Sjug: This Is a Buying Opportunity

The latest on the 'China Trade War'... Trump issues a new round of tariffs... China strikes back... Sjug: This is a buying opportunity... A great chance to try True Wealth China Opportunities for yourself...

Last week, it appeared the U.S. and China were on the brink of a trade war...

On Thursday, President Donald Trump announced plans to enact new 25% tariffs on $60 billion of Chinese imports, as well as tighten restrictions on acquisitions of U.S. companies and their technology.

Of course, this followed previously announced tariffs on global steel and aluminum imports earlier this month. And as it promised, China wasted no time striking back.

On Friday, the country announced retaliatory tariffs targeting $3 billion in U.S. imports, including pork, recycled aluminum, steel pipes, fruit, and wine.

However, the Chinese government was clear...

This move was in response to the earlier tariffs – which only took effect on Friday – and additional measures were likely. Worse, it said that "all options" were on the table. As Bloomberg reported...

China's ambassador to the U.S. wouldn't rule out the possibility of the Asian nation scaling back purchases of Treasuries in response to tariffs imposed by President Donald Trump.

"We are looking at all options," Ambassador Cui Tiankai told Bloomberg Television, when asked whether China would consider reduced purchases of U.S. Treasuries. "That's why we believe any unilateral and protectionist move would hurt everybody, including the United States itself. It would certainly hurt the daily life of American middle-class people, and the American companies, and the financial markets."

Now, let us be clear...

It's ridiculous to believe China is solely to blame for the U.S. trade imbalance. But we don't deny that the country's own trade policies have been less than "fair."

China has existing tariffs on many U.S. imports. Meanwhile, U.S. companies have far less access to Chinese markets than Chinese companies do here. And those that have gained access to China have long been forced to share proprietary technology and intellectual property in exchange.

So we support efforts to reduce these barriers... we just don't believe threatening additional trade barriers in the U.S. – and risking an all-out trade war – is a logical way to do so.

Despite popular belief, companies no longer 'outsource' production to China because it's cheaper...

As Tim Cook, CEO of iPhone maker Apple (AAPL) explained in an interview with Fortune magazine last December...

There's a confusion about China... the popular conception is that companies come to China because of low labor cost. I'm not sure what part of China they go to, but the truth is, China stopped being the low labor cost country many years ago and that is not the reason to come to China from a supply point of view...

The reason is because of the skill, and the quantity of skill in one location, and the type of skill it is.

The products we [make] require really advanced tooling. And the precision that you have to have in tooling and working with the materials that we do are state-of-the-art. And the tooling skill is very deep here... In the U.S. you could have a meeting of tooling engineers and I'm not sure we could fill the room. In China you could fill multiple football fields.

In other words, many U.S. companies now outsource production to China because no one else – including the U.S. – has enough of the expertise they require. They have no other choice.

Slapping tariffs on this production would only raise prices here in the U.S... For example, according to some estimates, Apple would have to sell its iPhone for upwards of $30,000 each if it had to produce them at home. More likely, they wouldn't be produced at all.

And before you suggest the U.S. can simply ramp up its own manufacturing capacity instead, we'd point you to our favorite whipping-boy Tesla Motors (TSLA). Despite spending tens of billions of dollars over more than a decade, the electric carmaker and its genius founder Elon Musk still can't produce enough quality vehicles to meet its own targets.

The bottom line is simple...

A trade war would be devastating for the U.S. and China alike.

Fortunately, despite last week's rhetoric, the mood lightened significantly on Monday. As the Wall Street Journal reported yesterday...

China and the U.S. have quietly started negotiating to improve U.S. access to Chinese markets, after a week filled with harsh words from both sides over Washington's threat to use tariffs to address trade imbalances, people with knowledge of the matter said.

The talks, which cover wide areas including financial services and manufacturing, are being led by Liu He, China's economic czar in Beijing, and U.S. Treasury Secretary Steven Mnuchin and U.S. trade representative Robert Lighthizer in Washington...

Mr. Mnuchin on Saturday called Mr. Liu, President Xi Jinping's top economic adviser, whose promotion as vice premier during the just-concluded annual legislative session essentially makes him the country's economic captain. "Secretary Mnuchin called Liu He to congratulate him on the official announcement of his new role," a Treasury spokesman said. "They also discussed the trade deficit between our two countries and committed to continuing the dialogue to find a mutually agreeable way to reduce it."

