The One Thing We Know for Certain About China

A meeting of the minds... The trade war drags on... Is an agreement coming soon?... The U.S. and China should be motivated to make a deal... The one thing we know for certain about China... A nugget about food delivery...

We begin with a meeting of the minds...

Yesterday afternoon, more than 20 of our Stansberry Research editors and analysts gathered for a few hours in a conference room at our Baltimore headquarters.

Many of these folks flew into town from all over the country for the meeting. Others came even farther... like Stansberry's Big Trade editor Bill McGilton, who lives in Ukraine.

It was one of our semi-regular "brainstorming" sessions...

These meetings are an essential part of the research and creative process. Every month or so, we try to get as many folks as possible together to bounce ideas off each other.

Ultimately, a lot of the analysis and recommendations that end up in a lot of our newsletters begin as ideas first brought up in meetings like these – sometimes months or years in advance.

Yesterday, everyone shared their "Top Stock Ideas for 2020."

Now, I can't share the details of everything that was said. (We must do more research, for starters.) But if you were in the room, you would have heard pitches from our experts about a variety of stocks in sectors like health care... software... energy... and even retail.

As Austin Root, our director of research, said at one point: "Not all of retail is going to die."

The great thing about having this group of editors and analysts in one spot is that everyone can ask questions... It's the ideal spot to debate the bull and bear cases for each stock idea.

I'm happy to report that we didn't have any knock-down, drag-out fights. Everyone got along nicely. And most important, our editors and analysts look forward to sharing some of these ideas with you, our subscribers, in the coming weeks and months.

Moving on, we wouldn't be doing our job if we didn't talk about the ongoing U.S.-China trade war...

The economic impact of the dispute between the world's two largest economies is being felt on both sides of the Pacific Ocean... as well as in other countries.

In a new report published on Tuesday, economists from the United Nations said the nearly two-year-long trade war has resulted in a "lose-lose" situation for both the U.S. and Chinese economies.

The report noted that U.S. tariffs on certain Chinese products caused this group of Chinese exports to the U.S. to fall roughly 25% in the first half of this year. Meanwhile, U.S. losses are "largely related to higher prices for consumers."

The paper also analyzed "trade diversion effects" – in other words, increased imports from countries other than the U.S. and China. The U.N. economists estimated that trade diversion effects equaled about $21 billion through the first six months of this year.

The U.N.'s numbers imply net trade losses of $14 billion to the global economy. But according to the U.N., some economies have benefited substantially from the trade war...

The report specifically cited Taiwan, Mexico, the European Union, and Vietnam as beneficiaries. These economies have seen increased exports for items like office equipment, electronics, car parts, other machinery, chemicals, and food.

Taiwan has seen an increase of $4.2 billion in exports in products targeted by the U.S., while Mexico has seen a $3.5 billion rise... the EU a $2.7 billion rise... and Vietnam a $2.6 billion rise.

And while China saw a 25% decline in the exports to the U.S. that are subject to the tariffs – a substantial number – the U.N. report also indicates the competitiveness of Chinese firms. According to the report, these companies were able to maintain 75% of their exports to the U.S. in the first half of the year.

We don't know when – or even if – the U.S. and China will agree to a deal that benefits both sides...

As regular readers know, we've covered the saga in countless Digests since it began. And our colleagues at the Stansberry NewsWire cover the latest twists and turns in great detail every day. (If you're not already receiving the free NewsWire updates, you can sign up right here.)

It all started in January 2018, when U.S. President Donald Trump announced tariffs on solar panels (as high as 30%) and washing machines (up to 50%) made in China... Since then, we've seen four major rounds of tariffs imposed by both sides.

So what's the latest?

Earlier today, a spokesperson for China's Commerce Ministry told reporters that the country and the U.S. have agreed to lift some tariffs on one another "in stages"... if the two countries can reach a partial trade deal.

We've heard this rhetoric before... The two sides have reportedly talked since October about reaching an agreement in "phases."

The latest important date for negotiations is December 15. That's when the U.S. says it will impose another $160 billion of tariffs on Chinese imports if the sides can't agree on... something.

At this point, both sides should be motivated to reach a short-term resolution...

Our colleague and NewsWire editor C. Scott Garliss discussed the trade war in our free DailyWealth e-letter on Wednesday morning. As he wrote...

There are several reasons why what seemed a total impossibility two months ago is now looking likely...

First, the Chinese economy is increasingly feeling the pain of the U.S.-imposed tariffs. More companies are moving their manufacturing operations out of the country – and they may not come back. The threat of lasting harm to the Chinese economy is real if the U.S. doesn't lift its tariffs. So China has a strong incentive to make a deal.

Second, the effects of the global slowdown are clearly showing up in U.S. economic data. For instance, third-quarter gross domestic product ("GDP") growth came in at 1.9% – better than expected, but much lower than last year's growth of 2.4%. If Trump can make it through impeachment proceedings, the economic effects of the trade war will threaten his re-election chances – and he doesn't want that.

