by Bryan Perry
February 25, 2020
I’ll have no specific investment advice for you this week, but the best investment hope I can offer you in this column is that freedom coming to China would open the world to a great new age of potential profits.
While it was widely accepted just a week ago that there was evidence of improving containment of the coronavirus, the situation has taken a turn for the worse in recent days after Chinese scientists offered new evidence that the virus can be spread asymptomatically – meaning that a carrier of the disease shows no noticeable signs of infection until it becomes advanced. This is bad news – there’s no way to sugar coat it.
How long have the Chinese known this condition? That is anyone’s guess, but considering the recent death of the whistleblower doctor in Wuhan and how he was muzzled by Chinese authorities when he tried to sound the alarm, there is no telling how bad the situation really is, and this lack of transparency has pinched a raw nerve with the market, leading to sharp declines in the latter half of last week.
Dr. Li Wenliang, an ophthalmologist working in Wuhan, the Chinese city where the epidemic originated, died on February 7 of the virus. Using the popular Chinese social media platform WeChat, Li wrote that he had become aware of several cases similar to Severe Acute Respiratory Syndrome (SARS), another coronavirus that killed nearly 800 people in a 2002-2003 outbreak that Beijing initially tried to cover up.
Within days, local police paid Li a visit and reprimanded him for these posts. It was reported that he was arrested, jailed, and made to recant. He signed a statement on January 3, a copy of which was circulated online in China, in which he acknowledged making “false statements.” Five weeks later he was dead, leaving behind a young child and pregnant wife. As a result, Li has become the face of Beijing’s blunders.
While the new coronavirus, which can cause a form of pneumonia, has a relatively low mortality rate compared to SARS or even the seasonal flu, scientists are concerned that since it presents only mild symptoms in many people that it might spread more easily and then mutate into a more lethal strain.
It is this unknown factor that has triggered a new level of market nervousness.
Yanzhong Huang, a global health expert specializing in China for the Council on Foreign Relations, said, “There is a strong parallel between the response and cover-up to SARS and this current outbreak.” Although the first case was apparently detected on December 12, local officials hid the statistics for weeks, fearful of offending Communist Party higher-ups by reporting anything undermining “stability.”
China’s President Xi Jinping’s authoritarian rule does well at issuing top-down physical commands. For instance, he built new hospitals in Wuhan within 10 days and quarantined the entire city, but the crackdown on non-governmental organizations (NGOs) in the health field and muzzling of independent media also cut the central government off from vitally needed information.
“We have declared a people’s war against the epidemic,” Xi told President Donald Trump by phone. But the phrase “people’s war,” of course, means top-down control, over-riding any dissent from the populace.
Under Xi Jinping, top-down controls have become even tighter. Sophie Richardson, the China director of Human Rights Watch, said, “One clear target of Xi’s groups to silence are domestic non-government organizations in the health field that provide services and information to the public or help respond to medical crises.” So, the question at hand is whether the Beijing government will learn anything from the current crisis about the need for bottom-up information from civil society. So far it looks unlikely.
It is reported that some doctors, journalists, and critics of China’s handling of the coronavirus have been censored, arrested, or simply disappeared. China’s Internet watchdog, The Cyberspace Administration of China (CAC), has levied a widespread crackdown on social media platforms, requiring operators of such outlets to “create a good cyberspace environment to win the battle against the coronavirus epidemic.”
Can This Epidemic Have a Positive Outcome – Regime Change?
I could go on and on about how deplorably China’s government is handling this crisis, but at the same time, is it possible that this government clampdown will unleash another long overdue Democracy Movement, like the one in 1989 that spread to 400 cities before the massacre at Tiananmen Square that resulted in the death of several thousand student protestors and a memory that is widely associated with questioning the legitimacy of Communist Party rule that remains one of the most sensitive and censored topics in China?
Either way, something’s got to give if the world wishes to seek global progress while China’s abuse of power is allowed to flourish without retaliation. The U.S. is the only country with the direct economic and political power to ultimately break that system and open the door to democracy. It will take cooperation from most other developed democratic nations to apply the same kind of economic pressure that leads to a civil uprising by the 1.43 billion Chinese people (20% of global citizens) trapped inside China.
