Home About Archives RSS Feed

The Retired Investor: China's Red Hand of Regulation

By Bill SchmickiBerkshires columnist
Over the past several decades, investors, investing in China, have gotten used to the dichotomy of China's Communist-run, centralized government and its free-for-all stock market. That situation appears to be ending.
 
The latest (and most controversial) sign of China's increased interest in regulating and extending control of its largest companies came over the weekend. Fresh off the heels of a global $4.4 billion initial public offering, Didi, China's ride-hailing giant, was ordered to cease accepting new users, and to close down its app by China's internet regulators.
 
By midweek, the newly, U.S.-listed share price of Didi fell by well over 20 percent. But Didi wasn't the only Chinese-based tech company to feel the red hand of regulation this week. Two additional tech companies, Full Truck Alliance, and online recruiting company, Kanzhun, were also targeted. Regulators are probing whether these companies illegally collected and utilized personal data.
 
In the past year or two, these regulatory probes have been increasing. Chinese, megaglobal growth companies like Alibaba, and its wholly-owned subsidiary, financial credit giant, Ant Group, have been ham-strung by the Chinese government's initiative to exert control over social media and how they handle, collect and share data. Regulators in November 2020, for example, simply halted Ant Group's multibillion-dollar dual listing in Hong Kong and Shanghai at the last minute.
 
Behind this new regulatory crackdown is the realization by China's Communist Party (CCP) that these big technology firms could be a potential threat to their own autocratic control. Based on their vast collective ability to gather and harness data, someday (possibly soon?), these corporations could become a competitive, or even an alternative center of power in China.
 
This was made abundantly clear to President Xi Jinping and the Communist party during the coronavirus pandemic. The government discovered how truly immense these tech companies' databases are in their effort to control the spread of COVD-19 and its mutations. Officials found they had to depend on these tech companies' databases in order to introduce health-monitoring, and a variety of software-based quarantine applications.
 
Up until that time, these corporations (like their overseas counterparts) had a fairly clear path in developing their businesses. They had free reign to cut deals, cripple competitors and collect all sorts of user data (both personal and otherwise), from customers worldwide. That same business model is now the subject of litigation, regulation, and various fines within dozens of countries. In that respect, China is just one more country waking up to the so-called danger of social media companies. But with China, there is a difference.
 
The CCP, unlike most other governments, believes, and therefore demands, that all the data collected from its social media giants, e-commerce, and other businesses (including those foreign companies doing business in China), is the property of the state.
 
This data can and will be used in any way the party and its leaders decide, now and in the future. It is considered part of the nation's assets. To bring that point home, China watchers have identified a virtual blizzard of new antitrust and financial regulation brought by the State Council and Cybersecurity Administration, including the passing of a new data security law in June (that goes into effect in September). In essence, almost all data-related activities by whatever means will now be subject to government oversight and control.
 
In the future, data will ultimately control just about every aspect of human life. Food, medicine, weather, security, finance, etc. Who gets it and how, will all come down to who has the most data and how it is used. President Xi is reported to have said privately that "whoever controls data will have the initiative." I believe he is correct.
 
It seems clear to me that while investors decry the short-term stock losses caused by the heavy-handed actions of the Chinese government on publicly listed Chinese companies, they may be missing the forest for the trees. There are all the signs that these new regulatory risks are here to stay. In which case, we can expect more of them and as a result, a re-rating of Chinese securities (downward) would certainly be in order.
 

Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.

Anyone seeking individualized investment advice should contact a qualified investment adviser. None of the information presented in this article is intended to be and should not be construed as an endorsement of OPI, Inc. or a solicitation to become a client of OPI. The reader should not assume that any strategies or specific investments discussed are employed, bought, sold, or held by OPI. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct.
 
     

@theMarket: Markets Grind Ever Higher

By Bill SchmickiBerkshires columnist
The S&P 500 Index is up 14 percent so far this year. Most other averages have similar double-digit gains. July is normally a fairly positive month (in general) for equities.  Does that mean we can expect equities to continue their bull run through the summer?
 
It certainly looks that way. Any pullbacks in stocks will likely be met by dip buyers. That could limit declines to a manageable level. A sustained rise in interest rates will likely wait until investors know with certainty the Fed's next move. The thinking is that there will be an announcement on tapering bond purchases, which may not happen until August, or September, if then.
 
Inflation has receded as a topic of concern for many on Wall Street. The decline in commodity prices has calmed nervous investors worried about runaway inflation. The U.S. dollar has also gained ground versus most other currencies. As a result, we appear to be in a sweet spot for equities.
 
