Chinese Stocks, Jobs Report, Job Openings, Recession , Home Title Theft, Warren Buffett, Stock Market Declines, US Dollar, Warren Buffett Portfolio & California Gas Prices

Should the United States delist Chinese stocks?

At first thought with all the craziness of the trade war it sounds like delisting all the Chinese companies from the American stock markets may be a good idea. It is important to know that there are 286 Chinese companies listed on major US stock exchanges. You’ll recognize some of the names like Alibaba, Baidu and JD.com. It is estimated by analysts at Goldman Sachs that US institutional investors currently own about $830 billion worth of Chinese stocks. That is more than two times what the Chinese own of US stocks as that is estimated around $370 billion. But a quick sell off could bring down stock valuations and make it difficult to get out of many of these stocks on both sides.

An important piece of information I brought up a couple years ago was the Accountable Act which came to be in 2020. This allows the Securities Exchange Commission to ban foreign companies from trading if American regulators are not allowed to inspect the auditors for three years in a row. I always worry about Chinese companies because of what I call government accounting. They are not held to the same accounting standards there and I believe companies may list financial statements based on what the government tells them.

There have been some Chinese companies that delisted themselves rather than going through an audit. I think that tells you quite a bit. My feeling is we should not delist all the Chinese stocks that trade on American stock exchanges under what is known as ADRs, but be sure that the Chinese companies have the same transparency as American companies when it comes to their financial statements. If we can’t get that transparency, then those companies should be delisted. 

Jobs report shows more evidence the economy is in good shape

US nonfarm payrolls grew by 177k in the month of April, which easily topped the estimate of 133k. Jobs remained robust in health care as the sector added 51k jobs in the month of April and employment in transportation and warehousing and financial activities was also strong as the groups added 29k and 14k jobs respectively in the month. Other categories like construction, manufacturing, leisure and hospitality, and retail trade saw little or no change in payrolls, while government declined by 9k jobs in the month.

Government jobs are now down by 26k since January, but remember employees on paid leave or receiving ongoing severance pay are still counted as employed. This likely means we will continue to see losses accelerate in this category as the year continues. Negatives in the report included the fact that employment numbers were revised down by a total of 58k in the previous two months. Also, April’s reading was lighter than March’s reading of 185k, but considering the unemployment rate remains at 4.2%, I still see these jobs gains as impressive, especially with all the negativity that people have been discussing.

With that said, I still do anticipate weaker numbers in terms of the payroll additions in future months, but if the unemployment rate remains low I don’t see that as a problem. On the inflation front, we also got good news with average hourly earnings rising just 3.8%. I see this as a healthy increase that does not put pressure on inflation like when wages were growing over 5% in 2022.  

Job openings look problematic on the surface

In the March Job Openings and Labor Turnover Survey, job openings totaled 7.2 million. This was below February’s reading of 7.5 million and the estimate, which also stood at 7.5 million. This is still not super concerning to me. We tend to forget how strong the labor market has been and while we continue to see a softening, there is plenty of room before I see cause for concern.

Just for reference, job openings in 2019 averaged approximately 7.2 million, in 2018 they averaged approximately 6.8 million, and in 2017 they averaged approximately 6.2 million. Compare that to where we are today and that should give you more comfort. Another area I saw as positive in the report was the fact that quits totaled 3.3 million, which produced a quit rate of 2.1%. This is important because if people were truly concerned about a major slowdown and thought they would not be able to find work elsewhere, I don’t believe they would be quitting their jobs.

These numbers are still quite close to 2019 levels, which many considered as a very strong economy. That year quits averaged approximately 3.5 million and there was an average quit rate of about 2.3%. Also in the report, we saw layoffs remained quite low at 1.6 million. Back in 2019, layoffs averaged around 1.8 million per month. There is no doubt that uncertainty remains and that will have some impact on businesses and their hiring plans, but in terms of it pushing the economy into a major recession, since we are coming from such a healthy level, I just don’t see that happening. 

Are we in the middle of a recession?

The first reading of Q1 GDP showed a decrease of 0.3%. A recession is generally defined as two consecutive quarters of declining GDP, so some may argue we are half way there. Let us not forget in 2022 we did see two consecutive quarters of declining GDP as Q1 declined 1.4% and Q2 showed an advance estimate that was down 0.9%. After further research the second quarter ended up seeing a total reversal and it is now reported to have actually grown by 0.3%.

