A combination of anti-business government policies, worsening U.S.-Sino relations, and several draconian actions by Chinese authorities have cast a pall over foreign investment and the Chinese stock market. Chinese equities have lost $7 trillion since the market's peak in 2021. That interests me.

 

On Wall Street, the Chinese stock market is now considered "uninvestable." Main Street and the politicians who represent them are just as negative. Anti-China rhetoric and U.S. actions, from the attempt to force a sale of TikTok to forbidding Chinese nationals from buying land here, is just the tip of the iceberg.

 

It is as if we are already at war with China. In a recent opinion piece in the New York Times, Rory Truex, an associate professor at Princeton University who focuses on Chinese authoritarianism, says it best.

 

"America's collective national body is suffering from a chronic case of China anxiety. Nearly anything with the word 'Chinese' in front of it now triggers a fear response in our political system, muddling our ability to properly gauge and contextualize threats."

 

That attitude usually spells opportunity in the investment world. I do not dispute the gravity or seriousness of that country's political and economic issues. Much of the malaise in China is of their own making. The zero-COVID policies gutted their economy. The government authorities, unlike those of the Western world, did little to help the country recover. The impact of the Trump trade wars lingers on with no resolution. The lifetime appointment of Xi Jinping created an even more rigid authoritarian government. I believe Xi's one-man rule felt threatened by the success of China's successful free-market-oriented companies. Policies were promulgated that stripped those companies of their entrepreneurial spirit, increased the government's control with management, trod on shareholder rights, and, as a result, sent their share prices to historic lows.

 

The Chinese support of Russia's invasion of Ukraine cemented the growing anti-China policies in Europe. In the U.S. these negative attitudes gathered even more steam as China grew closer to Russia. Is it any wonder that "uninvestable" became the new watchword for China?

 

However, what so many Americans forget is that hundreds of U.S. companies have huge investments in China. China revenues, for example, account for 19 percent of Apple's sales, while 44 percent of its suppliers' production sites are based in China. Caterpillar, Tesla, McDonald's, Nike, and Starbucks; I could go on, but you get the point.

 

Bank of America's manager survey recently noted that the most crowded trades in the global stock markets were to go long on U.S. technology, followed by shorting China technology. In January, the mainland and Hong Kong experienced a meltdown as even Chinese investors threw in the towel.

 

However, since Feb. 2, stocks began making a comeback. There were no big announcements of government stimulus but there was a visible relaxation of many of the policies that brought on the crisis of confidence in the first place. As a result, China technology is now beating both U.S. technology and U.S. large caps by more than 20 percent. The overall market has gained more than that. And yet most global investors remain underweight in the world's second-largest economy.

 

In international investing, I have learned to pay attention to what the locals are doing. Chinese investors are, without question, already buying Chinese stocks. The "National Team," i.e. investors associated with the country's sovereign wealth funds, are buying mega-cap Shanghai and Shenzhen-listed stocks. Mainland investors are buying Hong Kong-listed stocks as well.

 

American investors are only beginning to take notice. By types of investors, momentum traders like hedge funds and some individual investors that can move quickly are starting to dip their toes into these waters. If this rally persists, more institutions will begin to see this rebound as something more than a dead-cat bounce. In this case, institutional investment committees will meet to discuss changing their "underweight" positions and may up their investment stance to neutral.

 

But institutions move slowly, and this will take time. However, active fund managers that track their performance against world indexes are already behind the eight ball thanks to the recent rally and their underweight China stance. At some point, (likely when Chinese stocks experience a minor pullback), some of these funds will start buying.

 

In any case, we could be looking at the beginning of a longer-term reversal in the Chinese stock market. Now, Chinese equities are experiencing a sharp bout of profit-taking after ten up days in a row. This is normal and could be an opportunity to get in.

 

Granted, buying equities in China is not for the faint of heart. I would say it is about as risky as buying cryptocurrencies, maybe more. Since most emerging markets funds have some portion of their funds invested in China, that may be a less risky way to go if you decide to take a flyer on China, even if it is "uninvestable."

 

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.