This week, the NASDAQ, which had been lagging behind both the S&P 500 and the Dow Jones Industrial Average, finally broke to new highs led by the semiconductor index.
 
The PHLX Semiconductor Sector Index (SOX) is a capitalization-weighted Index of 30 semiconductor companies.  The SOX is an important telltale index. It has led the stock market higher throughout the year. I would advise readers who want to know where the markets are going to keep an eye on the SOX as a leading indicator for the markets' direction overall.
 
But the big story for investors is the continued rise in oil prices. The OPEC-plus producers meeting that was held on Thursday of this week carried over until Friday. One member, the United Arab Emirates (UAE) is objecting to any increase in production and supply because they are not convinced that there will be a strong global recovery, OPEC had planned to increase output in the coming months, but at a slower rate than anticipated. Monthly output increases by OPEC and its allies (including Russia) would amount to less than 500,000 barrels/day between August and December, if the UAE can be convinced to go along.
 
OPEC members are anticipating that demand for oil will increase by 5 million barrels in the second half of 2021, which could create a further supply and demand imbalance. Oil prices, under that scenario, could rise (some say to as high as $100 a barrel). That would put price pressure on consuming nations, while adding to the risk of higher inflation.
 
Cynics believe the organization (led by Saudi Arabia) is deliberately engineering this squeeze play to gain back some of the losses incurred by oil producers last year.
 
Of course, OPEC's consumption forecast of 5 million barrels could fail to materialize and that is what the UAE is worried about. The COVID-19 Delta variant, they believe, is a wild card. A surge in the virus variant could impact global energy consumption far more than expected. In the U.S., gasoline consumption might not be as high as anticipated. And if U.S. and Iran come to a nuclear agreement and embargos are lifted, increased Iranian supply could come back on stream in the months ahead.
 
As readers are aware, oil was one of my top picks to outperform this year. I still believe energy and energy shares are a good investment, despite the outsized gains of the first half. But buyers beware. Commodities can be great investments, but they also carry great risks. I would wait for a pullback before venturing into the oil patch. Depending on what happens over the weekend at OPEC, you may get your chance.  
 

Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.

Anyone seeking individualized investment advice should contact a qualified investment adviser. None of the information presented in this article is intended to be and should not be construed as an endorsement of OPI, Inc. or a solicitation to become a client of OPI. The reader should not assume that any strategies or specific investments discussed are employed, bought, sold, or held by OPI. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct.

 

     

The Retired Investor: Will SALT Be Repealed?

By Bill SchmickiBerkshires columnist
The state and local tax cap, called SALT, has been the bane of many high-tax states since its passage as part of the 2017 Tax Cuts and Jobs Act. It created an effective tax hike for many high earners in high tax states, as well as many middle-class workers. That may be about to change, at least for some income earners.
 
Last week, the Senate Budget Committee, chaired by Vermont Sen. Bernie Sanders, presented a draft outline of a $6 trillion budget resolution. It included $120 billion for SALT relief over five years. Readers may recall that the controversial tax placed a $10,000 cap on the amount taxpayers could deduct from their federal income tax in state and local taxes. One of many unintended consequences was that it triggered a mass exodus of many wealthy residences from higher to lower tax states.
 
But don't break open the champagne just yet. The Sander's proposal falls far short of the cost of repealing the total tax. The Tax Policy Center estimates that in order to repeal SALT in full, the cost would be more like $460 billion over the same five years. 
 
Even so, the proposal is a victory for the caucus of 30 Republicans and Democrats from high tax states who have been lobbying for the repeal of SALT for years. They have their work cut out for them, however, in order to convince the various opposing factions between and within both parties to rescind the tax.
 
Progressive members of the Democrat Party view any change of SALT as a giveaway to the wealthy. They have a point, given that 57 percent of the benefits if SALT is repealed would fall to the top 1 percent of Americans. But what about the remaining 43 percent? Those are middle-income earners, who had fewer tax deductions as a result of the 2017 Republican tax cuts.
 
SALT also created some real fiscal problems for many states. The on-going migration from states such as New York, New Jersey, and California to places like Texas and Florida has drained the funds necessary to support schools, hospitals, police, fire, transportation and other basic services. To cope, higher tax states are forced to raise taxes even higher, which could cause even more residents to flee. Remember, too, that those large tax payments by the wealthy were largely used to support and expand social programs.
 