It happened in the Soviet Union in 1991 and maybe it can happen in China now. Yes, Russia still has some of its nukes and an iron-fisted ex-KGB “ruler for life” in Vladimir Putin. But what’s left after the disintegration of the Soviet bloc is a much smaller and weaker Russia with a paltry GDP of $1.6 trillion, which accounts for only 1.8% of world GDP. Russia doesn’t even rank in the top 10 global economies, and it is about to be overtaken in rank by the likes of Mexico, South Korea, Spain, and Australia.
The problem with China is that there is no transitional leader such as Mikhail Gorbachev, who facilitated the long-overdue transformation. Gorbachev’s decision to allow elections with a multi-party system began a slow process of democratization that eventually contributed to the collapse of the Soviet Union.
That, and the Reagan administration’s arms race spending, had the Soviets call off the Cold War at a time when an unsustainable 50% of Soviet industrial output was going to the military. When the justification of an external threat was removed, there was no reason for the Russian public to tolerate totalitarian rule.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
In my view, China has to be crushed economically – even pushed into a recession, sparking massive and widespread civil upheaval. China is leveraged to the eyeballs, with debt currently approaching 320% of GDP. If current conditions persist, a tipping point of economic collapse is within the realm of possibility, and a nationwide uprising sparked by economic decline is probably the only way to defeat the Communist Party and trigger a wellspring of democratic sentiment. Is it possible in our lifetime? Yes, I believe so.
Beijing is threatening America’s economic livelihood through its mercantilist policies while operating a diabolical cyber infrastructure. The latest round of charges against Huawei on February 13 of racketeering and theft of trade secrets shows that the spirit of the Phase 1 deal is just more posturing, hoping to keep tariffs to a minimum while waiting for a softer-on-China administration to occupy the White House.
Is China the modern day “evil empire” that was coined by Ronald Reagan? I’d say so. But what President Xi didn’t count on was the challenge of trying to suppress the spreading of a more lethal coronavirus and the impact it would have on an already highly leveraged economy and that of global public opinion of their handling of it. If there were ever a time to sow the seeds of crucial and historical change for a free society in China, it is now. The best time to hit ‘em is when they are down, because the devil does not play fair.
Also In This Issue
A Look Ahead by Louis Navellier
Growth Continues to Contract in the Three Biggest Economies Outside the U.S.
Income Mail by Bryan Perry
Beijing’s Bad Behavior Sends a Sobering Message to The World
Growth Mail by Gary Alexander
The U.S. Economy is “In a Good Place” (Says Jerome Powell)
Global Mail by Ivan Martchev
The Correlation Between Gold and The Dollar Becomes Weirder and Weirder
Sector Spotlight by Jason Bodner
Market Cycles Resemble (but don’t follow) The Moon’s Cycles
View Full Archive
Read Past Issues Here
Bryan Perry is a Senior Director with Navellier Private Client Group, advising and facilitating high net worth investors in the pursuit of their financial goals.
Bryan’s financial services career spanning the past three decades includes over 20 years of wealth management experience with Wall Street firms that include Bear Stearns, Lehman Brothers and Paine Webber, working with both retail and institutional clients. Bryan earned a B.A. in Political Science from Virginia Polytechnic Institute & State University and currently holds a Series 65 license. All content of “Income Mail” represents the opinion of Bryan Perry
Although information in these reports has been obtained from and is based upon sources that Navellier believes to be reliable, Navellier does not guarantee its accuracy and it may be incomplete or condensed. All opinions and estimates constitute Navellier’s judgment as of the date the report was created and are subject to change without notice. These reports are for informational purposes only and are not a solicitation for the purchase or sale of a security. Any decision to purchase securities mentioned in these reports must take into account existing public information on such securities or any registered prospectus.To the extent permitted by law, neither Navellier & Associates, Inc., nor any of its affiliates, agents, or service providers assumes any liability or responsibility nor owes any duty of care for any consequences of any person acting or refraining to act in reliance on the information contained in this communication or for any decision based on it.
Past performance is no indication of future results. Investment in securities involves significant risk and has the potential for partial or complete loss of funds invested. It should not be assumed that any securities recommendations made by Navellier. in the future will be profitable or equal the performance of securities made in this report. Dividend payments are not guaranteed. The amount of a dividend payment, if any, can vary over time and issuers may reduce dividends paid on securities in the event of a recession or adverse event affecting a specific industry or issuer.