Even with the difficult start, that year ended with a 2.1% growth rate. We also can’t forget that the National Bureau of Economy Research (NBER) makes the official call on recession and they use a broader set of indicators that led them not to declare a recession in 2022. I say all of this because I still believe even if we hit a technical recession, if employment remains strong, I don’t believe we would have an “official” recession. I am still unsure that we will even see Q2 GDP decline and we could also see revisions to Q1 that lift it to a positive reading. I say this because if you look at the actual underlying numbers in the report, it is not nearly as bad as the headline decline.

On the positive front, consumer spending actually grew 1.8% in the quarter as services showed a nice increase of 2.4%. Also, private domestic investment saw a surge of 21.9%, this was led by investments in equipment as they grew 22.5% in the quarter. You might be asking with numbers like these how did we see a negative GDP? To start, government spending fell 1.4% in the quarter. This was led by a decline of 5.1% in spending by the federal government. The group as a whole ended up subtracting 0.25% from the headline GDP number. While this was impactful, the real reason for the decline in GDP was trade. Companies were trying to get ahead of looming tariffs and imports surged 41.3%. This compared to an increase of just 1.8% for exports. The huge discrepancy caused the trade component of GDP to decrease the headline number by 4.83%!

While the economy is no doubt digesting these trade conversations and the tariffs, I still believe the economy is in alright shape when you look at the underlying numbers. I did also want to mention more good news on inflation as the March headline PCE showed an increase of 2.3%, which compares to last month’s reading of 2.7% and core PCE came in at just 2.6%, which was a nice decline from February’s reading of 3.0%. I believe these numbers will likely increase with the tariffs, but underlying inflation looks to be quite healthy. 

Financial Planning: Protecting Yourself from Home Title Theft

Home title theft is a type of real estate fraud where someone illegally transfers the ownership of your home by forging your name on title documents. This is often done using stolen personal information to file fraudulent deeds with the county recorder’s office. Once the title appears to be in their name, the thief may try to take out loans against the property, sell it to an unsuspecting buyer, or use it in other schemes that could put your home and finances at risk.

This crime can go undetected for months if property owners aren’t actively monitoring their title. Having a mortgage or HELOC on your house can make it more difficult for a thief to steal your title since the bank has a lien against the property, but it is still possible. There are private companies that charge monthly fees to alert you of changes to your home title, but they do not prevent the title from being stolen. You can also purchase home title insurance that will help pay for legal fees if you have to go to court if your title is stolen.

Homeowners in San Diego County can access a free alternative called “Owner Alert”. Jordan Marks who is the San Diego County Assessor/Recorder/County Clerk was behind this, and it is a great benefit that all San Diego property owners should take advantage of. This service works by notifying you by email whenever a document is recorded against your property, helping you catch potential fraud early. Signing up is simple and can be done on the San Diego County Assessor’s website. You just need your name, email address, and parcel number and it provides the same type of monitoring offered by paid services, making it unnecessary to spend money for peace of mind when this tool is already available for free.

What will Warren Buffett say at Berkshire Hathaway‘s annual meeting on May 3rd?

On Saturday, May 3, the CEO of Berkshire Hathaway, Warren Buffett, will be speaking and answering questions on a range of topics and I’m sure questions about the tariffs will be front and center. This is a 60-year celebration for the company and this annual meeting with Warren Buffett at 95 could be his last. He used to share the time with Charlie Munger, who has now passed. They used to take questions all day but now at the age of 95 he will limit his time to 4 ½ hours. While obviously understandable, I don’t see that as a good sign.

The Investment world will be paying close attention to many things such as the $300 billion of cash and equivalents they hold. Did Buffet use any of that cash to invest in some great companies? With the stock up roughly 20% for the year, it is also a concern that it is trading at 1.7 times book value. The stock now appears to be overpriced since it has not been at that level for nearly 20 years. Stock repurchases have come to a halt from nearly a year ago. This compares to the timeframe of 2020 to the end of 2021 when approximately $48 billion of stock was repurchased. It is also important to know that the forward PE for December 2025 stands at 25.2. I have loved the value investing approach from Warren Buffett for over 30 years.

While the art of value investing made famous by Warren Buffett will continue on, I fear the company philosophy will be coming to an end or changing in the near future. The company will be run by Greg Abel, who will be CEO and Todd combs and Ted Weschler who now run about $30 billion of the portfolio may begin managing the entire portfolio. Maybe it will work out, but there are so many other changes in the near future with three of the children being on the board. I do believe the next 10 years will not be a mirror image of the last ten years. I think many investors may feel the same and this stock could struggle for the next decade as it tries to find itself.