The number of U.S. workers who claimed union membership increased ever so slightly last year from 14.3 million in 2022 to 14.4 million. However, as a share of the American workforce, union membership hit a new low. Today only one in 10 workers in America wear the union badge.

 

Back in 1983, union membership was as high as 20.1 percent, according to the Bureau of Labor Statistics. Yet, every day we hear of some effort to unionize workers across a wide spectrum of companies and industries. Starbucks, CVS, and Amazon come to mind. In 2023, the United Auto Workers (UAW) occupied headlines for months as they negotiated new contracts with General Motors, Ford, and Stellantis — and won.

 

It turned out that these hard-fought labor agreements marked the biggest win for the auto unions in 40 years. This was followed by wins by UPS workers and Hollywood writers in their labor contracts. These victories on the labor front have inspired and galvanized efforts to organize across the nation. Even the live performers at Disneyland are organizing a vote to join the Actor's Equity Association.

 

The UAW, emboldened by their victories last year, has set its sights on the South where unions have been a non-starter historically. This region of the country has opposed unions from legal, business, political, and cultural standpoints. But that has not deterred the UAW.

 

Last month the first crack in that southern wall of opposition appeared when Volkswagen workers in Chattanooga, Tenn., voted to become the only non-Detroit automotive assembly plant to be unionized. This was the third time since 2014 that unions fought for the right to organize at that plant.

 

Also in April, the UAW reached a deal with Daimler Truck in North Carolina that averted a strike and gave workers a 25 percent increase in wages over the next four years. The agreement also included profit sharing, automatic cost-of-living increases, and equalized pay among workers at all of Daimler's North Carolina factories. Next month, the Mercedes-Benz plant in Tuscaloosa, Ala., will be voting to unionize as well.

 

Governors in Alabama, Georgia, Mississippi, South Carolina, Tennessee and Texas are fighting back. They have been denouncing the UAW and its efforts. In most of these states, "right to work" laws do make it more difficult for unions to collect dues, but not impossible.

 

However, countering that pressure are the results of a Gallup Poll that indicates an overwhelming majority of Americans (7 out of 10) approve of labor unions. Another poll by the UAW last year indicated that 91 percent of Democrats, 69 percent of independents, and 52 percent of Republicans supported unions and their goals. And well they should, given that a study by the Center for American Progress indicated that there is a large wealth gap between workers in unions and those non-union workers across all education levels.

 

They found union workers make 10-15 percent more than their non-organized brethren. The median wealth of those in unions was $338,482 compared to $199,948 for nonunion workers. However, many other benefits accrue to union workers over time. Job security, defined benefit retirement plans, better health care, and even higher homeownership rates.

 

Unionized workers lacking a high school degree make more than three times the wealth of their nonunion peers. Those with some college education, like nurses or dental hygienists, earn 2.5 times more. Unionized teachers, college professors, journalists, and government employees also do better than their nonunionized peers.

 

While the overall number of union members is still tiny compared to the overall workforce, unions do tend to have an outsized influence on the fortunes of the workforce. Their battle for better pay and benefits has had a trickle-down effect. Their gains have been known to impact and influence the economic well-being of most U.S. workers over time.

 

Some point out that the union's success of late may have more to do with the tightness of the labor market than the prowess of unions. Companies, worried about attrition, may be more willing to negotiate rather than suffer employee departures or suffer strikes. Whatever the case, I will always be on the side of the worker and as such applaud the recent trend and hope it continues.

 

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.

It has been a month since the National Association of Realtors (NAR) was forced to scrap a system of broker fees that has been in place for a generation. A federal court still must approve the change in June or July, but if it does, it could alter the way Americans buy and sell homes for decades into the future.

 

The change was precipitated by a series of class action lawsuits from home sellers that accused Realtors and the Realtors Association of keeping agent compensation artificially high. In October 2023, a federal jury in Kansas City found the NAR and some of the largest brokers in the country guilty of colluding to inflate real estate commissions.

 

The damages of that suit were $1.78 billion, which will be paid to more than 260,000 homeowners in three states. More class action suits followed. Last month, the association settled the mounting lawsuits by agreeing to pay $418 million without admitting to any wrongdoing regarding compensation.

