to fix. I blame the corporations on giving up our jobs and secrets to many countries including China in order to access their huge market and save on labor costs.

Realistically, most of the proposals above cannot be executed by politicians. They are more long- term solutions that the politicians are not interested in. The voters want to have the maximum benefits with the least taxes. We are a nation of free loaders unfortunately.

We are still leading the world in many sectors. We still have top-notch universities and profitable multi-national corporations. Do not live in denial for that we are not declining. Check out any top-notch college or any big high-tech corporation, you can find many foreign faces compared to 30 years ago. Most are new immigrants and their children.

It is hard for the leader of the global world to be humble. Our arrogance prevents us from collaborating with the rest of the world. If we can learn from our competitors and/or enemies, we could reverse the trend of our decline.

We may be following the footsteps of the great British Empire. Our technology revolution since WW2 may collapse like the British Industrial Revolution. Our reserve currency could follow the British pound in losing the status. Hopefully we will make corrections to reverse the trend. If the trend does not reverse, hopefully it is not in our life time.

2 The worthless job plan

Most government’s job plans have the basic problem: Spend, spend and spend without worrying about where the money comes from. It does create some jobs but at a huge expense. The problems are:

· Pass our loan burden to our children and grandchildren.

· Will have high inflation (not now due to the deflated prices of houses). However, judging from the price of gold and most items in the super market in 2015, we already have inflation. Inflation is an invisible tax to use especially the rich.

· Will raise our debt ceiling and hence it will harm the economy in the long run. The extra money to service our debts could be used in improving productivity and infrastructure.

· Do not spend wisely.
To illustrate, education starts at home, not at school. With high drop out of poor students (unfortunately more from minorities today), we do have a grim future. Instead, we should limit the number of single parent families. This is one example among many.

(http://nces.ed.gov/fastfacts/display.asp?id=16)

· Creating more government jobs is not a good way to boost employment. We should calculate the actual cost of each job created. We can learn from Greece before it is too late. Now Greece has to cut half of the government employees and half of their salaries when the country is heading to go bankrupt.

· The farmers will be the chief beneficiary when the trade war settles with China and the Chinese consumers will benefit too. A win-win situation. As of 2020, it seems the trade war with China will never end.

· The most our government can save is ending the current two wars.

Check out how many billions of dollars we could save a month without the two wars. We really need to fix our economy and unemployment first. We cannot afford the two wars and any future war. Even with the mightiest army on earth, we're really a paper tiger if we cannot fix our internal problems such as employment. It is similar when Mao told his starving citizens that they're #1 on earth; they could cover the eyes and minds with dumb nationalism but not the growling stomach.

We have given too much to foreign countries. Helping the desperate poor is fine, but not buying influence in foreign lands to corrupt officials.

· All of us ought to bite the bullet by increasing taxes across the board and decreasing welfare / entitlements. They are not popular to voters, but they will be the most simple and effective solution to a complicated problem. However, we need to implement them gradually, so it will not prolong the recession.

Obama is a good communicator, but he should have acted far earlier to solve our economy problem that was created by the previous president. It is obvious that Obama is buying votes for the 2012 election to satisfy everyone. It could be the same for any president. They all play with the rules of the game. We need to change the rules and make their objectives for longer term.

We elect our leaders, so we have to be blamed too. The major flaw in our political system is the election every four years. Our leaders plan for four years and not for the longer term. We've more poor citizens than the rich citizens, but each has one vote. After they've been elected, they have to pay back to the special interest groups who have funded their campaigns. That's why our democratic system could lead to corruption, American style.

Unemployment report

Investors do not want too good an employment report. If it is too good, the Fed would raise the interest rates to cool down an over-heated economy and that would hurt the corporate profits.

We do not want to be too bad neither. Otherwise, a recession could materialize.

Mathematically incorrect, today’s 3.8% unemployment is 0% unemployment. The unemployed take advantage of the generous welfare.

Adjusted for inflation and as of 4/2019, we do not have the same median salary before the 2018 financial crisis.

A lot of information on jobs can be found in this BLS web site.

https://www.bls.gov/oes/current/oes_nat.htm

Afterthoughts

· Unemployment should be a temporary safety net. When the unemployment benefits are extended, the incentive to look for jobs is also decreased. Many have given up looking for jobs after trying their best. The better yardsticks are comparing the following two with values of previous month: 1. Participation rate and 2. Median salary. 3. The changes of the above two.

· Why should you work if it means you would lose all the generous benefits such as the free health care, food stamps and housing subsidies?

· We really have more than the official 8% unemployment if we count how many of our own friends/relatives are still employed or under employed. 5% is the employment rate for the U.S. for ‘full employment’.

· Many are under-employed and they’re not counted as unemployed; as of 3/2015 we have the lowest participation rate. To illustrate, an ex-manager flips hamburgers at McDonald’s making a fraction of his previous salary.

· As of 5/2013, ObamaCare will decrease jobs in small businesses. The owners do not want to hire full-time employees as they do not know how ObamaCare will impact their businesses. Most likely it will require them to conform to the new laws that require businesses that hire over a specified number (say 50) of employees to pay a good portion of the health insurance premium for full-time employees (could be defined as working more than 30 hours per week).

· IPOs for local companies usually mean more jobs. When we see a lot of IPOs in the U.S., we can predict the employment is recovering.

· Globalization changes all the traditional, conventional wisdom.
Most large companies are global companies. Corporations find the best workers anywhere in the world at the least cost. Typically the US, EU and Japan design the high-value products and their products are assembled in foreign lands where they can find cheaper, better and more flexible labor.

3 H-1B visa

On my bus commute to downtown, I noticed a lot of Indians and some Chinese besides myself. Many of them are on H-1B visas and work in banks, insurance companies and brokerage firms downtown. Some have applied or will apply for the green cards. Their living standards of many Indians have been improved greatly here and no one is naive enough to wait for India to fix their infrastructure and offer similar job opportunities for the equivalent salaries.

If you're a technical manager, which one would you want to hire:

1. An H-1B visa worker who will work hard for peanuts, but it is gold to them when comparing to their native country,

or

2. One who has no incentive to work hard except trying to get your job eventually.

We should encourage our children to get into science and math. Our system is great for creative geniuses like Steve Jobs, Gates, etc. However, the society needs more folks with the right training to corporations. To illustrate, most well-paid, high-tech jobs are held by foreigners and children of foreigners who study programming, engineering, science and math. These professionals are not geniuses, but they have the right training to enhance and / or market the products / services from the visions of the geniuses. From my rough estimate, we probably need one genius for every ten thousands of these professionals.

If we have enough qualified professionals, we can cut down H-1B visas; however the government has to give incentives to hire local professionals to offset the lower wages from most potential H-1B holders. Today and in the near future, we can't cut down these visas otherwise our high-tech industry will not be competitive. Most H-1B recipients eventually get their green cards, and move their parents to the U.S. burdening our welfare and entitlement systems. The employers do not care as this is not their problem. The alternative is setting up research / development centers in foreign countries such as India and China at the risk of our proprietary secrets being stolen.

Afterthoughts

· In 2014, there are 3 million (4 million for some reports) jobs last year in the US are unfilled due to lack of skills while we have many college graduates who cannot find a job. We have a serious problem of skills not matched.

There are about 2 million unfilled positions desperately needed by programming including the cloud computing. Our high tech industry is expanding their training programs in order to fill these 'skills gap' positions.

There is why the Congress is slapping permanent visas to those foreign students who graduated in the US universities with the right training in science and computer science and advocate larger number of H-1B visas.

Vocational colleges and apprenticeship should be encouraged. The high school graduates should match their careers to jobs that are plentiful. A college degree without a job potential is a waste of money and time, not to mention the heavy loan that will take years to repay. My plumber makes very good money with less than a year of training.

# Filler

When we legalize the illegals, do you think they are stupid enough to work instead of collecting welfare legally? Who are doing to do the jobs that no able welfare recipients want?

4 Too delicious to fall

Unions are supposed to protect the working class from being exploited. Today unions reduce our competitive edge by setting up higher compensation. Globalization weakens the power of the union by moving some of our jobs to other countries such as China and Mexico. We have to define two classes of jobs: jobs that can be outsourced and jobs that cannot be. Some unions are more effective in the latter category such as climbing up telephone poles. Few mayors in big cities are elected without the approval of the local police union, and hence some unions are politically powerful.

Hostess's fall is a bad day for capitalism, at least our style of capitalism. There is too much blame to go around:

· First, the management (and some hedge fund managers) did not update their products to meet the trend of the market.

· Unions are out-of-touch. If your patient is dying, you do not want to shake him hard. You need to have plan B when you're bluffing.

They're the parasites and they will die too when their host (hostess in our case) is dead. The dream of owning the company will remain to be a dream that they never want to wake up from. They tried to violate the basic business rule of supply and demand, but failed miserably.

· The workers are really dumb to let their master manipulate them until they lose out big time. Do you think you can protest and win in this kind of economy and the shaky state of the company?

· The politicians will not bail them out especially it is long past the election. This time they cannot buy votes by blaming China, as these jobs can't be outsourced (unless you want to buy your Wonder bread shipped from China). Hence, even if it were before the election, the government will not bail you out on the ground of ‘too delicious to fall’.

It is a lose-lose-lose (management-unions-workers) situation and only stupid folks will get into this situation.