For now, it appears that both the Trump and the Chinese government understand that further escalation is in no one's best interest. We remain optimistic that a real trade war will be avoided.

Our colleague Steve Sjuggerud agrees...

Regular Digest readers know Steve has been incredibly bullish on Chinese stocks for past couple years. Unfortunately, even many of his top China recommendations have suffered massive volatility in recent weeks as trade tensions have risen.

But Steve isn't worried. As he explained in a special note to his True Wealth China Opportunities subscribers last Thursday...

You've probably heard a lot of media noise about China and President Donald Trump – and the possibility of a trade war.

Trump has said he will level tariffs on Chinese imports. The tariffs would amount to about $50 billion, especially focused on technology products. This comes after his March 1 announcement that imported steel – one of China's major exports – will now be taxed at 25%.

Now, China has threatened to retaliate with $3 billion worth of tariffs on U.S. goods.

How will this affect our China portfolio?

You probably noticed that many of our investments took a quick dip after Trump's announcements. Some of them are still struggling.

Here's my opinion today... This is a great buying opportunity.

In short, Steve says markets are making a much bigger deal out of the tariffs than they should be...

In reality, Chinese stocks had enjoyed a massive rally and were long overdue for a correction.

Investors were looking for a reason to sell stocks, and the tariffs were a perfect excuse. But like us, Steve believes a real trade war is unlikely...

Right now, China's retaliation is weak. Its $3 billion tariff is nothing in the face of the $172 billion in U.S. exports China is expected to buy this year... Or in the face of the $568 billion gap between how much the U.S. imported in goods and services last year compared with its exports.

It all seems like posturing. And most likely, it will come to nothing – except for a buying opportunity in Chinese stocks.

However, Steve also agrees that these tariffs are unlikely to help American companies...

As he explained, while they aren't a threat to Chinese stocks, they could hurt everyday American consumers. He shared a portion of an interview he conducted with Asia investment expert Peter Churchouse nearly one year ago to explain why...

Peter: Most people around the world recognize that China is dumping steel into the world markets at what you might call unfair prices. So [tariffs on] steel is one thing that I think will get support from a lot of people around the world. But the rest of it? No.

The fact of the matter is, you are buying your TVs and your computers and your mobile phones and everything a heck of a lot cheaper today then you were 10 or 15 years ago. And why is that? It's because they have come from China and other parts of Asia where the manufacturing costs are that much lower.

If you start slapping 35% taxes and tariffs on all this stuff, it means you are raising the price on the American consumer. So in a way, that is hurting the people who voted for Trump. It is not really helping businesses...

Peter also confirmed what we heard from Cook earlier: The idea that China is flooding the U.S. with cheap U.S. goods is simply no longer the case...

Steve: I wonder if Trump just hasn't been to China in a while... Because when you took me around China a couple years ago and we visited companies making shirts, what did they tell us?

Peter: They told us basically they had moved into Vietnam and Bangladesh where the wages and salaries of workers are a third or a quarter of what they are in China. So in a way, the story about China producing all these cheap low-end goods like shoes and t-shirts and jackets and so on... that story is already gone.

It has gone somewhere else. It has gone to Vietnam, Bangladesh, India... And it will be hitting into Myanmar, Laos, and Cambodia. So that story has disappeared. They are barking up the wrong tree if that is what they are thinking.

Again, Steve believes this is just posturing...

He believes these worries will pass... which makes the recent market volatility a great buying opportunity in Chinese stocks, including his favorite "New China" opportunity, Tencent (TCEHY)...

Tencent is down about 10% from its recent peak...

Tencent is a fantastic company. As we pointed out in [our March] issue, its latest quarterly earnings grew 98% from last year. That's the kind of growth that should make investors cheer... not run for the exits!

In short, we want to have our money in China today. The new tariffs will most likely amount to nothing more than a buying opportunity.

Tencent is just one of Steve's favorite China recommendations that are "on sale" today. If you aren't already a True Wealth China Opportunities subscriber, Steve says it's a fantastic time to come aboard. Click here for the details on a special, limited-time offer.