 

For those of us who have bought or sold a home through an agent who may have worked tirelessly in closing a deal, don't feel bad. That agent was paid handsomely for the effort. It is why there are 1,162,364 real estate sales and brokerages businesses in the U.S. This has been a great business for a long time. Until now, the home real estate market has been a tightly controlled market of fixed fees with no genuine competition.

 

Traditionally, the home seller pays a 5 percent to 6 percent commission on the sale price of the home. Typically, the seller's agent and the buyer's agent split that commission. In effect, the buyer's agent is working for the seller, which is a clear conflict of interest. Many home buyers are unaware of this fact.

 

Under NAR rules, sellers are required to advertise the buyer agent commission on the Multiple Listing Service, which is the database where real estate agents put homes for sale. There is even a specific box just for that number, but many homebuyers can't see that number, only their agents can.

 

Could an enterprising agent be tempted to focus their clients on houses with higher fee deals at the expense of lower fee homes that may be just as suitable? Raise your hand if that has happened to you. Sure, not all agents do this, but some certainly do. All this goes away if the courts approve this NAR settlement. Sellers could no longer promise a commission to buyers' agents and that little box would disappear.

 

We are talking big money here. Today, Americans pay out $100 billion in real estate commissions. The present commission structure could be reduced by between 20 percent and 50 percent if fixed fees go by the wayside, according to Keefe, Bruyette & Woods. The new agreement is expected to cut fees on the average home by $5,000 to $13,000.

 

For the 1.6 million Americans who are registered as real estate agents and for those companies that employ them, this is bad news. Commission rates would drop. Negotiated fees could be a viable alternative to fixed-rate fees. Online real estate companies that rely on partnerships with real estate agents, would also feel the heat and may pull back on their marketing efforts. Broker's commissions could fall to as low as 1 percent-1.5 percent per agent on each side, according to the Consumer Federation of America. The result, by some estimates, is that the number of real estate agents and companies could be reduced by half.

 

If the courts rule in favor of dismantling fixed commissions, existing homeowners would benefit immediately. They would no longer be faced with paying both their agent and the buyer's representative out of the sale proceeds. Sellers may get lower prices for their homes but keep more of the proceeds through reduced commissions. Buyers can save money by choosing a cut-rate broker, or none.

 

There will be a downside as well. Surviving agents and brokers might have to charge home buyers hourly rates. Sellers may have to pay higher fees to unload their homes. Agent services that are for now taken for granted could be drastically reduced. New ways of providing value will be a challenge for many brokers.

 

I know that most real estate agents bend over backward to satisfy their clients. Many provide weeks, months, and sometimes years of time, effort, and expense to move a home for you. Remember too that there is also a perk in paying the traditional fixed commission. Since the fees are baked into the higher home price, buyers can finance the fees with a mortgage.

 

Plenty of prospective home buyers may not be able to pay agents out of pocket. First-time home buyers and lower-income households, including minorities, have traditionally relied more heavily on agent services. In addition, the "let's go see what's out there" crowd will disappear once an agent begins charging for that privilege.

 

The end of fixed commissions is not rocket science. In so many industries, the practice of charging fixed fees for services is a thing of the past. In the financial services industry, for example, discount brokers and other new forms of competition effectively reduced commissions to zero. The industry did not disappear. It got bigger as participants figured out more and better ways to service their clients. Overall, economists expect the result in the real estate industry will be more homes bought and sold, and more liquidity in the real estate markets while making housing more affordable in the U.S.

 

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.

If you haven't noticed, the price of large appliances continues to climb. What's worse, in a year or two, many find that the costly smart refrigerator, oven, or washing machine in your kitchen is suddenly plagued with all kinds of problems. What happened to the concept of quality?

 

In the last two years, my wife and I have had to purchase a new refrigerator and washer. The guy who delivered them warned me that it was just a matter of time before the dryer went as well. None of these items were more than 10 years old. I credit Rachel Wolfe of The Wall Street Journal for explaining why.

 

There seem to be three factors behind the shorter life span of these household goods. Computerization, an increase in the number of individual components that go into each appliance, and the quality of materials overall. Let's take the refrigerator, as an example.