None of the stock information, data, and company information presented herein constitutes a recommendation by Navellier or a solicitation to buy or sell any securities. Any specific securities identified and described do not represent all of the securities purchased, sold, or recommended for advisory clients. The holdings identified do not represent all of the securities purchased, sold, or recommended for advisory clients and the reader should not assume that investments in the securities identified and discussed were or will be profitable.
Information presented is general information that does not take into account your individual circumstances, financial situation, or needs, nor does it present a personalized recommendation to you. Individual stocks presented may not be suitable for every investor. Investment in securities involves significant risk and has the potential for partial or complete loss of funds invested. Investment in fixed income securities has the potential for the investment return and principal value of an investment to fluctuate so that an investor’s holdings, when redeemed, may be worth less than their original cost.
One cannot invest directly in an index. Index is unmanaged and index performance does not reflect deduction of fees, expenses, or taxes. Presentation of Index data does not reflect a belief by Navellier that any stock index constitutes an investment alternative to any Navellier equity strategy or is necessarily comparable to such strategies. Among the most important differences between the Indices and Navellier strategies are that the Navellier equity strategies may (1) incur material management fees, (2) concentrate its investments in relatively few stocks, industries, or sectors, (3) have significantly greater trading activity and related costs, and (4) be significantly more or less volatile than the Indices.
ETF Risk: We may invest in exchange traded funds (“ETFs”) and some of our investment strategies are generally fully invested in ETFs. Like traditional mutual funds, ETFs charge asset-based fees, but they generally do not charge initial sales charges or redemption fees and investors typically pay only customary brokerage fees to buy and sell ETF shares. The fees and costs charged by ETFs held in client accounts will not be deducted from the compensation the client pays Navellier. ETF prices can fluctuate up or down, and a client account could lose money investing in an ETF if the prices of the securities owned by the ETF go down. ETFs are subject to additional risks:
- ETF shares may trade above or below their net asset value;
- An active trading market for an ETF’s shares may not develop or be maintained;
- The value of an ETF may be more volatile than the underlying portfolio of securities the ETF is designed to track;
- The cost of owning shares of the ETF may exceed those a client would incur by directly investing in the underlying securities; and
- Trading of an ETF’s shares may be halted if the listing exchange’s officials deem it appropriate, the shares are delisted from the exchange, or the activation of market-wide “circuit breakers” (which are tied to large decreases in stock prices) halts stock trading generally.
Grader Disclosures: Investment in equity strategies involves substantial risk and has the potential for partial or complete loss of funds invested. The sample portfolio and any accompanying charts are for informational purposes only and are not to be construed as a solicitation to buy or sell any financial instrument and should not be relied upon as the sole factor in an investment making decision. As a matter of normal and important disclosures to you, as a potential investor, please consider the following: The performance presented is not based on any actual securities trading, portfolio, or accounts, and the reported performance of the A, B, C, D, and F portfolios (collectively the “model portfolios”) should be considered mere “paper” or pro forma performance results based on Navellier’s research.
Investors evaluating any of Navellier & Associates, Inc.’s, (or its affiliates’) Investment Products must not use any information presented here, including the performance figures of the model portfolios, in their evaluation of any Navellier Investment Products. Navellier Investment Products include the firm’s mutual funds and managed accounts. The model portfolios, charts, and other information presented do not represent actual funded trades and are not actual funded portfolios. There are material differences between Navellier Investment Products’ portfolios and the model portfolios, research, and performance figures presented here. The model portfolios and the research results (1) may contain stocks or ETFs that are illiquid and difficult to trade; (2) may contain stock or ETF holdings materially different from actual funded Navellier Investment Product portfolios; (3) include the reinvestment of all dividends and other earnings, estimated trading costs, commissions, or management fees; and, (4) may not reflect prices obtained in an actual funded Navellier Investment Product portfolio. For these and other reasons, the reported performances of model portfolios do not reflect the performance results of Navellier’s actually funded and traded Investment Products. In most cases, Navellier’s Investment Products have materially lower performance results than the performances of the model portfolios presented.