5 Generous welfare

Last Saturday, a television commenter suggested legalizing illegal aliens and moving them to Detroit; it has worked well before in several other American cities.

I totally disagree with that notion. Instead we should ask the able poor to work and take less welfare benefits to encourage businesses to move in and provide jobs.

In addition, the city has to concentrate on education to provide an educated work force. It does not take a genius on how to lure back businesses by protecting the businesses first. If I open a business at the constant threat of being burned down or being looted, I do not open a business there.

We also have to train the unemployed for jobs that are needed by the society. Investing in education is productive, while giving out generous welfare is not. It is a balancing act by the city administrators.

Unions and generous welfare will work in the short-term for a specific group of the society. In the long run, they will have opposite effects as demonstrated in Detroit.

One cannot survive by making the minimum wage in the USA. They will be subsidized with welfare and you know we all have to pay for these benefits eventually. We need to encourage folks to work by reducing the generous social welfare that should go to the real needy and/or serve as a temporary safety net.

In Mass., the system takes away free health care when the income is above a specific level. Hence, it does not encourage the poor to work.

There are too many frauds in our welfare system. We should take care of our citizens first before we take in more immigrants who compete for the limited jobs available.

In addition, when they are legalized, do you think they are stupid enough to work when receiving welfare is a better deal? The newly legalized will help their immediate families to immigrate and further burden our welfare system.

Today, some new immigrants ask for the closest welfare office on the first day they arrive, or where is the closest hospital to give birth to a USA citizen baby free of charge. Taiwan has a book titled “How to Retire Rich in the USA with No Money and No Effort” from my memory. The objective is seeking an easy life without work in the land of generous welfare; the rest of the world calls us suckers!

Many Vietnamese refugees cheat on welfare. I do not blame them considering the miseries they went thru. Most of them were government employees (servants and soldiers) and Chinese merchants. Most are educated, hard-working folks with tough experiences. In just one short generation, you do not find too many of them collecting welfare and most become respectable and productive citizens.

Am I racist?

When I talked about the problems of the black, I would be likely called racist. If they do not know about the problems, how can they fix them? Hence, most likely the problems have to be fixed by the black. Despite all this, I still have to say they have to start in family education. With multi-generations of teen age mothers and high percent of male in prison, the future does not look good.

If you have a museum for white, you will be called racist. But, one for black is OK. It is fine for black making racist jokes, but not for white on black.

The editor of China Airline magazine had to apologize to the Indians and Africans for telling her readers not to visit some parts of London due to high crime. It is true that many mentioned minorities reside there. It would be quite innocent as they've not deal with minorities that much.

Undoubtedly, the white had done something wrong by enslaving the black. But, that is more than a century ago. Today, does racism limit one from success if life? The opposite is true such as college admission and job promotion.

Besides some bad apples, police are doing great job at the risk of their lives. We have to admit and fix our racial discrimination. Peaceful protests are fine but not looting.

Do you call me racist or white lover?

Afterthoughts

· The welfare department and the immigration department do not share information. I wonder why the welfare officer does not check whether the applicant is legal or not. We have an illegal alien in Boston who sued the employer successfully for not paying minimum wages.

· A 25 year old with 9 children received more than 100,000 per year without working. It is the best get-rich scheme and a best-kept secret. Social security contributes about $8,850 per month for each recipient in the family.

http://tonyp4idea.blogspot.com/2012/11/making-over-100000-without-working.html

I did not write this article. It was distributed to me. I hope it is an exception.

· I debated whether this article should be included in a book on investing. Generous welfare benefits dampen our capitalist economy.

· Another subject of debate is whether education improves employment as many college graduates have been unemployed or under-employed for years. A city with well-educated citizens usually has lower crime rates, which is a prime consideration for businesses.

Judging from bailing out big businesses that are too big to fall, the government seems to be pro-business (it is welfare for the rich). It is good for political campaigns to lay off fewer employees, but it is not good for the economy in the long run.

· Some suggest to raising the minimum wage to $15. Sounds like communism to me.

· Sam sent me this article comparing work and welfare.

http://blogs.wsj.com/economics/2013/08/19/work-or-welfare-what-pays-more/?mod=trending_now_3

The authors found that in 11 states, “welfare pays more than the average pretax first-year wage for a teacher. In 39 states, it pays more than the starting wage for a secretary. And, in the three most generous states a person on welfare can take home more money than an entry-level computer programmer.”

· The USA citizens can be divided into 3 groups according to taxes they’re paying:

1. About 40% not paying Federal tax. When this group grows, we will go bankrupt. Representation without taxation is worse than taxation without representation.

2. Middle class (55%). We're being squeezed by the other two groups.

3. The rich 5%. They pay most of the taxes. However, in the last two years, they're fleeing to other places that have low tax treatments. The geese that lay the golden eggs are flying away. Without them, the middle class are squeezed even harder until we’re forced to move to the first group and bankrupt the country.

6 How to solve trade imbalance

The U.S.'s wage of $20 per hour cannot compete with the $2 per hour (no matter it is from China, India or Vietnam).

You cannot live with the $2 per hour wage in the U.S. It is easier and better to live on welfare with food stamp, housing subsidies, free health care (in some states) and many other freebies, when your income is low or $0. Our generous welfare encourages our citizens to be lazy and some cheat on the declaration of their incomes. The disability claims excluding veterans from the wars increase substantially in the last decade even our work environment is far safer. It also encourages our citizens not to save.

The solutions are (some are satires):

· Abandon industries that use low-wage labor and / or outsource manufacturing jobs like what Apple is doing.

There is no quality problem with Apple’s products that are outsourced to China, so it really depends on the company who outsources and how the product quality checks are conducted. Apple is making good money, paying taxes, hiring top earners and at the same time providing great and affordable products to the world. As of 2012, Apple is the most valuable company in the U.S at least for a brief period.

· Take out the embargo of military products to China at least on the products that China can obtain from other sources such as Russia and some European countries. Currently, it does not serve the purpose of preventing China from becoming a military power and we’re losing the sales.

Why should we be afraid of China when our military might is far, far away from any country on earth? We can sell China missiles with no fear. Just program the missiles to return to the sender when the GPS detects it is heading to our direction. My genius idea just saves us billions of dollarsJ.

· Beg China and other countries to loan us more money with states as collateral (by now no one is stupid enough to use the USD and loan us without collaterals) starting with all non-Democratic states first (according to Obama) and Washington, D.C. will be the last to sell. Just a jokeJ. As in a capitalist system, if you cannot service you loans, you have to give up your collaterals.

· Selling Alaska back to Russia (with Sarah) for oil is a no brainer. It is just like killing two birds with one stone.

Selling Hawaii is just genius like selling something we do not own. Most properties in Hawaii are owned by Japanese already.

If we sold NYC to China, we would make a huge, huge capital gain. It is even more sweet if you recall we bought (cheated is a better word) a good piece of NYC from some native Indians for trinkets. The Indians / Eskimos were Chinese crossing the frozen strait due to losing their direction after too many hot drinks. I have my genes to prove my theory. So, it is the same as selling to the original owner for a huge gain without paying any taxes.

In reality, we sold Manhattan to a casino operator. Wall Street is the biggest legal casino. The only difference is all the hotels are outside the casino. Sell Silicon Valley to China and the rest of California to Mexico (similar to selling Florida to Cuba if they can pay for it).

The only place you cannot get rid of is Washington D.C. No buyer can live with the lazy government servants and politicians fighting each other every day to see who is on top.

It is the similar to the bankers foreclosing your house when you cannot service your mortgage. I hope it will remain as a joke forever.

· Close all trades with all foreign countries but we have to enjoy the $50 toaster that is produced by the U.S. workers! The U.S. is one of the few nations that can close out all foreign trades and survive. However, the movie and music industries will suffer and decline. Boeing will have to park their shiny planes in the desert to collect sand. We will have so much grain in storage that eventually we will have more rats than people.

· Without the rare earths from China, our Apple products will cost double and our missiles will cost us far more. However, it would be good for the world as folks will use their Apple products longer and fewer missiles will be produced.

The chicken feet would be better thrown into ocean instead of shipping them to China for cash.

## Technical metrics in market peak, bottom & correction

	SMA-50	SMA-200	SMA- 350	SMA50/ SMA200	RSI (14)
Market
Peak		5%	9%	101%	65%
Bottom		-32%	-31%	78%	25%
Correction
Peak	4%	6%	11%	102%	65%
Bottom	-5%	-6%	-7%	97%	26%
Stock
Peak					70%
Bottom					30%

### Joke ###

Measure the success in one's life

Contrary to popular belief, your success in life is not measured by how many friends or how many stocks you have. It is measured by:
When we die, we're

smart with all toys;

dumb with all toys not upgraded (Disclosure: I've stocks on Apple);

stupid with all money not converted to toys;

genius with all toys being shared with the poor (Gates and Buffett).

7 Potential impact of our trade war with China

As of 7/15/2018, Trump may ask for a forest and settle for a tree. Hopefully it would end the trade war. This article describes what China would react to the full-fledged trade war. Even if there is no trade war, China would prepare herself better for the future.

· China will not meet the demands of the US and cannot counter react effectively.