 

Back in the day, I can remember my mom having to shut down the fridge every six months or so and scrape off the ice that had built up in the freezer. Those days are gone. Manual defrost gave way to frost-free refrigerators that came with a bunch of new parts like heaters, fans, and sensors to automate the defrosting process.

 

The dawning of the 2000s saw a breakthrough in both energy efficiency and precise temperature control by replacing thermostats with digital computer control. All that was required was to add another batch of components and parts, mostly electronic, such as relays, capacitors, and solder joints to the old ice box.

 

Another factor impacting all appliances, not just refrigerators, was the industry-wide transition to lead-free solder in 2006. Environmentally, the benefits are obvious, since it eliminates toxic lead, however, the new solder requires stricter control over manufacturing processes and better design practices to ensure long-term reliability. This has resulted in an entirely new series of challenges to your neighborhood repair person to figure out what parts need to be repaired while others may need to be replaced.

 

In the meantime, George Jetson would be proud of the advancements. Appliance manufacturers keep coming up with wonder after wonder. Icemakers, touchscreens, and chilled water dispensers are built into refrigerator doors. I fully expect my fridge to be able to sing Zippity Do Dah in its next reincarnation.

 

The same trend is occurring in other appliances. New smart ovens offer induction, convection, air fry, steam, dual-fuel, and touch control. Washers and dryers promise smart technology integration with features such as in-washer faucets, dirt level and fabric type sensors, steam closets, removable agitators, cold water wash technology, and even add-on filters for microplastic capture.

 

While all these features enhance functionality, the number of valves, pumps, electrical connections, electronics, and such make something created to keep things cold now takes a rocket scientist to figure out, let alone repair. I confess that I still can't figure out how to switch the icemaker from simply dispensing water to giving me a cup full of ice. What's worse is that a blip in the icemaker can cause a systemwide failure and put your fridge down for the count. It has happened to me.

 

I am not alone. My appliance repair guy said his industry is seeing a ton more items in need of repair. The Wall Street Journal article confirmed that and found that Yelp helped users request 58 percent more quotes from thousands of appliance repair businesses. American households spent 43 percent more on home appliances last year than 10 years ago, even though prices have declined during that same period. One of the main reasons for this discrepancy is there has been a higher rate of replacements. Twenty-five years ago, the average homeowner replaced appliances every 12-13 years. Today it is every eight to nine years.

 

As most readers know, getting someone to repair your appliance is an expensive and time-consuming process. House calls are roughly $250 per visit before any work is done. You can easily spend almost as much repairing an appliance as buying a new one. Manufacturers know that consumers are unlikely to invest in costly repairs. Therefore, many companies prioritize cost-effective production methods over repairability. Products that are not meant to be taken apart and fixed can be made cheaply with less expensive parts and materials.

 

In addition, replacement parts can be a game of brands. Premium brands tend to provide extensive spare parts support for their products, but even the best can require a week's wait or more. Cheaper brands, normally sold in budget stores and some box stores, often offer limited or no spare parts availability. They are designed to be disposable with your money back, or a new appliance if it is still under warranty. If not, you are out of luck.

 

In summary, the appliance market today "ain't what it used to be." One of my neighbors just ordered a dishwasher from Home Depot. They only drop it off. Now she needs to find a plumber to uninstall and cart away the old one and install the new one. There's not much anyone can do about it but if you still have that old freezer or fridge in the basement, I would keep it.

 

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.

Recently, several studies, combined with macroeconomic data in both the private and public sectors, have revealed that immigration has benefited the economy in recent years. In a politically charged election year, the facts are often ignored as hyperbole takes over. 

 

In my last column, I reminded readers that demonizing migrants is nothing new in American history. In a country that is constantly looking for someone to blame for their troubles, immigrants stand the test of time. One prominent candidate has even claimed that migrants are "not people in my opinion."

 

In a recent Wall Street Journal national poll in late February, 20 percent of voters ranked immigration as their top issue. That places immigration as the nation's No. 1 or 2 issue. But concern over an influx of immigrants predates 2024.