New 52-week highs (as of 3/26/18): Intel (INTC).

In the mailbag, a reader comments about Porter's political beliefs... and Porter responds. Let us know what you think of the debate at feedback@stansberryresearch.com.

"Porter: I do admire the research organization you have put together. I find most of the FINANCIAL advice to be worthy of my time and money. But for a fellow who has been rewarded so richly by the capitalist system, and one who takes advantage of every little wrinkle in our system, you sure do slam the government at every opportunity under which you have been able to be rewarded.

"I think, regardless of your political leanings (which are very evident), you need to take a pause and thank somebody (besides yourself) for your birthright, being born and raised here in the United States. Unless you're not well read, there is NO form of government or governed country in the world which provides all the things you imply you need. I strongly suggest you stop biting the hand that feeds you and come to appreciate the value of the luck you had in being born here.

"I feel pretty certain were you born and raised in Nigeria or Uzbekistan (or name any other of 137 countries in the world), you wouldn't be carrying the tune you do about the role of government being so oppressive or unfair.

"I can't wait for the day when I open my Stansberry publication and it is Porter stating how much gratitude he has for the economic system, despite its flaws, under which he was raised. That surely would be a show of strength on your part. Any chance of that ever happening? Good luck." – Paid-up subscriber David A.

Porter comment: Thank you very much for your business and your compliment of my work. I'm grateful for the career our subscribers have given me. I "tap dance" to work every day.

But I must say, your comments about my "political" views are a little surprising. You see, I don't have political views. I don't favor political solutions, whether Republican or Democrat. I can't recall ever voicing any support for either political party or any political leader.

You see, political solutions invariably involve coercion (force). And I believe that the initiation of force is objectively wrong.

Likewise, I don't think you have any idea what you're talking about when you accuse me of "biting the hand" that has "fed me." That's because you're conflating our current federal government with benefits that have accrued to me because of our country and its people. That's a common enough misunderstanding, but it's one that I wish more people could discern.

So... let's address that issue first.

Virtually all of the success I have enjoyed – in both my personal and professional life – has come as a result of the accomplishments and the sacrifices of other people. I have enjoyed the benefits of vast amounts of accumulated knowledge and capital.

Most important, I have benefited tremendously from a culture that has evolved traditions, such as property rights and contracts, marriage, limited representative government, freedom of speech, etc. These are things that most people in the West would simply call civilization, or perhaps common law.

You seem to imply that these benefits were created and enabled by the federal government, but that's just not so. The truth is, our federal government is a corruption of these ideals.

But in any case, I agree with the sentiment that "I didn't build that..." regarding my success in life and business. I merely stood on the shoulders of giants.

I had great parents. They taught me life's most important lessons – the value of integrity and hard work. They gave me many lessons other parents didn't have the discipline to teach, which was a tremendous advantage in life.

In terms of economic opportunity, my business partners and mentors – men like Steve Sjuggerud, Bill Bonner, Mark Ford, Doug Casey, Mike Palmer, and Dr. David Eifrig – taught me countless lessons about how to succeed in business. Again and again, they have stood behind me with their capital, knowledge, and friendship. I have been blessed beyond all reason by their loyalty. And of course, there are the hundreds of employees who have devoted their careers to building my companies. Without these people, the story of my life would be far different.

Finally, there's the most important person of all in my life – my wife. She has given me the best years of her life, two children, and unconditional love, in good times and bad. When I met her, I had nothing – no wealth, no business experience, and little relationship experience. There was no particular reason to believe I could provide her with any financial stability, let alone wealth. And she still, to this day, doesn't give a wit about having money. I am a very, very lucky man.

I know "I didn't build this."

But please, allow me to point out one important facet of this story that many folks who trumpet the "you didn't build that" line seem to always ignore.

None of the people in my story, not a single one, was ever coerced into providing me with anything.

All of these people, to whom I owe all of my financial success and all of my emotional well-being, chose freely to provide me with everything I've needed to build my life and my company. Not a single employee was ever forced to work for me. Not a single subscriber was ever coerced into buying anything from us. As I'm sure you realize, you can't make someone be your friend – much less your lifelong friend, mentor, business partner, key investor... or your wife.