The gap of trade deficit is huge. Part of the trade deficit is due to including the component costs (such as the iPhone), not counting the service deficit (Chinese tourism and Chinese attending colleges here) and profits of our companies in China. China’s estimate of trade deficit is 60% less than ours.

· China would fall into a recession. I guess it would be brief and mild. Her GDP growth would fall to 5% which is still good for most developed countries.

China’s economy depends on her export to the US. It will turn to other partners such as the participants in the “One Belt, One Road” projects, outsource the manufacturing to other countries that have little tariff impact and concentrate more on her huge internal market.

· It would be a blow to China’s scheme in cutting internal debt, which has been high and risky.

· China will speed up research and investment on core technologies such as manufacturing of chips. The middle class will suffer except those who involve in core technologies.

· From the ZTE experience, China should weigh more on US supply on core technologies such as chips than tariffs.

Once China masters these technologies in 10 or so years, China can really stand up and say no to us. Today we have about 65% of our science Ph.D. graduates are foreigners with a good percent from China.

China recently ban Micron’s memory chip. The world’s second fastest computer (after three times number one) is made of CPU chips by China after US banning US CPU chips to China. The world may under estimate China’s potential in core technologies. In addition, it is not impossible to buy many components from other suppliers.

· China will continue to attract Chinese who have technical skills to return to the motherland. China will also attract top scientists from all over the world. It is easier than before when research funds in US have been reduced.

· China would have closer partnership with many countries such as Canada while we would be more isolated.

· China will withdraw or at least will not buy more of our Treasuries. It would raise our interest rates and it would have adverse effect on our stock market. The Fed would be forced to buy more.

· China will devalue the yuan. When it has been down by 10% recently, the tariffs would be not as effective as before. It would make her products cheaper and tourists will flood to China. The payback of the loans in USD will be beneficial to China.

· Profits from many corporations will suffer such as Boeing, GM, Ford and companies that supply chips and/or components to China. The stock owners of these stocks will suffer.

· India and many countries will benefit from the trade war. To illustrate, India will be more competitive in farm commodities replacing US export to China due to tariffs.

· US will gain some jobs, but not as much as expected. Many even predicted we will have net job loss. Some jobs will be replaced by robots and some will be lost due to the trade war. Most manufacturing jobs cannot compete with low-wage countries such as Mexico.

· Some of our products depending on imported commodities will cost more to make and hence less competitive. More corporations will move their manufacturing to other countries to minimize the effect of tariffs. Tesla announced opening a plant in China. A motor bike company is moving their production line to S.E. country to benefit for tariff-free among these countries and less tariffs for steel and aluminum. Many other companies will follow.

· Some Chinese imports will be replaced by other low-wage countries. In this case, we gain nothing but our consumers will pay more. It happened before when we banned Chinese tires that were replaced by lower-quality tires at higher costs from other countries.

· Even with the tariffs, some Chinese imports are still competitive to US and/or other low-wage countries. Hence the tariff is a kind of tax added to our consumers.

· China has not used her most powerful chip: rare earth elements. If we ban core technologies such as memory chip to import to China, China will take this ultimate weapon.

· The farmers especially the soybean farmers will voice their discontent against Trump. Trump would not last for another term with the opposition from farmers, Hispanic voters and ObamaCare recipients.

· China is waiting for the next political leader replacing Trump and s/he may have different view that is more favorable to China.

Trade war is a loss-loss scenario. In the long run, it would be good for China but bad for the US. In the short run, the reverse would be true.

Even without a trade war, the damages have been done. China will focus on long-term solutions such as core technologies. China will reduce the holding (about $1 trillion) US treasury bonds. The yuan has started to depreciate. We become more isolated from our best partners Mexico, Canada and EU.

I hope the trade war will not materialize and we settle down with cutting at least half of the deficit. But, from whose estimate?

8 Modify our election system

Our voting system works but it has problems that need to be addressed as follows:

1. Reduce campaign money.

When politicians spend a substantial amount of time in fundraising, they have not concentrated their efforts on the important issues such as the economy. Gun control was not even mentioned in the last election despite we have constant shootouts. We need to set a limit in the amount of the campaign money they can raise and they can spend. Hence, the presidency is not won by how rich you are and / or your party is, but how you can resolve our problems.

2. Over-promising for votes.

The last election was so close and the outcome could have been altered by the inclusion of Hispanic votes. The changing of the legal residency status could create many legal welfare recipients to further burden our bankrupting country. If the welfare is so generous, why should they work when they are legalized?

3. Special interest groups.

The politicians optimize their policy to favor the special interest groups who finance the campaigns. Entitlement recipients belong to another group. They ought to be paid according to how much they have contributed. The social security system was designed for life expectancy far less than 65.

4. We need to set up a ballot to indicate what percentage of our tax money will go to a specific budget, such as offense, education, etc. Spending too much on one budget would hurt other budgets. I would like to spend less than 2% on offense. Why we need a carrier driven by dual nuclear reactors and still ask for more defense expenditures?

5. Representation without taxation is worse than taxation without representation.

The votes of those who do not pay any Federal taxes, the mentally challenged or those with low IQs, the uneducated, and the criminals should be counted as at most half votes. The votes of all veterans should be counted at least one and a half as they sacrifice their lives for the country. A kind of controversial at the first glance!

We have about 50% illiterates in Detroit. The politicians have to satisfy these voters in order to get their votes. It is not hard to predict the collapse of the city. Taxing the rich and giving more to the poor seems to be good deeds similar to Robin Hood. However, businesses cannot function over there and they have options to leave. It is another example that uncontrolled socialism could lead to self-destruction.

The following are related to governance, but they should be discussed during the election.

6. Need to balance the budget. It should be a constitutional law. We cannot pass our debts to the next generation forever. Most states require balancing their budget, why not the Federal government?

7. Need a long debate in the Congress before we can start another war. Most major wars from Vietnam War to the current two Middle East wars cause most of our financial problems. We are not wealthy enough to be the world’s policeman, and fighting for ideology and freedom for other countries. Being #1 or a big brother is not important when our economy is bankrupting and most our graduates cannot find jobs. U.N. is supposed to be the world’s policeman, not us.

8. Need to encourage the able poor to work and be educated to break the cycle of poverty. There are too many holes and misinterpretations in Clinton’s law to force welfare recipients to work.

(http://en.wikipedia.org/wiki/Personal_Responsibility_and_Work_Opportunity_Act)

9. Need to control government expenses by a smaller and more efficient government and cut frauds such as Medicaid and disability entitlements SSDL. Increasing government employees and assigning them small workloads is reckless consumption.

To illustrate, building a road to improve transportation is productive, but defending other countries is consumption (unless the benefits justify).

Afterthoughts

· Why we shut down the government due to the debt ceiling? Run the government like what businesses do. Calculate the rate of return in the following two options.

1. Benefit in shutting down the government.

or
2. Benefit in not shutting down the government.

Select the option that gives us better benefit.

The majority of government employees have tiny workloads (most got their jobs in DC due to what party they belong to). Furlough (layoff could be better just like most businesses do) half of them and it would maintain the same service if they work in the private sector. A win-win decision.

Closing all the free museums (say in DC) will cost a lot of pains to tourists and future tourism. Actually it costs more than 10 times of the saved wages in shutting down. Only the stupidest managers make this kind of easy decision.

However, our government makes decisions based on politics: Want to show who is the boss and put the blame on the other party. They are all wasting our time, money and energy. We need to have smaller and efficient government.

When the problem is resolved (by approving funding or moving the debt ceiling even higher), both sides would declare victory shamelessly on how smart they ‘fixed’ the problem to insult your intelligence.

· Usually we vote for the candidates we associate with without considering the ideas and the qualifications of the candidates. That is evidenced from the reactions of the O.J. Simpson’s verdict from the students of a black college and the students of a white college. This is bad for the country.

9 The Republican Convention

Why do we need to know Mitt (or any candidate from any political party) is officially nominated or he will accept the nomination in a convention? Who has turned it down in our history? If this is the main purpose of the convention, it is a TOTAL waste of money and time that can be used to deal with our real problems such as how to cut down spending. Isn’t it ironic or demonstrating how the big government wastes our money or how big businesses buy influence?

If you really do not know whom will be nominated (I'm shamelessly insulting your intelligence and assuming you have been living in a cave for the last year), just watch the news on TV and save millions.

The convention must be sponsored by airlines, hotels, restaurants and Florida or big businesses / special groups wanting influences. The hidden sponsors are the prostitutes and the drug companies who provide Viagra and condones. They are the winners in this convention, not the handsome Mitt and his lovely wife. All the conventioneers using other folks’ money to wine and dine are the free loaders and parasites. Sorry to offend all the politicians and their running dogs.

I like to attend any convention if someone is stupid or rich enough to pay for this unearned but lavish vacation – I’ll vote whatever you want me to. Sign me up for any convention, Republican or Democratic, now or in the future. I hope it will be in Hawaii or somewhere without any hurricane and with great and expensive food. You will pay for it eventually one way or another.

I must have some mental problems if I talk to an empty chair with a ghost rocking on it. When you guys laugh at the chair, you might have a more serious mental problem than I. Even with no one sitting on it, the chair still rocks. It symbolizes the do-nothing government could be the best government as it rocks! My point is we need a small, frugal and effective government. The best government is invisible but it provides all the basic services at the least cost!