 

 Back before the onset of COVID-19 in 2020, the flow of immigrants into the U.S. was slowing. The ebb and flow of government policy changes had once again turned against immigration. It was fueled by the changing mood of a vocal minority of Americans and the executive actions of a former president that resulted in roughly 1.5 million fewer working-age immigrants entering the U.S.

 

At the outset of the pandemic, as the country closed its borders, the number of entries fell further creating a shortfall of well over 2 million immigrants. At the same time, the U.S. economy was in freefall, unemployment rose to double digits, and the stock market swooned. It was left to a new administration to pick up the pieces and handle the COVID crisis. Fortunately, aggressive fiscal stimulus policies, coupled with the development of vaccines, and central bank easing were enacted to jump-start the economy.

 

It worked. But the sudden spike in demand outpaced the economy's ability to respond. The failure of global supply chains contributed to that dilemma. The labor force was not up to the task either. Millions of Baby Boomers retired. In addition, many workers were forced to stay home to take care of children. Some simply avoided the workplace to avoid getting sick.

 

In times like this, the shortfall in labor would be normally filled with migrant workers but because of past policies, many entry-level jobs went unfilled. Inflation skyrocketed. The new administration did what it could by rolling back many of the former government's immigration restrictions. 

 

Now four years later, we have discovered from a variety of public and private sources both legal and illegal immigration not only boosted the growth of the U.S. economy but may well have played a hand in reducing the worst impacts of inflation.

 

March's nonfarm payrolls data released last week showed a huge gain in employment. Economists' estimates were for 200,000 jobs gain, but 303,000 jobs were reported instead. Most analysts attributed the difference to immigration hiring. At the same time wage growth slowed from 4.3 percent to 4.1 percent as many of those jobs were in entry-level positions.

 

This comes as no surprise to those looking at the facts. The U.S. foreign-born labor force has been growing so fast that it has practically filled the labor gap that was created by the pandemic, according to the Federal Reserve Bank. Economists at the central bank considered immigration as instrumental to the astounding growth rate of the economy. Over the last year, about half of the labor market's recent growth came from immigrants, according to federal data analyzed by the Economic Policy Institute.

 

The Congressional Budget Office predicts the U.S. labor force will grow by 5.2 million people by 2033 due to net immigration. That surge will tack on another 2 percent of real GDP by 2034. Those immigrants will produce $7 trillion more wealth over the next decade than the country would gain without them. The data is so convincing that in a research note, Goldman Sachs recently upped its forecast for growth due to the increased number of immigrants in the labor force.

 

Goldman has raised its growth rate to 2.7 percent and argues that GDP was stronger in 2023 because immigration ran well above the historical average (by 1.5 million migrants) and will come in above trend in 2024 (by 1 million jobs). JP Morgan has also noticed the economic benefits of recent immigration claiming that immigration over the last two years accounted for a lot of the increase in U.S. consumption.

 

Of course, the benefit of immigration on the economy could reverse quickly, depending on the policies enacted after the elections in November. For example, many immigrants both legal and illegal are entering the country through an important loophole in the immigration laws. By asking for asylum, the U.S. is required to provide a form of legal protection for people who face prosecution in their home country.

 

There has been an enormous jump in asylum seekers since 2013 when only 76,000 migrants applied for asylum. Today, thanks to advice and instructions easily obtained through the internet and social media, more than half of the millions crossing our borders are asking for asylum. It is the migrant's "Pass Go" card into the country. Migrants are typically given the right to live and work in the country while going through the legal process of claiming persecution. The facts are that the U.S. is so swamped with applicants that a normal application could take four years to decide.

 

In the meantime, the migrant can work and even if his/her claim is denied, the chance of repatriation is low to non-existent. Sure, the migrant loses the right to work here but simply joins the underground economy that flourishes in every state. How is this rational?

 

I could go on and on. The point is that America has a long, long history of shameful and/or stupid immigration policies with a proven history of failure. From a historical perspective, when immigration policies were open, the nation prospered. When they were closed, we suffered.

 

What is worse, we never learn from our mistakes. So here we are once more, threatening mass repatriations, sealing borders, and building walls, with politicians on both sides of the aisle promising this century's version of eugenics to a populace looking for someone to blame.

 

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.