More declines to come in the stock market?

We are now in the first week of May investors got to breathe a sigh of relief as the S&P 500 recovered to only a 3% loss year to date and the NASDAQ is only down 7%. While this may feel nice compared to where we were just a couple of weeks ago, I would remind people and investors not to get too comfortable because many of those concerns that caused the selloff have not been resolved. There have still been no major deals in the trade wars, we still have the same Federal Reserve Chairman that the president does not agree with, and China is still holding rather strong on tariffs.

It is possible that any day we could start seeing trade deals come through, China could reverse its position, and the Fed could start to cut interest rates. While all this is true, I’m going to say that it’s not likely that all three will happen if any of them in the short term. I continue to believe patience will be needed through mid to maybe late summer before the storm is over and during that time period, I still see volatility remaining quite high. I would advise all investors to still remain cautious because there could be commentary from anyone, including the President that may rattle the markets.

It is also important to remember that we are in the middle of first quarter earnings reports and there are companies that are not giving forward guidance because of the uncertainty around tariffs. I’m sure there’ll be other companies over the next couple of weeks that pullback on their guidance or maybe reduce it, which could cause the markets to have another pull back. At this point in time, it may be a good time to look at your portfolio and reduce or unload any stocks that are overvalued and risky.

Will the US dollar collapse for good?

The US dollar is once again declining and the stories about the greenback being replaced by either cryptocurrency, gold or something else are appearing in headlines across the country. Yes, the country does have its issues with the national debt at $36 trillion, but keep in mind that we still produce 25% of the world‘s gross domestic product and the United States accounts for about 65% of the world‘s stock market value.

There really is no replacement when looking at the 149 world currencies. As of today, roughly 90% of all foreign exchange transaction involves the US dollar on one side or the other. It is a very complicated system that has massive transactions and there are few if any other countries that could handle it. The clearing house interbank payments system processes over 540,000 transactions per day that are worth approximately $1.8 trillion. We may see the value of the US dollar decline, but as far as being replaced by some other means or currency, that just does not make any sense now or in the near future.

Even a great investor like Warren Buffett has losers in his portfolio

When I talk to clients, sometimes they make comments about selling the losers and keeping the winners. I have to explain to them that we are long-term investors and just because a stock is down for the last 12 to 24 months it does not mean it does not have strong fundamentals and because of that we should then be patient with the company for the longer term. Many times, those stocks turn around, but sometimes they don’t and this has even happened to the best investor of all time, Warren Buffett. He currently has two companies that have been losers in his portfolio for the last 9 to 10 years.

The first one is Kraft Heinz where Buffet owns roughly 28% of the outstanding shares. He made this purchase back in 2015 when there was an approximate share price of $75 a share, today it trades around $30 a share. He has received a good amount of dividend income from the stock, but it’s still not at breakeven yet. Another investment where he purchased the full company that has struggled is Precision Castparts. He bought it for roughly $34 billion back in 2016. It is estimated that the company is now worth about the same as what he paid for it nine years ago.

If investors would look at their total portfolio rather than fixating on some of the struggling stocks and analyze the fundamentals of the companies, they own in the portfolio rather than worrying about short term movements, they would likely have much better results.

California gas prices are going to go even higher

In California we pay on average $1.64 more than the average nationwide consumer for a gallon of gasoline. California regulations of such low carbon standards have made it nearly impossible for refiners outside the state to produce gasoline for California buyers. Just recently, Valero announced they are going to close a large Bay Area refinery and they are also considering closing another one in Los Angeles.

Phillips 66 also plans on closing a major Southern California refinery because of a bill that the governor signed to have the state energy commission control what refineries can charge. It is estimated that when Valero and Philip 66 close the refineries, that’ll be about a 20% reduction of refining capacity over the next 12 months. There could be spot shortages around the state even with the higher prices because of the decreasing supply of refined gasoline. I’m tired of hearing some politicians say it’s price gouging or companies are manipulating the price.

Politicians need to understand supply/demand issues, and that companies are in business to make profits for their shareholders. It’s crazy when California politicians make this excuse considering the problem is just happening in our state. To prevent this and help lower the price of gasoline, the politicians could reduce the restrictions on refined gasoline from other states and allow the refiners that are left in the state to try and make a profit so they don’t leave as well.