Afterthoughts: More

http://ebmyth.blogspot.com/2013/11/more-on-republican-convention.html

10 How to solve our economic problems

The United States is still rich and powerful, so the economy should be easier to fix. However, we all have to bite the bullet. Bailing out everyone only buys votes for the politicians and will not help the economy in the longer term. The economy affects everyone and it should not be a political game. Here are some of my thoughts.

· When GE does not pay any tax to the U.S. but to some foreign countries, we've a problem. So are many U.S. companies which should be headquartered in the U.S. instead of in some foreign countries. We've not done enough to lure them back and give them incentive to stay. At least we need to force them to pay taxes on the profits they made in the U.S.

It is similar to the cruise ship companies. They pay minimal taxes even most are the ‘real’ headquartered in the USA and most of their customers are USA citizens.

· The rich should pay their fair share of taxes. If we force them to pay more than their share, they will move elsewhere. This is the straw that breaks the camel's back or killing the goose that lays the golden eggs. The top 10% rich folks paid 70% of all Federal tax collected in 2010, up from 55% in 1986.

More than 40% of the total population did not pay Federal income tax and they received most welfare benefits and entitlements. Our socialist system would bankrupt when it does not have any to give.

· Relax the environmental enforcement on drilling and start the construction of the pipe lines such as the one from Canada. We may have more than enough trapped natural gas for the next 50 years. Now, oil countries are dumping oil to fight off our shale energy. Should we have a new tariff to protect our industry?

· The complicated regulations, religious concerns and the high legal expenses force some drug companies move the research elsewhere. If nothing is being done, I predict Asia will be the center to produce more new drugs in the next decade and we will lose the competitive edge.

· We need to limit the unemployment obligations and the burden of ObamaCare to small businesses.

· We should give companies the rich incentives to take risk to start business and new ventures here, or they will invest elsewhere. Investment creates jobs.

· Practice free trade, not protectionism but ensure all partners are playing fairly. All the trade agreements are used to exclude some countries such as TPP against China.

· Protectionism with tariffs will save some jobs initially but will weaken our competitive edge in the long run. Buy the best product from the country that produces it at the least cost. We have to give up some jobs from lower-wage countries. A $20 wage will never compete with a $2 wage. These products from foreign countries would increase our living standard.

· We have to reduce our national debt. Obama saved our market by excessive printing / borrowing. Our children and grandchildren who do not have a voice have to pay for them. Our competitive edge will be reduced for serving our debts instead of investing in infra structure for example.

· There are many ways to balance the budget.

We need to cut the entitlements. We need to encourage the able poor to work instead of receiving welfare. Why should they work if work means cutting the housing subsidies, food stamp and free health care (in many states including Mass.)?

We cannot tax the rich to the max. I belong to the middle class and I cannot give up my citizenship, my social security and Medicare that I contributed during my work life. However, the rich can and they even come back to live here as a foreign citizen. It has happened to many high-tax countries and we never learn.

There are many U.S. jobs that are being done by illegal aliens. Check out who pick your lettuce, or empties your waste basket in your office. The poor should take up these jobs instead of fixing up their motor bikes, or watching TV all day long. When we legalize the illegals, will these new residents collect welfare instead of working?

Hiring more employees for government jobs is the most inefficient way to boost employment, as our government is too big already. We can cut down half of them without degrading the services as most are working half of the time already.

We cannot afford the two wars; one war costs us $2 billion a week. Many well-known projects overseas cost about $2 billion each. Why we need a carrier powered by two nuclear generators is beyond my comprehension when we have more weapons to destroy the entire world by pressing a button. Should we solve our problems first such as Detroit before we send soldiers abroad and/or help foreign countries?

All the measures should be executed gradually to avoid the so-called fiscal cliff and related problems in different terms. I'm in IT and now about investing. I do not know much about social science and economy, but they're just common sense.

#Filler: 12 noon is not 12 pm

The Chinese restaurant I went to says they open at 12 am. Are they wrong or the world is wrong?

The next hour from 11 am is 12 am, NOT 12 pm. The one who set it up did it totally wrong and no one complains until now. If I were born earlier, I would have corrected it. If I were born here, I would be the president and every one would have a job by now.

The same if I stayed with the Fed (I actually worked for them briefly and I still had the key to the executive rest room to prove it), we would not have this financial mess today.

Or, if I played for the Celtics (I need two more feet), they would not have a losing season.

11 Implementation

As of 2015, this recession is the longest in my memory. Usually we have recessions that last for two to four years and then we recover. Some recent college graduates have been out-of-work for over four years and many work on jobs that they do not have to go to college for.

It could be due to the failed stimulations, printing too much money and the bailouts that did not fix the root problem. If we did not do the above, there is a better chance for a faster recovery than a deeper recession. Hopefully 2016 will be the year we finally recover, but only time can tell.

We need to let big businesses fall. No one is too big to fall. Let nature take care of itself. If you cheat and / or do not perform, you need to be out of business. It is Business 101 and the fundamental of our capitalist system. Why it is so hard to understand? Why do we need to bail out companies that should fail? Why the greedy CEOs have not gone to jail? Why they were rewarded with bonuses from our bailout money to bring down the companies?

Our problems are easier to fix than they appear to be. I can think of many easy solutions, so the politicians who are hundreds of times smarter than I (or at least make hundreds of times my salary) must have many solutions already.

Identifying the problems and finding solutions are the easy part. However, the implementation is hard, as the agenda of all politicians is simple: Get reelected. They have to satisfy the special interest groups who finance their campaigns and the voters who do not want to bite the bullet. When we have more voters benefitting from welfare and entitlements than the tax payers, we’re going to be a welfare state. In addition, big businesses control our government via special interest groups; I call it corruption, American style. When one party takes over the other party after the election, most politicians and their helpers get jobs from the companies that they gave favors to.

12 Solve our deficit problem

We should have a 10% corporate tax, a 3% VAT and extra 2% for luxury goods.

Advantages:

· All the corporate golden geese will not flock back.

· Our dividends will not be taxed twice.

· Corporations will plow back the money for investment and hence ignite employment.

· VAT discourages unnecessary consumption and spending. The 2% surcharge for the rich is fair and simple. The above numbers are arbitrary. We need to set up a budget and require the government to enforce it. If we have excess, we can cut down the income tax that would encourage working.

You may say we do not have money to run the government. It is simpler than expected.

· A small and efficient government.
If you're one of the lazy government employees surfing the net and waiting for the 4 pm stampede (after the two-hour lunch followed by your nice afternoon lap), you know exactly what I'm talking.

· Why the government employees can retire at almost full pension at the early age (comparing to corporate employees) is just beyond my comprehension.

· Stop being the world police. We've more problems to solve at home.

· Cut down the generous welfare and ask the able to get off the couch. Watching TV all day long for the rest of your life is boring and not good for your health. Remember when we run out of money to give you, the host and the parasite will die together

· Prosecute the welfare and disability cheaters.

· Prevent illegals to come in by prosecuting employers. If there are no jobs, they will not come. We do not need all those fences and patrols.

13 The first sip of coffee

Our politicians are 100 times smarter than I, 100,000 times richer than I, handsomer than I (debatable for most esp. Trump)..., why they always made the wrong decisions? Simple answer. Their agenda is buying votes and mine is for the good of our country. Here are the easy fixes.

* Corporate headquarter exodus. Lower their taxes first.

* Health care problem. Lower the medical expenses first.

* Building border walls like the Great Wall of China. Punish the employers who hire the illegals first.

* Social welfare. Do not punish folks for working and give more welfare to workers than those able welfare recipients. It is similar on how to dissolve multi generation of teen-age mothers.

* Fight terrorism. Understand why they want to be one (patriot for them). Think like one on how to give us maximum pain with the least resources.

* Improve the economy so everyone has a job. Our 'offense' budget is more than the next four countries combined. Unless for our own benefits, do not send soldiers overseas. Today's weapons are missiles and cyber security, so how many soldiers we need?

* If we learn the prediction from the Bible or the endless religious wars, we would not be involved in the Middle East conflict.

Just write down this list at the first sip of coffee. It could be an endless list.

14 Our 4T budget for 2020

Our budget for 2020 is 4.7T (1T = 1,000 B). Do we have tax income to cover 4T? As of March 6, 2020 and according to the government budget web site, we do not.

Budget projections for FY 2020	As of 3/6/2020
Outlays	$4.7 Trillion
Revenues	$3.6 Trillion
Deficit	$1.1 Trillion
Debt held by the public (end of FY)	$17.8 Trillion

I bet the numbers have not been updated. As of today (4/4/2020), it would be even worse considering the extra $2 T to fight the Coronavirus, the fast-rising unemployment and the reduced tax revenues from businesses and the capital gains in the stock market.

We need to balance the budget to start with. It is irresponsible to borrow money and ask our children and their children to pay for our debts.

With the huge national debts, the status of the reserve currency of our USD is shaken. We know what happened to the United Kingdom when the pound was replaced by our USD as a reserve currency.

Obama saved the stock market, but doubled our deficit in his terms. He satisfied his voters by giving them what they need. Are we the voters to be blamed? The deficit is important in the long run as we would lose our competitive edge when we have to service the hefty debts. We need to invest in infrastructures, but not in wars.

I propose the following:

1. Add the following in the Constitution. If the president cannot balance the budget, s/he cannot run for the second term.

