American Firms Unholy Alliance With China

The recent dustup over an NBA tweet and China is just the latest example of the Communist country's unapologetic censorship of free speech.  American companies discovered long ago the cost of doing business in China requires kowtowing to the regime's demands or risk banishment. 

In this latest incident, the general manager for the Houston Rockets took to social media to express his support for the courageous protesters in Hong Kong.  After China's official condemnation, NBA commissioner Adam Silver reprimanded the GM and apologized to the regime's government.

Silver with the support of wealthy NBA owners put profits over principle.  The NBA has lucrative television contracts for its games to be aired in China.  The league has long viewed China as its future with billions of potential viewers who buy league's jerseys and other merchandise.  

The NBA is not the only entertainment industry to bow to Chinese pressure.  China banned movies from Sony and Disney in 1997 after the two studios released films about Tibet.  Both entertainment giants groveled before the Communists to earn the right to distribute future films in China.

Chinese bullying of American firms has been a staple of its government.  However, it has grown more bellicose under the autocratic rule of President Xi Jinping.  The Communist ruler has made it clear that he will curtail freedom of speech even in America as a price for access to China's market.  

Since President Nixon's historic 1972 visit to China, globalists have advocated American investment in the Asian nation as a way to open up the Communist regime to democratic changes.  This theory has been discredited by decades of Chinese trampling of basic human rights of its citizens.

Under China's leader Xi Jinping, the regime has become increasingly insular, more hostile to democratic principles, militarily threatening and an economic behemoth with world domination as its goal.  No serious economist or politician can claim trade has loosened China's oppressive policies.

In spite of growing Chinese antagonism, American companies' investment in the Communist country continues unabated.  In 2018, U.S. businesses invested $116.52 billion in China, according to Statista, a global research firm.  That is a ten-fold hike from $11.4 billion almost two decades ago in 2000.

Meanwhile, the trade deficit with China has ballooned as the regime ships more goods and equipment to the U.S., while the Communists buy fewer American products.  This trade imbalance has resulted in the elimination or displacement of 3.2 million U.S. jobs, estimates the Economic Policy Institute.

Some of the biggest names in Silicon Valley--Apple, Google and Facebook--are heavily invested in China. All have caved at one time to demands from the government to alter its applications to placate the Communists, including deleting information about the recent Hong Kong protests.

Their conduct rankles many Americans, who view their behavior as hypocritical.  These same companies have been openly critical of objections by Congress and interest groups about their content.  The trio huff they will not cower to attempts to restrict free speech on their platforms.

The high-tech industry and other American firms--GE, Intel, Walmart, Starbucks, Boeing, GM--are complicit in the regime's dynamic global economic growth by spending lavishly on Chinese facilities and hiring local workers.  Meanwhile, China continues to steal American technology.

Beijing has made no secret of its ambition to become the global leader in key emerging industries, including information technology, alternative energy, biotechnology, alternative-fuel cars and high-end equipment manufacturing.  The regime will back Chinese firms with generous state funding. 

China's subsidy of these sectors will put American firms at a competitive disadvantage.  If you doubt China's ability to overtake America, you haven't been paying attention.  In 2011, Apple was the dominant smartphone in China.  Today, the top three brands, all Chinese, own a 71% market share.

China's long range plan is for its home-grown industries to be become not only the country's market leaders, but to supplant American brands worldwide.  Recent research by groups such as McKinsey document that Chinese consumers are increasingly showing a preference for China-made goods.

To secure its economic superiority, China has launched a multi-trillion-dollar project to revive the ancient "Silk Road," which could redefine global trade and signal the tipping point for a new Asian century.  The scope of the project is typical of the country's audacious economic dreams.

The regime already has invested billions in new infrastructure projects such as roads, railways, ports and maritime corridors that will span more than 60 countries and 4.4 billion people, covering up to 40 percent of the global GDP.  The plan includes linking Asia, Europe, Africa and the Middle East.

This unprecedented scale of the project should worry American firms.  China's aim is to end dependence on American goods, innovation and technology.  While it extends its economic power, China's blueprint includes exporting its brand of Communism worldwide.

American businesses may one day be forced to abandon the Chinese market, either because of dwindling profits or because the government decides to limit foreign investment.  China has employed this tactic in decades past.  There is no certainty it will not do it again.