This report contains statements that are, or may be considered to be, forward-looking statements. All statements that are not historical facts, including statements about our beliefs or expectations, are “forward-looking statements” within the meaning of The U.S. Private Securities Litigation Reform Act of 1995. These statements may be identified by such forward-looking terminology as “expect,” “estimate,” “plan,” “intend,” “believe,” “anticipate,” “may,” “will,” “should,” “could,” “continue,” “project,” or similar statements or variations of such terms. Our forward-looking statements are based on a series of expectations, assumptions, and projections, are not guarantees of future results or performance, and involve substantial risks and uncertainty as described in Form ADV Part 2A of our filing with the Securities and Exchange Commission (SEC), which is available at www.adviserinfo.sec.gov or by requesting a copy by emailing email@example.com. All of our forward-looking statements are as of the date of this report only. We can give no assurance that such expectations or forward-looking statements will prove to be correct. Actual results may differ materially. You are urged to carefully consider all such factors.
FEDERAL TAX ADVICE DISCLAIMER: As required by U.S. Treasury Regulations, you are informed that, to the extent this presentation includes any federal tax advice, the presentation is not written by Navellier to be used, and cannot be used, for the purpose of avoiding federal tax penalties. Navellier does not advise on any income tax requirements or issues. Use of any information presented by Navellier is for general information only and does not represent tax advice either express or implied. You are encouraged to seek professional tax advice for income tax questions and assistance.
IMPORTANT NEWSLETTER DISCLOSURE: The performance results for investment newsletters that are authored or edited by Louis Navellier, including Louis Navellier’s Growth Investor, Louis Navellier’s Breakthrough Stocks, Louis Navellier’s Accelerated Profits, and Louis Navellier’s Platinum Club, are not based on any actual securities trading, portfolio, or accounts, and the newsletters’ reported performances should be considered mere “paper” or proforma performance results. Navellier & Associates, Inc. does not have any relation to or affiliation with the owner of these newsletters. There are material differences between Navellier & Associates’ Investment Products and the InvestorPlace Media, LLC newsletter portfolios authored by Louis Navellier. The InvestorPlace Media, LLC newsletters and advertising materials authored by Louis Navellier typically contain performance claims that do not include transaction costs, advisory fees, or other fees a client may incur. As a result, newsletter performance should not be used to evaluate Navellier Investment Products. The owner of the newsletters is InvestorPlace Media, LLC and any questions concerning the newsletters, including any newsletter advertising or performance claims, should be referred to InvestorPlace Media, LLC at (800) 718-8289.
Please note that Navellier & Associates and the Navellier Private Client Group are managed completely independent of the newsletters owned and published by InvestorPlace Media, LLC and written and edited by Louis Navellier, and investment performance of the newsletters should in no way be considered indicative of potential future investment performance for any Navellier & Associates separately managed account portfolio. Potential investors should consult with their financial advisor before investing in any Navellier Investment Product.
Navellier claims compliance with Global Investment Performance Standards (GIPS). To receive a complete list and descriptions of Navellier’s composites and/or a presentation that adheres to the GIPS standards, please contact Navellier or click here. It should not be assumed that any securities recommendations made by Navellier & Associates, Inc. in the future will be profitable or equal the performance of securities made in this report.
FactSet Disclosure: Navellier does not independently calculate the statistical information included in the attached report. The calculation and the information are provided by FactSet, a company not related to Navellier. Although information contained in the report has been obtained from FactSet and is based on sources Navellier believes to be reliable, Navellier does not guarantee its accuracy, and it may be incomplete or condensed. The report and the related FactSet sourced information are provided on an “as is” basis. The user assumes the entire risk of any use made of this information. Investors should consider the report as only a single factor in making their investment decision. The report is for informational purposes only and is not intended as an offer or solicitation for the purchase or sale of a security. FactSet sourced information is the exclusive property of FactSet. Without prior written permission of FactSet, this information may not be reproduced, disseminated or used to create any financial products. All indices are unmanaged and performance of the indices include reinvestment of dividends and interest income, unless otherwise noted, are not illustrative of any particular investment and an investment cannot be made in any index. Past performance is no guarantee of future results.