2. In mid-year, make adjustments to the spending according to the budget / tax income.

Steps to balance the budget:

1. Reduce our burden as a world policeman.

2. Cut down on welfare to ABLE recipients.

3. Cut down on corporate welfare.

4. Prosecute violators such as price gauging by drug companies and disability frauds.

If the U.S. were a corporation, we have bankrupted already.

# Filler: How to win the PowerBall

1. Go to the local lottery office and ask to buy all combinations with a check dated today when it is over 500 M. It worked yesterday. If you have more than one PowerBall winner (or someone using the same trick described here), you may have to skip town.

2. Borrow my time machine which is being repaired or the car from "Back to the Future".

15 Natural disaster

As of 2018, there are two new threats to our economy: trade war with China and natural disaster. China will be discussed in detail in this book and this article is on natural disasters. Momentum investors, take notes and actions.

Hong Kong has no death for the biggest typhoon. Philippines has far more deaths. Indonesia has more than one thousand (could be far higher) deaths. It explains some 'facts':

· The richer the city, the better the preparation.

· Natural disasters are getting more fatal and frequent. Global warming?

· My Coconut Theory. That's why some countries are always poor due to the poor locations that allow disasters to destroy their coconuts.

More on natural disasters

We have less fatalities due to better preparation such as better house construction to withstand typhoons and earthquakes and better predictions. But only in richer cities.

For example, there are few if any wooden houses with no foundations compared to the 50s and 60s in Hong Kong. It would cause many deaths in the last typhoon if they still exit.

For the last two years the world has record-high natural disasters - a statistics that cannot be fake news. Some policy is terrible. Why the government continues to give money to the same destroyed house in the beach front that happens once every 3 years?

The impacts of constant flooding and constant droughts cannot be avoided but can be reduced if we devote more of our resources here than fighting endless wars. The recent disaster in Florida makes Hog Kong’s worst typhoon a child’s play.

Global warming

The recent natural disasters may be caused by global warming. The warmer water and warmer air pass the energy to storms. The melting of the poles give rise to sea levels.

Better to believe it and take actions than ignoring global warming.

There are many we can do.

1. Reduce carbon gas. Live in a smaller house to save energy to heat and cool the house. Wear more clothes instead of turning up the heat Use public transportation and/or drive energy efficient cars.

2. Protect the environment. We need to repair rather than buy new stuffs such as iPhone and cars.

3. Build sea wall.

4. Control flooding.

5. Do not build houses next to the ocean unless they're safe.

# Fillers

Tibet today

Watched a travel show on Tibet. Tibet’s living standard has been at least doubled after the train. It has made everything cheaper to import to Tibet and has attracted a lot of tourists. I bet the ‘liberation’ is good for Tibet. They do not have one-child policy and children can go to school.

Wheel of Fortune

My late mom was a big fan of the show even she did not know English. It is the biggest compliment to the show.

Charity donations

In lieu of flowers, I donated. Why they asked me for the phone number? Use 1234 for the last 4 digits if it is a requited field to enter.

Chow Yun Fat, the star in Crouching Tiger and Hidden Dragon, donated most of his money to charities and leads a frugal life style. Great Mr. Chow (not Mr. Fat).

I should not mock at Buffett’s income taxes as he had donated most to charities too. His foundation uses money more wisely and effectively than the government. Two thumbs up!

16 Bad business practices

I have so many bad experiences recently. I bet their competitors do the same, so I do not want to show the names of the offending companies if I have an option.

· My car problem.

I could not take the key from my ignition switch all the time. It is a new car from one of the two major Japanese car manufacturers. They honestly acknowledged it was a common problem for my model. After several unsuccessful fixes and giving me goodies such as free oil change, I called the service manager and yelled at him it was THEIR problem not mine.

Finally, it was fixed with a solenoid costing about $5. What a waste of time, theirs and mine. This customer will not be happy and they still have to spend the $5 plus the oil change and all the free apples I can pocket. I still have not received my customer satisfaction survey.

· I received a letter from my one of my funds asking me to respond so it will not be treated as an abandoned property. The checks of the dividends and the capital gains must have been cashed by a ghost. I responded by closing the account. My daughter closed her brokerage account. She had 14 cents. After more than 10 years, she still received monthly statements!

· I was lured to another cable company for their generous offer. I asked my current cable company to match the same deal and they refused. I switched. Since then and 5 years later, I still received their junk mails offering better offers I cannot ‘refuse’. Cut down many trees in the process.

· My Sunday paper raised the price to $5. It is a dying industry as I got all my news from TV and the web. I quickly cancelled my subscription. Since then, they have left many messages and sent me junk mails almost once a week. If they did not raise the price, I would have stayed with them. Try to squeeze the last milk from a dying cow.

· I had a reader telling me to improve my writing style. I asked him whether he followed the book’s techniques to accumulate cash before the correction in August, 2015. He did not and he was supposed to be a keen business man. Wrong objective for buying a book on investing!

· My ‘favorite’ charity called me 8 times for donations. I will not donate via them again. I hate to be disturbed during dinner. So are all the phone calls from politician calling for votes and I do not vote for any of them.

· My printer needs replacement of inks at least once every 3 months even I seldom use it. I will never buy anything from that company.

· The ‘new and improved’ upright washers are problem-prone. My old ones never need repair for over 10 years. So are Yahoo!’s new ‘improved’ systems. So is Microsoft’s Solitaire – why the ‘improved’ system takes many times longer to load as they expect players also own Xbox. They all lose contact with their own products/customers or their stupid management tells them to do so.

· I want to know how all the three market indexes, oil and gold are doing at least once a day. One major financial web site now ‘hides’ this information in order to show their programmer can do a fancy job without caring what the customer wants. For me, just switch to another web site.

· I almost missed my connecting flight to Boston in Toronto. First, why I have to clear custom in a foreign country? Second, why the old process took minutes and this one takes almost an hour. The designer must have to change the system so s/he can hire more employees or just had too many drinks during lunch.

· One luxury hand bag company takes out the logo on their bags which is why their customers pay premium. One company name is hard to spell and remember by their potential major customer Chinese.

· Volkswagen, Wells-Fargo and Samsung are recent examples. They all want to be number 1 and end up last. The first two can fool us sometimes, but eventually their misbehaviors will come back to harm them. Samsung should have tested their phone longer. Most companies want to rush their products to the market in order to compete without all the testing; what happens to beta test and alpha test that are taught in colleges.

· Usually I stay away from retail stocks including the rising Amazon. I expected Coach and some luxurious retailers would have a tough time. Partly due to the falling Chinese economy. Partly due to not understand their own market. Chinese buy a lot of these stuffs. If you do not believe me, go to these stores in NYC, Paris..., you can see them buying a lot to avoid paying tariff and help them to boost their social standing.
When they take out the logo, they make their products not sellable to Chinese as many Chinese (esp. those to be impressed) do not know English well.

· Costco was sued. If you look at the marketing departments of most big companies, you can see many good-looking young kids. Most do not have common sense and lack of experience. At least hire a good one to manage them and in this case it is logical to be sued.

· Boeing’s management made a wrong decision by not building a new plane from scratch 10 years ago. They wanted to squeeze more profits from a plane designed for 1969 or so. The current engine is too heavy and too big for the body. The software system tries to compensate the problem but it is not bullet proof. At least they should have included the extra safety sensors as part of the basic package.

· Why ‘smart’ companies including Staples and Home Depot failed in China? They do not understand the local culture to start. Staples sold chairs that are fit for the large Americans but not the smaller Chinese. Most Chinese live in apartments and most hire cheap labor to remodel their houses.

#Filler: Kings of California

Due to its huge size, California should be broken up into two countries. The South and the North are quite different - some laws worked in the South do not work in the North. I will assign Trump to the South to fight the nasty Mexicans and myself to the North to enjoy all the wine and fresh air/water LOL.

Section IV: China

As of 2019, China is the second largest economy or the largest if adjusting to the purchase power. China lacks a lot of natural resources and farm land and hence global trading is more important than us. China could have a recession in 2020 due to the trade war with the U.S. and her high debts in many levels could explode. It would affect all the global economies if it happens.

I expect China’s GDP would be 5.8% in 2020. With the high cost of offshore drilling, the islet disputes with her neighbors would be reduced. However, invasion of Taiwan could happen. That’s the reason I have several articles on China.

1 Can China say No to us?

In the last decades, Japan and some oil-rich countries could not say “No” to the USA, but China can to some extent and definitely can in 10 years.

China needs our farm products, jets together with Airbus, core technologies such as memory in the mobile phones, etc. We need China for their low-cost consumer products, rare earth elements, market for our global companies and buying our debts.

Being the major players in the global economy, a full-fledged trade war with China would mean global recession and actually we would lose more than China. A military war would likely cause market crashes starting in the US and Asia.

Today’s China is not your Daddy’s China

China is not as strong as the US, but the gap has been reduced in the last 30 years, and at that time China could not build a reliable bicycle.

China lacks natural resources that she can obtain from many countries. China can get many high tech products from EU and Russia such as jet planes and agricultural products from many countries including SE Asia and Australia. At the meantime, Chinese are advancing their products. China no longer is export-oriented. Basically it is moving to a developed country with higher-value products. With its huge internal market, Chinese can manufacture products cheaply due to the economy of scale.