The NBA, businesses, movie studios and others that appease China in the name of profits may rue the day they ignored the Communist nation's geopolitical and economic aspirations.  Not only will their profits be harmed, but they will have lost something more valuable: the American public's trust.  

Drew's View: Fear Grips Stock Market

Since October, prices of stocks have been on a roller coaster ride.  The market soars to dizzying heights before plunging to nauseous depths. Investors are left with churning stomachs and hand-wringing anxiety.  Even the stock experts are left shaking in their shiny cap toe shoes.

What makes the current market gyrations so incomprehensible is the booming economy.  Market experts subscribe to the theory that stock price increases follow real growth in the Gross Domestic Product (GDP), a barometer of economic health.  However, the correlation doesn't apply today.

From 2006 to 2014, the average growth of the stock market increased at a rate four times higher than the average GDP.  In the second quarter last year, real GDP growth zoomed to 4.2 percent, the highest in more than a decade.  The third quarter was a robust 3.5 percent.  But stocks nosedived.

Stock prices also have plummeted in the face of climbing corporate profits.  American companies posted corporate profits of $3.5 trillion in the third quarter of last year, an increase of $69.3 billion.  It marked an all-time high for corporate profits.  This should translate into higher stock prices.

Some economists blame the sagging world economy for the downturn.  Others cite the trade war with China.  Many theorists also point to the uncertainty over interest rates and unrest in the Middle East.  The worry list stretches into infinity.  Stock brokers act as befuddled as the average investor.

Businesses reporting fourth quarter earnings are fueling apprehension. Apple recently attributed the China trade crisis for its tepid results.  Market gurus accepted the thesis.  The truth is the price of Apple's iPhone is five times more expensive than its Chinese competitor's.  Trade is not the issue.

You can bet in the coming weeks every American firm with weak earnings will lay it off on the China trade squabble. Analysts will nod without challenging the premise.  There is no question China's tariffs are a negative, but China's economy has softened, especially consumer spending.

No pinstriped suit on Wall Street will confess the real reason for the market skid.  It is plain old fashioned fear.  Astute market players aren't supposed to be swayed by emotions.  That's for the great unwashed individual stock pickers.  But it's the most logical explanation for the up-and-down market.

Their worst nightmare is the length of the current Bull market.  In March of 2009, the Dow Jones stood at 8,599.  On January 11, the Dow was teetering at 23,995 after soaring as high 26,186 on February 1 of last year.  That is an astounding gain of 15,396 points or 179% in 118 months.

The previous record Bull market rumbled for 113 months from October, 1990  through March, 2000.  During that stretch, the Dow rose 417 percent.  That still stands as the top gain in history.  Market technicians are certain the Bulls can't run forever.  Duh.  But no one can predict the expiration date.

That accounts for the wild swings in the market.  A day when stocks begin falling at the opening bell turns into a rout as big institutions get nervous that a huge sell-off will lay waste to the market.  If the market trends upward, all the investment whales swim in and swallow up stocks to lift prices.

This see-saw effect is a classic example of fear ruling the market.  Forget the age old investment hypothesis about efficient markets.  No one wants to be caught fully invested in the market when it plunges 20-percent that would signal the return of the hibernating Bears.

The market follows this volatility with a popular measurement known as the VIX or CBOE Volatility Index. Most specialists call it by another name: Wall Street's fear index.  The last time the index performed this way it triggered a crippling sell off.  Fear can make the savviest investor panic sell.

Stock market insiders often pooh-pooh the fear factor.  They point out that most trading in the markets is orchestrated by computers running sophisticated algorithms.  But when market trends spike, computerized trading triggers selling or buying that exacerbates the market oscillation.

A couple of indicators to watch over the coming weeks and months are measurements that make up the VIX gauge.  One is the spread between yields on invest grade bonds and junk bonds.  The other is money leaving the stock market for higher returns in Treasuries and other safe haven investments.

When you listen to the talking heads on television and read the financial pages, discount most of the skittish news about the market.  There will always be speculation about a market meltdown.  Uncertainty exists even in Bull markets.  Instead look for signals indicating increasing fear.

That is all you need to know to understand today's stock market.   So cancel your subscription to the Wall Street Journal and turn off CNBC business.  Be content knowing that all the knowledgeable investment experts have no more insight than you do about the future of the stock market index.