These relationships and the benefits they brought me were entered into freely, as guided by mutual self-interest. In business, I was able to attract partners by treating my earliest partners generously. (I got my first business partner at about age 14, by trading Steve Sjuggerud access to a tiny beach cottage for a ride to the beach. We're still doing business 30 years later.)

By rewarding my employees, I was able to retain them for many years and attract more and more talented people to our banner.

By returning the love, loyalty, affection, and generosity of my friends and family, I was able to sustain these relationships and attract more friends and eventually, a wife.

These are virtuous circles. Doing the right things, treating others well, and delivering value led to success in my life.

Your claim that I've been biting the hand that feeds me because I'm critical of our government ignores the most important factor in economics.

The government can't give me anything it hasn't first taken from someone else. The government doesn't feed anyone, David. It merely redistributes what's been stolen.

There is an enormous difference between the "win win" transactions and relationships of the free market, where persuasion and mutual self-interest guide human action, and the "win lose" transactions of the State, which can only be enabled by force (coercion).

I abhor violence and coercion. Therefore, I oppose the federal government at every turn.

Was I lucky to be born in America? Yes, most certainly. Here, our country's culture and much of its wealth is still protected by its people's long tradition of freedom and common law. But we don't owe these benefits to our government. Many decades ago, our government abandoned the idea of America. It virtually ignores the common laws and virtues that created our country. Lately, it doesn't even seem to remember the pretense of civilization.

A few obvious examples...

Once, America stood for sound money, and our laws called for the death penalty for counterfeiting dollars. Today, our government controls the largest counterfeit operation history has ever seen (the Federal Reserve). Congress uses these counterfeit dollars to fund mind-boggling debts on future generations of Americans – taxes that certainly do not come with any representation.

Once, America stood apart from the petty rivalries and mindless violence of Europe's princelings. We ensured our safety and sovereignty by allowing our citizens to arm themselves and by smartly avoiding the temptations of a standing army. In fact, our first president warned of becoming involved in foreign wars. Our most recent military president (Eisenhower) repeated those same warnings in the early 1950s.

But none of that tradition or wisdom has stopped our government from building the world's most powerful (and expensive) standing army, a force that could destroy our entire planet several times over. We don't even bother declaring war anymore... We simply attack any nation we seem confident to defeat. Most Americans don't even know how many countries our military currently occupies, or the decisive role we play in propping up dictators around the world. (We have around 800 military bases in about 70 different countries.)

Why oppose the dominant institution in our society, an institution that routinely ignores its own laws and destroys the lives of people who try to oppose it?

Well, maybe... just maybe... someone reading this will begin to wonder why he believes what he does about our country and our government. Maybe someone reading will begin to think about who these beliefs serve.

If you start asking some basic questions, there's a reasonable chance that before too long, you'll find yourself wondering what the hell is going on in our country. Like... how did the government get the right to take more than half my income in taxes every year and take it out of my paycheck before I even see it? How did government employees gain the right to unionize and begin to control elections, ensuring that their pay and benefits would spiral ever higher to the point of bankrupting entire states?

Or... why did we rename the War Department the Department of Defense in 1949? Why haven't we declared war ever since, despite launching half a dozen major wars of aggression? Speaking of war, why do we care who collects taxes in Vietnam, Korea, or Jerusalem?

Why does the U.S. dollar say "Federal Reserve Note"? Didn't the dollar used to say "silver certificate"? Why did they make the new Federal Reserve Notes look exactly like the old Silver Certificates? And wait... isn't a "Note" a debt? What does the Federal Reserve owe me? Why can I only pay my taxes in these notes? Why is the government allowed to print them? Why have wages (paid in these notes) not kept up with inflation since the early 1970s? Why does our currency no longer maintain any correlation with productivity in our economy?

Whose interest does paper money serve? Whose interests does the War Department serve? Whose interests does Congress serve?

I hope you'll ask yourself these questions. I hope you'll find out the real answers.

If you do, I'm sure you won't conflate the greatness of our country with our current government. It is only the greatness of our country that, for the moment, sustains the cancer of our government... not the other way around.

And by the way, I'm certain that our country will outlive this government... which is rapidly destroying itself with policies that are un-American and unsustainable.

Regards,

Justin Brill
Baltimore, Maryland
March 27, 2018