China’s rise is primarily due to the USA playing China card against Russia and now the US plays India (and possibly Taiwan) card(s) against China.

Let’s examine some critical factors in this book starting with a little history. In about 250 years ago, the alliance of 8 nations forced China to trade. When China refused, they enforced it with battle ships and cannons. When the Brits had nothing to trade, they pushed opium obtained from India and killed millions of Chinese. The alliance asked for ‘damages’ that bankrupted China and led to the national humiliation for China. The US was generous to use the money to fund Chinese foreign students to the US. They returned and modernized China.

What if China withdraws all the debts we owe?

It would lead to the global depression starting in the US. It is too obvious and I go no further. China is one link in the global economy. It will survive without our trades. A full-fledged trade war would hurt us more than China. Our trading competitors are EU countries, not China as we produce similar products such as airplanes. China would be more cautious in lending us money and/or buying US properties/companies. As of 1/2017, China was demoted to #2 in US debt holder. Unlike businesses, creditors have no weight in our political decisions.

Chinese is still buying our Treasuries for their interest. If they stop, the interest rates would rise and it would cause a housing recession. As of Jan., 2016, our debt to China is just over 1.05 trillion, or about 28% debts held by foreign countries.

How about the deficit with China

We had about $347B in trade deficit with China in 2016. A lot of products such as Apple’s iPhones are counted as import. We’re a victim of our own success: A higher living standard means higher wages, more protections to our workers and more regulations for our environment. Our strong USD reduces the competitive edge of our export. However, we need China to take out the obstacles to our products. To illustrate, most of our consumer products cost a lot more in China than similar local products.

Modern warfare

Modern warfare is different from the 60s. We need better cyber security for both the government and the corporations. We need to fight against terrorists in our own soil.

We have enough nuclear weapons to destroy the entire world. N. Korea is not a nuclear threat unless the guy is really crazy and we drive him to the cliff. We do have to replace the 5" floppy disk though – it could be a security protection.

Aircraft carriers are a drain of the budget. It will not be useful as in the old days. They are sitting ducks for the carrier missiles... Why we need carriers with dual nuclear generators? In addition, China’s missiles can destroy GPS satellite which our guided missiles depend on.

China has modernized its arm forces via development, acquisition and espionage. China produces cheaper military drones, which have been tested in the Middle East. China has mastered stealth technology in their jets and submarines; the technology could be stolen from us. China becomes the largest export on the military drones due to low prices and no questions asked.

To conclude, China’s military might is not that primitive and not that advanced as proposed by our offense vendors who want to sell their weapons. By quality and quantity, today China cannot compete with the US in military, but she is improving enough to defend her territory.

We cannot afford another war

The two wars in Middle East have been draining our resources. We’ve been broke. We will become a real paper tiger when the wars continue for another ten years.

Obama’s administration saved the market at the expense of our national debt which is at its recent height. Our competitive edge will be reduced by servicing the debt instead of investing on profitable projects such as infrastructure. The debts will be paid by our children and grandchildren who do not have a voice today. Are we following the footstep of Greece? We complains on Chinese military buildup without mentioning our military budget is more than the total of the next five countries not including China due to unconfirmed data.

China, the victim

China has not been an aggressor to foreign countries in her entire history. The last conflict is a brief war with Vietnam in 1979 to teach her former ally a ‘lesson’ and lessen the Russia influence in the region. China had no choice in the Korean War and she benefited by getting rid of the former Chiang’s soldiers. The war with India was a joke as China could win it by redirecting the water flow from Tibet. China’s involvement in wars is relatively less compared to our endless participation in wars.

In Roman time, China was as strong as Rome, but they very seldom colonized any country as opposed to the Roman. In around 1420, Zheng He’s fleet was far larger in size and number than Columbus’s and they just wanted the foreign countries to pay annual tributes and for that they received compensations in return. It contrasts significantly with Columbus. During Tang dynasty (about 674), China was world power. They have not conquered and colonized any country.

For the last three centuries starting from the Opium Wars, China was the victim of aggressors. Actually the two dynasties of the last three were ruled by foreigners before Mao included these ‘barbarians’ as part of the Chinese minorities.

The late Deng X. P. said that China would recover most its lost territories in 100 years: many islets in South/East islets, Outer Mongolia (a buffer zone created by Russia), many farm lands from Russia… The boundary line between India and China was drawn by a British general favorable to India.

Why we identify China as an aggressor? Even they steal our intelligence properties due to our lack of protection - it is not the reason to start a war that would hurt us more.

Triggers

They could be China invading (or ‘reuniting’) Taiwan and the islet disputes in South/East China Sea. When China is richer and stronger in 50 more years or so, the national pride will drive China to reunite with China. Hopefully it will be achieved economically rather than militarily. Without the US’s full support of Taiwan, it would not be a tough job.

When the economy tanks, the US government would have to redirect our attention to other areas such as blaming China. Today we cannot as more jobs are replaced by lower-wage countries, not China. The job loss is also due to robots and less demands from the consumers since 2008.

China say “No” as the priority of political stability is more important than a trade war.

Will Chinese wake up and fight against the government?

It is the common thought of the China bashers. Most Chinese will not as most are busy in making money. After they taste the fruit of capitalism, no one is stupid enough to fight against the government and they learn the bitter lesson from Tiananmen Square incident.

Our investment in China

Currently, GM has about 25% profit from China and Ford has 16%. They will be replaced by cars produced in Europe and Asia. The first victim could be Boeing when China can buy jets from EU; it is worth more than $1 trillion in the coming 20 years. Walmart’s products will skyrocket in prices reducing the buying power of the low-income citizens.

Apple is a good example among many high-tech companies. Can Apple move their manufacturing back to the US to eliminate the 35% to 45% proposed tariff?

How can they find enough rare earth elements for their phones? They are available but most cannot be mined without damaging the environment. Many of these mines outside China were bankrupted. How can they motivate an army of educated workers for a new model with slavery wages and unions? It is easy to collect the generous welfare than working in these monotonous jobs. How can we get 40,000 technicians? How can Apple move all the component manufacturers from China? What is the impact on Apple in losing the China market (131 million iPhones vs. 110 million in US in 2015)?

One solution is to manufacture the individual parts in China and has the final assembly here in the USA with a label of “Made in USA” even the label is made in China.

Counting friends and enemies

The US used to have a lot of friends and formed powerful allies with them. When the allies embargo a country, they’re successful. However, our relationships with many of our allies are changing. Russia is not our enemy now and we have avoided some of the conflicts by not participating in actual wars. Russia is an important trade partner of China. Israel, our important ally, has been arguing with our political decisions more frequently than before. China is building two modern silk routes: one by sea and one by land to connect Asia, Africa and Europe better. The US has little use for these routes.

Strange relationships

The chess masters are the US, Russia and China. Japan, N. Korea, Taiwan, Philippines, India, SE Asia countries, Israel and EU are the chess pieces. The US and Japan are friends and both want to ‘contain’ China. Russia and China are trade partners with advanced weapons. Trump seems to be friendly with Russia to build a partnership. However, if we have any war, Russia will be sided with China, but we cannot count on EU now. Many EU countries are busy in fixing their economies and some do not want us to be our puppets. They just want our contributions to their defense. We should be reminded we have a hard time to end a war. When we do not learn history from Vietnam and the Middle East wars, we will repeat history. Why we should always find an enemy?

The US used to play the China card against Russia and attributed to China’s rise by taking out the embargo. Now, it tries to play Russia card against China. This is another example of “my enemy’s enemy is my friend”.

Being a US citizen and born in Hong Kong, it will be my saddest day if there is a war which is predictable as unavoidable by many. I hope it will not happen in my life time.

Investors have to watch the development of the possible conflict. The only winners are offense sector and precious metals. The recent news of capturing of a submarine drone drove the market lower. What will the market react when there is a military war between the two countries?

I have different feed backs from readers with different backgrounds. Being born in Hong Kong, I’m naturally biased.

Afterthoughts

· Taiwan bought a lot of weapons from us including the state-of-the-art fighter jets such as the $1.83 billion of military arms in Dec., 2015. We did not allow Russia to install missiles in Cuba and we clearly know the purpose of these fighter jets. I do not think China is over-sensitive. It provokes them to spend more in defense.

· The US has been spending too much in defending other countries such as Japan, EU… We have too many problems to fix at home.

· Trade wars between the countries have been started many times and both sides lose.

· Most Taiwanese are those who retreated with Chiang after losing the civil war and their children / grandchildren.

· Taiwan’s economy did not catch up with S. Korea primarily due to spending too much on defense, corruption as in most Democratic countries in Asia (have you heard of T.V. Sung?), mal governance…

· China is Taiwan’s top trade partner (40% of its export).

· Taiwanese are educated together with Cuba and Philippines. The difference is Taiwan has better living standard. I can attribute this as the other two do not have enough natural resources as explained in my Coconut Theory.

· China has never expressed to be #1, but the US always does. That’s why we have the endless wars.

· The recent Trans-Pacific Partnership tries to exclude China while China has its own partnership open to all. The hidden agenda is using the country’s currency as the reserve currency.

· The Chinese maritime power is effective to defend its own shore, but not enough to secure the oil route; I estimate about 8% of current foreign oil from this route. With the aircraft carrier, China can invade (or reunite) Taiwan and the ‘lost’ territories in South / East China Sea easier.