At the same time, receiving states, which at first applauded the tax cap that fell disproportionally on blue states, are now increasingly facing their own budget shortfalls. All these new residents expect the same basic services they enjoyed previously. These newcomers also increase the demands on existing infrastructure. Water, roads, bridges, hospitals, even the internet, may have to be upgraded as the population swells. This will cost money.
 
As a result, longtime residents of some states are suddenly seeing property taxes explode higher. Strapped for funds, legislatures, pressured by this influx of voters (many of whom are liberals), are being forced to introduce additional taxes to cope with this new demand for services.
 
A possible compromise solution to reduce the havoc caused by the 2017 tax act would be to repeal the SALT tax for those earning less than $400,000 per year. That could appease the progressive Democrats without alienating most Republicans. The cap would be lifted entirely for those under that threshold, while those over it would still be subject to the $10,000 cap.
 
There is plenty of motivation to compromise, at least among Democrats, since the cap caucus members (20 Democrats and nine Republicans) have pledged not to vote for any legislation that doesn't include a repeal of SALT. The SALT issue has already delayed the president's infrastructure plan and could hamstring his own tax plans as well. Since the Democrats cannot afford to lose even one SALT Democrat, given their slim majority in the Senate, I believe we will see some relief on the SALT taxes for at least some of the taxpaying population.
 

Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.

Anyone seeking individualized investment advice should contact a qualified investment adviser. None of the information presented in this article is intended to be and should not be construed as an endorsement of OPI, Inc. or a solicitation to become a client of OPI. The reader should not assume that any strategies or specific investments discussed are employed, bought, sold, or held by OPI. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct.

 

     
Page 2 of 2 1  2  

Support Local News

We show up at hurricanes, budget meetings, high school games, accidents, fires and community events. We show up at celebrations and tragedies and everything in between. We show up so our readers can learn about pivotal events that affect their communities and their lives.

How important is local news to you? You can support independent, unbiased journalism and help iBerkshires grow for as a little as the cost of a cup of coffee a week.

News Headlines
Candidates Forum and Luncheon at Lenox Community Center
Students Named to Simon's Rock Fall 2023 Dean's List
Clark Art Free Gallery Tours for Parents and Infants
Berkshire Adult Baseball League Welcomes Players for 13th Season
EPA Lays Out Draft Plan for PCB Remediation in Pittsfield
Williamstown Select Board Awards ARPA Funds to Remedy Hall
North Adams Regional Reopens With Ribbon-Cutting Celebration
Clarksburg Sees Race for Select Board Seat
Crosby/Conte Statement of Interest Gets OK From Council
WCMA: 'Cracking the Code on Numerology'
 
 


Categories:
@theMarket (480)
Independent Investor (451)
Retired Investor (184)
Archives:
March 2024 (6)
March 2023 (2)
February 2024 (8)
January 2024 (8)
December 2023 (9)
November 2023 (5)
October 2023 (7)
September 2023 (8)
August 2023 (7)
July 2023 (7)
June 2023 (8)
May 2023 (8)
April 2023 (8)
Tags:
Pullback Taxes Euro Banks Oil Japan Greece Debt Europe Economy Markets Commodities Jobs Selloff Employment Congress Fiscal Cliff Debt Ceiling Europe Stock Market Election Stocks Currency Recession Banking Bailout Stimulus Energy Retirement Interest Rates Metals Crisis Rally Federal Reserve Deficit
Popular Entries:
The Independent Investor: Don't Fight the Fed
Independent Investor: Europe's Banking Crisis
@theMarket: Let the Good Times Roll
The Independent Investor: Japan — The Sun Is Beginning to Rise
Independent Investor: Enough Already!
@theMarket: Let Silver Be A Lesson
Independent Investor: What To Expect After a Waterfall Decline
@theMarket: One Down, One to Go
@theMarket: 707 Days
The Independent Investor: And Now For That Deficit
Recent Entries:
The Retired Investor: Immigrants Getting Bad Rap on the Economic Front
@theMarket: Sticky Inflation Slows Market Advance
The Retired Investor: Eating Out Not What It Used to Be
@theMarket: Markets March to New Highs (Again)
The Retired Investor: Companies Dropping Degree Requirements
@theMarket: Tech Takes Break as Other Sectors Play Catch-up
The Retired Investor: The Economics of Taylor Swift
@theMarket: Nvidia Leads Markets to Record Highs
The Retired Investor: The Chocolate Crisis, or Where Is Willie Wonka When You Need Him
The Retired Investor: Auto Insurance Premiums Keep Rising