Lastly, the U.S. reversed course and agreed to China's proposal to make an agreement in phases. That means many of the more contentious issues can wait until later... which gives both parties no reason to hold off on a partial agreement in the short term.

For now, we can only wait and see what happens.

But here's one thing we know for certain about China...

Regular Digest readers know our colleague Dr. Steve Sjuggerud has long been bullish on opportunities within the country... And even with the trade war tensions, now is no exception.

In fact, Steve says a big date is coming up for stocks within China in just a few weeks... It's a situation that's guaranteed to happen, no matter what goes on in the trade negotiations.

According to Steve, it's "by far the biggest investment opportunity I've seen."

In short, on November 27, a wave of investment dollars – $22.7 billion, to be specific – will move into a small group of Chinese stocks...

Unfortunately, Steve says, most people will miss out. If history has taught him anything, it's that most people will foolishly wait until the day has already passed before they act on it. But he doesn't want you to be one of those investors...

That's why Steve rushed to put together a special presentation with all the details of this incredible opportunity. Watch his message right here.

Finally, eagle-eyed readers might recall our recent Digest about food delivery...

In the October 16 Digest, we noted that Dr. David "Doc" Eifrig and his team wrote in the September issue of Income Intelligence that "digitization" is coming to the grocery business.

Specifically, Doc and his team noted that the way most of us buy groceries might be about to change... from strolling through the aisles looking for what we want to ordering online and having everything delivered to our front doors.

We're already seeing the early makings of this shift in consumer behavior. From that issue...

In our own experience, once you order groceries online two or three times, you'll never want to go back to the store. A slight change in your planning saves you two hours a week and the frustrating trip to a crowded grocery store.

And now, more consumers are buying groceries online. In Coresight Research's 2019 U.S. Online Grocery Survey, 36.8% of consumers had bought groceries online in the last year, up from 23.1% the previous year...

Many of those groceries come from Amazon (AMZN). Since the online behemoth bought supermarket chain Whole Foods in 2017, it's been investing in its food delivery logistics. Other orders get packed at your local supermarket.

Years from now, we predict the supermarket will be a rarity...

In no time, online retail giant Amazon pushed this discussion into the mainstream...

The company made headlines last week when it announced free two-hour grocery delivery to all of its Prime members. If only a fraction of the more than 100 million Prime members in the U.S. give this service a try, it will impact the complex "food chain" in our country.

In short, the way people fulfill one of their most fundamental needs – food – is changing... And more relevant to our purposes here, Doc has identified a great way to invest in this inevitable shift in consumer behavior...

His long-term pick is already up 7% in less than two months, and it's still rated a "buy." Click here for more information about a subscription to Income Intelligence.

New 52-week highs (as of 11/6/19): Berkshire Hathaway (BRK-B), SPDR Euro STOXX 50 Fund (FEZ), Ingersoll Rand (IR), JPMorgan Chase (JPM), Nuveen Preferred Securities Income Fund (JPS), Norilsk Nickel (NILSY), Invesco S&P 500 BuyWrite Fund (PBP), AT&T (T), TAL Education (TAL), and ProShares Ultra Financials Fund (UYG).

In today's mailbag, a few readers shared their thoughts about yesterday's Digest from Alan Gula about American economist Warren Mosler and Modern Monetary Theory ("MMT")... Have something to say? As always, you can e-mail us at feedback@stansberryresearch.com.

"Interesting ideas on MMT... The one thing I wonder about is if people can see the government is printing money why do they continue to keep accepting it as having value? Is it because it's in everyone's best interest to play along so the system does not collapse? As always an interesting, thought-provoking Digest. Thank you." – Paid-up subscriber Neil S.

"Great article, Alan. Let's hear more about MMT." – Paid-up subscriber Jim J.

"Your article on MMT was great until, 'Of course, the Trump tax cuts have also reduced tax revenues, which has widened the budget deficit.' Please check your data when making such statements. TOTAL revenues have been flat since the tax cuts kicked in, not down. The primary driver of the increased deficits is, as it always has been, increased spending and not tax cuts." – Paid-up subscriber Jim Z.

Gula comment: I agree with your last point, Jim. In general, increased government spending has been the primary cause of the widening U.S. budget deficit.

But your assertion about tax revenue is incorrect...

Peak quarterly tax receipts in 2017 (before the Trump tax cuts took effect) were $2.04 trillion. Tax receipts have yet to surpass that figure, despite continued economic growth.

In each quarter of 2018 (after the Trump tax cuts took effect), federal tax receipts were down anywhere from 2.7% to 3.5% year over year.

Federal tax receipts declined after the Trump tax cuts.

Of course, tax receipts relative to U.S. GDP is the measure that really matters...

In 2017, federal tax receipts were around 10.3% of GDP. In the six quarters since the tax cuts, tax receipts have been roughly equivalent to 9.5% of GDP.

The decline in tax receipts has contributed to the widening deficit.

MMT proponents argue that we should have embraced these larger deficits even sooner as there was clearly slack in the economy – as evidenced by the decline in the unemployment rate.

Regards,

Corey McLaughlin
Baltimore, Maryland
November 7, 2019