· I believe in “love over war” and also in free trade if both sides play it fairly.

· Chinese accomplishments in 2016.

· Here are nice articles on Trump and trade balance.

http://www.vox.com/latest-news/2017/1/19/14176896/china-facts-trump

https://www.thebalance.com/china-s-currency-the-yuan-or-renmimbi-3305906

· Comparing US and Chinese military. Chinese PLA has shrunk from more than 3 to about 2.3 millions. Per capita China is less than the US.

http://www.businessinsider.com/chinese-us-military-comparison-2016-8

https://warontherocks.com/2016/05/how-good-are-they-the-latest-insights-into-chinas-military-tech/

http://www.cnbc.com/2017/02/04/new-york-times-digital-chinaas-intelligent-weaponry-gets-smarter.html

2 The rise of China

Almost every rise of a nation has harms and benefits to the world and the rise of China is no exception. I bet China’s rise has more benefits to the world than harms. China’s rise is natural considering its huge population of 1.38 billion. Around 1800, it produced a third of the global GDP. The Great Wall had done a good job to keep the northern barbarians away so was the ocean from Japan until the last three dynasties. Today and even in the near future, China will not be a leader in politics, military, technology and culture compared to the US. She will be leader in trading due to China’s needs to import energy, other natural resources and agricultural products and export higher-tech products at prices far lower than the West/US.

Harms

From recent history, the rise of Germany led to World War II. Britain’s Industrial Revolution and the advances of weaponry led to the semi colonization of China about 180 years ago.

In another 50 years, I suspect China’s military might be strongest in its territory but not as strong as the US. At most, China will use her might to reunite with Taiwan. Taiwan, under Chiang Kai-shek, wanted to invade China to reunite and used to have meetings with the ‘governors’ of every Chinese province.

Hopefully, the islet disputes with its neighbors will be settled diplomatically. China’s leaders have repeated they will not be “Ba” (roughly translated as #1 bully or #1 policeman). No one can predict that far away. However, currently China has a policy of non-interference and does not expect other countries to interfere her internal affairs. She does not have much military alliance so far. With today’s low price for oil, drilling is not economically feasible and the world is moving to green energy. Hopefully we allow all conflicted countries to fish in the disputed areas.

Economically, it will compete with the US and the west in all sectors. Many developed countries will lose their current financial strongholds if they do not adapt. Since its trade is already the largest, its currency could eventually be the reserve currency. When we concentrate our effort on military, we pay less attention to economic.

Despite the younger population, India will not fare well with China’s rise. Both have similar problems with a huge population to feed and shelter. India’s protectionism does not allow the country to concentrate on innovation and quality to be competitive. China’s friendship with Pakistan does not fare well with India.

With the growing wealth, Chinese is eating better and using more resources of the earth. China is solving the energy crisis. She has signed contract on new natural gas with Russia that would not change the world current supply. China is also exploring green energy sources.

Poor countries find it is hard to compete with Chinese in farm products and energy products. China has about 10% of farm land but a 20% population. Many in these countries are supposed to starve as a lot of farm products are moved to China. I bet the high fertility rate is harmful for these countries and low wages will not fix their problems. With the severe climate, farming will be adversely affected. Hopefully, farming technologies and seed technologies would change the equation for the better.

Benefits

There are many and they should outweigh the possible harms. Here are some examples and some have happened already.

About 250 years ago, China was semi colonialized by the US, the west and Japan and was bankrupted after paying all the unfair treaties. In the 1950s, China could not build a reliable bicycle. China started late but the progress especially in the last 30 years has been amazing. Chinese learn the lessons: They have to be strong in all areas: economics, science, weapons...

China graduates more college students than any other country especially in science and technology. In most cases, China has been run by engineers whiles our country has been run by lawyers. China invests in technologies such as space exploration. China invests in infrastructure projects than any other country such as owning more than 60% of high speed rail of the entire world. China invests more and consumes less that leads to a better future but also excess capacity. Here are some examples.

· Medicines will benefit the world. If you need a drug to save your life, do you care whether it is from the US or from China? With its fewer restrictions in drug development and the government subsidies, I bet China will be the front runner in this field. It is a question of when and not why.

· Public health. Hong Kong is the frontier in many medical procedures and inventions. It is one of the top cities if not the only one that has experience to conquer the bird flu. A city of 7 million citizens can contribute that much - imagine what a country of 1.35 billion can contribute.

· Shenzhen is the Silicon Valley of the East or the Silicon Valley will be the Shenzhen of the West in 20 years. To illustrate, the drone was arguably invented by a Hong Kong student and assembled in Shenzhen. It has most the components available within 30 miles area. Besides the innovation, these high-tech products can be assembled fast and cheap.

· Cheap consumer products. They benefit even the poor in the US.

· Many corporations such as Walmart take advantage of China’s low-cost products. Many high-tech companies such as Apple become wealthier to take China’s advantage.

· Many poor countries copy China’s model successfully while some fail.

· “One Belt, One Road” Initiative. It would make a lot of neighbor countries wealthy.

· The world especially the poorer countries will benefit from China’s advancements. China benefits by learning the US and the West’s technical advancements. Now, China has some pioneer technologies including mobile, infrastructure… One example is the earthquake warning system.

· The world including China has enjoyed our culture via movies and music. We will enjoy Chinese culture more than today.

· China did not ask for foreign aids from the recent natural disasters. Imagine 20% (a little less today) of the world population begged for money.

· China has aided many poorer countries such as Pakistan and many African countries to build their infrastructure.

Neutral

· Weapons. From the centuries of humiliation, I do not blame China to invest in weapons. It helps China to defend herself from foreign invaders. China also exports to many developing countries who can only afford to the second-hand weapons. If they are used to defend themselves, it would be a benefit to the world but not for invasions.

Summary

China has to adapt to its rise, so are other countries particular the US. The balance of power will be changed and the eventual excess of capacity should be used for peace. We have to learn from the fall of China about 250 years ago and the rise of Germany during the WW2.

It is dangerous for us to isolate China. We should understand Chinese culture as they understand ours. We should not use our standards to judge China or any other country as China should not use their standards to judge us. Our politicians should not use China to buy votes.

If China and the West do not adjust to each other, we will have economical conflicts that would lead to wars that the entire world cannot afford.

Links

Technology dominance (First of Part 3, Computer; great but a little pro-China to me). China still lags behind the US in many sectors. US has the benefit of immigration of many top scientists/engineers. Search for “China Technology” under YouTube such as this one and this one, and you should find many. Military link. Space link, 2. Economy 1 2 3 4. General 1 2 3. Diplomat magazine (many articles). High Speed Rail 1 2.

China should develop public transportation more than cars. Local brands in China can only compete in low prices that have thin profit margins. EVs can only be popular in China when they have enough fast charger stations and/or better batteries. Most Chinese live in apartments.

#Filler

3 Shenzhen

Let’s start with a video from Professor X. Click here or type the following in your browser:

https://www.YouTube.com/watch?v=SGJ5cZnoodY&t=923s

Shenzhen has become the Silicon Valley of the East, or in the next decade we would say the US’s Silicon Valley is the Shenzhen of the West.

If you bought all the stocks in the Shenzhen Exchange, you could be very wealthy and there is no need to read my books on investing.

For example, it would take 9 months to assemble a new product but only 3 months in Shenzhen as most of the components are readily available next door or in the next street. Shenzhen’s advantages are no longer tax credit and cheap labors (but highly-trained Chinese technicians, engineers and researchers). Many tech companies from over the world come to Shenzhen to set up shops in order to be successful.

There are many high-tech products from Shenzhen and they’re sold all over the world. Unless you’ve been living in a cave for the last 10 years or you are blinded by your dumb nationalism, you should know China is catching up with technology, science and infrastructure.

Under Deng’s vision, Shenzhen has become one of the (if not the) wealthiest city in China. Your home work is to study the many articles on Shenzhen starting with Wikipedia or enter the following in your browser.

https://en.wikipedia.org/wiki/Shenzhen

Extra credits. There are several other YouTube videos on this amazing city. Why copying the current technology to make it better or using it for a new product is creative and profitable? Any other countries copy Shenzhen's model and will they be successful? Do you agree from the video that open source encourages copying technology without compensation? What does our 9-year old most likely do with no homework? Is it too early for the Chinese 9-year old study electronics and programming? Have a good day, class and no video game today.

4 One belt, one road

Chinese is building two modern silk roads, one by land (one belt) and one by sea (one road). It has been participated by more than 60 countries. It is a $3 trillion infrastructure campaign funded mostly by China. It would take about five years to complete. The idea is from President Xi and was initiated in 2013.

It is natural for China: use of excessive infrastructure industry, higher wages in China, rising internal demands of foreign products, converting the U.S. treasuries into other assets, and most importantly creating alternate routes for energy / ores as described below in more detail.

· Obama announced “return to Asia” or “refocus on Asia” by sending about two thirds of our naval power to Asia. China realized that it was aimed to them. By blocking the sea route, China’s oil supply would be cut. It is a strategic action to find another land route to these resources.

China and Myanmar have opened a cross-border pipeline into south-east China. It would save a lot of transportation expenses and avoid the blocking in the Malacca Strait.

· China has built up a lot of USD reserve from the trade surpluses with most of her trading partners. It would be less risky by converting this reserve (especially from our U.S. Treasuries) to other investments such as the loans in building infrastructures in foreign countries. In case of a war, their U.S. Treasuries held by China could be frozen.

· Improve transportation of products between China and Europe and resources / energy from Middle East to China.

· China exploits the excess capacity in building infrastructure. China leads the world in building high-speed rail, bridges and tunnels. Japan (with no experience in building rail in hot climate), India (with few successful projects by foreigners) and Vietnam have been experiencing many problems in building high-speed rail that are not built by Chinese.

· Enrich the wealth and living standards of the countries that are in OBOR projects. Even the U.S. and the West would benefit by reducing their foreign aids to these countries.

China’s objective is to make the poor countries richer as a responsibility to the world. Most affected regions should increase the GDP by 5% on the average from my rough estimate.

· Eventually most China’s higher-value products will catch up with the West and the U.S. When the developing countries are richer, they are the target markets for China.

· China’s Yuan has been used as the reserve/trading currency instead of USD though it is a long way to replace USD as a reserve currency. China has set up an exchange for trading energy in Chinese currency. Other commodities will follow if not already done.

· It could reduce some conflicts. Philippines received billions on the loan and has downplayed the islet conflict with China. Hence the chance of Chinese military interference would be reduced.

· It would strengthen the economics, politics and culture ties of China and the affected countries. Western China has not been developed due to the remote and less habitable conditions.

· It would make U.S. very unhappy and U.S. would take counter actions to protect her interests.

Many developing countries and provinces in west China will benefit. Many projects will be financed via Asian Infrastructure Investment Bank (AIIB), which is mainly funded by China. Today most of these projects are financed by IMF and World Bank, which are controlled by U.S.

China may supply most of their services such as building factories or improving ports. However, China will not see their profits from the investments in the short term. Some loans will be partly donated to friendly allies. Many countries may not be able to pay back the loans in cash.

China should concentrate on soft power by promoting mutual respect, understanding local cultures and reducing military conflicts such as islet dispute with Vietnam. All the signed contracts could be overturned when a new governor comes into power. The participating countries should be careful on the ability to pay back the huge debts.

US is not participating in this campaign. We will not benefit from these agreements and we will lose our influences to the developing countries. However, some big projects require advanced technologies and they will be supplied by US corporations such as turbines from GE. Honeywell and Caterpillar will likely benefit. India may not participate due to the road thru a territory claimed by Pakistan.

As in most projects, China will face problems and challenges. Thailand and Indonesia are modifying their original railroad projects. The project is easily accepted in developing countries but not in developed countries such as EU. China is having its own economic problems. Some projects may not pay back and China would end up losing money. China needs to analyze the projects carefully.

It is better to invest in profitable infrastructure projects than selling destructive weapons. Many finished projects such as the major railway in Africa and an empty airport do not benefit China and even the host so far. They need to select those projects that are beneficial otherwise it would be a waste of resources. A train started from a Chinese city to arrive in London and another one to Madrid. In general, it is faster than sea route and less expensive than air fright. Or, it is more expensive than sea route and more time consuming than air fright. Many products such as red wine are suitable to ship by train. It also depends on how far the products are from the closest seaport or railway station. In general west China and their neighbors will benefit more.

China has or will face challenges and problems. The finance would drain China’s reserve funds. Many top officers in the countries receive maximum benefits while their citizens are not. Need to resolve them by making more jobs available to common citizens. Some current highways would be abandoned. India will object due to her animosity with Pakistan. Russia may have the own ideas and/or not investing enough in the part of their infrastructure. The southern route would weaken the importance their northern route. The rails among countries are not uniform and that’s why they have dry docks to transfer goods from one rail system to another.

There will be reactions from U.S. and Japan who would lose their influences esp. in Africa and S.E. Asia. China have made the ports in Germany and Greece busy and bought in a lot of wealth. China invested in Greece’s port when Greece was in deep financial crisis. For a successful project, China would get about 1.8 times the return while the receiving country would get 3 time the return.

Many countries in South East Asia have already been benefited by Chinese investment and infrastructure. There are many conflicts such as corruption by local governments, cultural differences and traditional military conflicts with countries such as Vietnam. Under YouTube, search “Cambodia China Anthony”. Here is one of the series.

Iran

Middle East could cause WW3 and Iran could be a strong factor. Iran is rich in oil and gas. In recent history, the oil right was controlled by U.K. and partially by Russia. U.S. and her allies embargo Iran on their terrorist actions (some claim U.S. army are terrorist), and the nuclear development. To me, trading oil not using USD is one of the major reasons. The recent murder of the number two leader did not get the approval of our allies. Iran bombed the U.S. bases to save face. The reason of not a full-fledged war could be due to Russia and China who may not want to do so now. China, a country without sufficient oil and gas, is eager to develop the land route to Iran’s energy.

5 Decoupling

Trump proposed decoupling with China. It has materialized to some extent as of 4/2020. The U.S. citizens and the two political parties blame China for all their ills. Many jobs will not move back to the U.S. but to Vietnam and India. There will not be a lot of jobs gained and they have to pay higher prices at worse quality as illustrated by banning tires from China. Our corporations will suffer too losing China’s educated labor and the huge market in China. It also motivates China to advance to higher-value products and China will not dependent on U.S. such as the computer chips.

China did not want to decouple from the U.S. However, it may not be up to China’s choice and China is more frustrated with us. In 2019, China ships about 18% of their total export to us. It is high but not much compared to Hong Kong (14%).

The decoupling may not be totally agreed upon by both countries and that could lead to first a cold war and then a military war. In any case, we will be more isolated except with Canada and Mexico. Iran and Russia already have a strong tie with China.

The following summarizes briefly the consequences.

Affecting both countries

· Our trade deficits with each other will be zero from a total decoupling.

· Chinese stocks will be delisted in U.S. exchanges. It will hurt these Chinese stocks for a few months.

· Our firms such as MacDonald’s and GM will be withdrawn from China. Their assets (not including the names and trademarks) will be sold to Chinese companies.

· Citizens of both countries would have a record, unfavorable attitude towards each other.

Affecting us

· In a survey dated 5/2020, 96% of U.S. corporations do not want to leave China even our government pays the moving expenses due to increasing the costs of goods and losing China’s huge market. They may not support Trump’s election.

· China would sell our debts. It would shake the USD as a reserve currency.

· China would ban exporting rare earth elements to us. There are not too many substitutions and the prices for these elements would skyrocket.

· China would ban exporting active drug ingredient to us.

· There will be zero Chinese tourists. Chinese tourists have the highest spending among all foreign tourists. Coupled with the pandemic, many retail stores would close.

· There will be zero Chinese students. The 370,000 Chinese students in 2019 had been financing the U.S. colleges as most pay tuitions. Coupled with the pandemic, many colleges would be in tough time.

· The Chinese goods will be replaced by other countries. They will cost more and at worse quality. The previous example is replacing tires from other countries when Chinese tires were banned.

· We may not gained a lot of jobs as they will be moved to low-wage countries such as countries in S.E. Asia.

· Huawei will ask Verizon and other companies to pay royalties in using their technology and even worse banning using Huawei’s patents in their 5G components. If they refuse, Chinese will freely use the U.S. patents without paying royalties.

· U.S. companies making chips will lose her needed export to China and eventually they would become competitors to Chinese chip makers in the global market.

· Apple would face losing the market and manufacturing capacity in China.

Affecting China

· China’s economy will deteriorate for at least 3 years. However, China’s government has a lot of cash reserve and Chinese are still happy to go back a decade or two when the country was poorer.

· Many small factories are out-of-business. Many factories are moving to South East Asia. It affects the lower class of workers in South China and many workers have been moving back to farms where they came from.

· Chinese will pay more for farm products that are replaced by other countries.

· China will concentrate more effort on agriculture and farm land. Today Chinese do not really need American farm products. China is close to feed her citizens by her own agriculture, which would be enhanced.

· Chinese high-tech will suffer initially. However, if they can get them from foreign countries other than U.S., they should be fine. U.S. is trying to stop our allies to import these products to China. If U.S. do not or cannot stop TMSC (a Taiwanese company) to manufacture chips for Chinese companies, China should be fine. Huawei’s phones and 5G network do not use U.S. chips.

· For the first time for the last 30 years in my memory, there are no Chinese students entering M.I.T. this fall of 2020. The return of Chinese students has been helping China to advance in technologies.

Affecting the world

· The trade war between China and U.S. is taking a break until the pandemic is controlled in the U.S.

· There will be global recession for at least a year.

· World supply chain will be changed.

· De-globalization would make products more expensive.

· Low-wage jobs are being moved to low-wage countries. High-value products are being moved to Japan, Taiwan, South Korea and even U.S.A. Mexico is benefiting for jobs in between.

· Japan, Taiwan, Saudi Arabia, Canada and Mexico would stay with us. EU countries will take side initially and they will side with China for economic reasons. Finally Australia will side with China due to economic reasons; today about one third of their exports to China and Chinese accounts to 15% of the foreign tourists.

Summary

There will be no winner in decoupling. The worst is that it would lead to a military war. We no longer force China to accept our standards and our way to do business. The global order is the same as U.S. order that China does not abide by.

Sunday, January 12, 2020