This week President Trump said it would be “highly unlikely” that he would hold off on increasing many tariffs on Chinese goods from 10% to 25%. Analysts are asking, what will happen if he goes forward with his plan?

The media is answering that question with a spectrum of possibilities ranging from apocalypse to Armageddon.

But what happens if Trump doesn’t take a tough stance with China? What is China’s endgame? And, if China is successful in implementing its plans via unfair trade practices, would the potential outcome be any better for the U.S. economy than the negative aspects of a trade war?

In December of 2005 I analyzed the China question, writing:

Chinese End Game

Is China deceiving the world about its military spending and intentions? I believe the answer is clearly yes. London-based International Institute of Strategic Studies is floating a weapons and defense spending number of over $62 billion for last year versus official Chinese reports of $30 billion. Seems the comrades count spending on Russian submarines, aircraft, and destroyers as “off balance sheet” items. China is fixated on re-unification with Taiwan and anticipates military intervention from the U.S. I have explained why such intervention is not needed.

The economic impact of a war with China would be devastating for all sides. If tariffs can be used as a negotiating tool to bring the Chinese to the table on unfair trade practices, it could be a success for both countries in the long term.

Before you answer, remember that at least 50% of gunfighters end up dead.

Are you the type of person who will dutifully grow your investment portfolio over the years by shepherding it in the right direction?

Or will you risk it all in one high risk gunfight after another until your number is called?

Consider what I wrote here, thirty years ago in December of 1988. It’s a comparison of some high-level shepherding vs. some inexperienced gun slinging.

Do you know the two most powerful words in investing? If you’ve been with me through the years, you know the answer. But for all of my new subscribers, the two magic words are COMPOUND INTEREST. Let me show you their importance and suggest an exclusive menu of high-yield winners perfect for your portfolio.

The name Joseph Rosenberg may not mean anything to you. Joe’s a money manager for Loews Corp. How much does Joe shepherd? Over $1 billion. A few years ago I made a presentation to Loews’ top management. The group included CEO Laurence Tisch, now also head man at CBS. Rarely if ever have I been more impressed with the composite investment knowledge of a small management team. It’s, of course, not for lack of acuity that you’ll find Laurence and Preston Tisch listed among the Forbes “Four-Hundred Richest Americans” at a staggering $1.7 billion.

“The Most Important Thing in Investing”

You can imagine my interest when I opened my 1989 Fortune “Investors Guide” and saw staring at me a near-full page color photo of Joe Rosenberg in his mountain climbing clothes. Joe is an adventurer at heart, but when it comes to investing, listen to Fortune tells readers:

“Joseph Rosenberg, who manages more than $1 billion for Loews Corp., believes so fervently in the awesome power of compounding that he carries a compound interest table in his pocket at all times…even to the peaks of Yosemite. His faith is simple and absolute.” Says Joe of the powers of compounding: “It is the most important thing in investing.”

About the same time I was enjoying Fortune’s neat picture of Joe sitting high atop a peak at Yosemite, I read an article on a young woman referred to by the Wall Street Journal as “the new Wall Street guru.” The Journal informed us that this young lady had enjoyed a single-day media coronation, “while some legendary investors [including Joe and the Tisch brothers, I might add] have built their records over decades.”

And how is the “new guru” doing? Not so well, I’m afraid. Her fund ranked dead last in its category in the 1988 period annualized by the Wall Street Journal. So much for new gurus.

Think about it. Do you want to become wealthy by following my policies of compound interest performance, or do you want to draw to an inside straight, pan for fool’s gold, or perhaps relive the financial equivalent of the gunfight at the OK Corral? As Joe Rosenberg told Fortune readers, “It’s foolish to undermine the power of compounding by taking big risks that could kick you out of the game.”

To harness the power of compounding you must be a shepherd, not a gunfighter.

As Wall Street tumbles, my concentration is on full faith and credit pledge U.S. treasuries. Reuters‘ Caroline Valetkevitch reports on the market:

The Nasdaq fell 3 percent on Monday as investors dumped Apple, internet and other technology shares.

Shares of Apple Inc fell after the Wall Street Journal reported the company had cut production orders in recent weeks for all three iPhone models launched in September.

The iPhone maker’s stock dropped 4.0 percent to $185.86 and is now down 19.9 percent from its Oct. 3 record closing high in the wake of a disappointing holiday quarter sales forecast.

Other market leaders – including the ‘FANG’ stocks – also fell sharply. Shares of Facebook were down 5.7 percent, Amazon.com was down 5.1 percent, Netflix fell 5.5 percent.

Read more here.

 

Most Americans are simply not saving enough. GOBankingRates released a survey this week showing that 42% of Americans will retire broke. Hopefully, that doesn’t include you, but even if you have been saving, it’s a good bet you could do more.

In July 2014, I explained to readers why they should boost savings.

Boost Your Savings

The strategy implication of a low-return environment is that savings must play a greater role in your investment plan. The stock and bond markets aren’t going to bail you out. To secure a prosperous financial future, today’s low-return environment demands that you boost your savings rate. And not just by a little, but by a lot.

Consider a hypothetical investor who we will call Joe. Joe is 50 years old and he plans to retire in 15 years. Joe has $1.2 million in retirement savings. He has an annual income of $150,000 and he thinks he can retire comfortably with $100,000 in income. Since Joe doesn’t plan to retire for another 15 years, we have to adjust his $100,000 income need for future inflation. Assuming a 3% inflation rate, Joe will need to take $155,000 in income when he retires.

Using my maximum advised 4% withdrawal rate, Joe shouldn’t retire until he has a $3.9 million portfolio ($155,000 is 4% of $3.9 million). Since Joe already has $1.2 million invested in a 50-50 mix of stocks and bonds, his savings goal is within reach. But only if he makes regular contributions to his portfolio. How much does he have to contribute to his portfolio to achieve his savings goal?

A lot more than he would if he could count on a 7% return. At a 7% return, Joe would be able to put away $2,000 per month, or about 16% of his income, and easily achieve his retirement savings goal. But at a 4% return, Joe will have to save about $84,000 per year to reach his $3.9 million target in 15 years—that’s more than half of his annual income.

The ugly reality of the Fed’s aggressive monetary policy is that many Americans are going to have to save more and work longer in order to retire comfortably. I am not suggesting that you boost your savings rate to 50% of your annual income, but I am suggesting that you reassess your retirement savings plan in light of today’s low prospective return environment.

The China Household Finance Survey run by Gan Li at Chengdu’s Southwestern University of Finance and Economics, recently found that one fifth–that’s 20%–of Chinese homes do not have occupants. Instead these homes are owned as investments in what could be one of the world’s most distorted markets ever.

Back in February of 2012, I wrote about China’s “ghost cities,” and the dangers of investing in a command economy. Government subsidies, capital controls, and excessive regulations distort the Chinese economy, making analysis of normal economic signals difficult.

With Chinese shares already down over 20% (in yuan terms) in 2018, and Trump administration tariffs threatening to take a bigger bite out of the Chinese economy in the future, I urge all investors to read my analysis on investing in China here.

China

I have long advised against direct investment in China. Among the many reasons I am bearish on China is the country’s vastly distorted economy. China is a command style economy run by an unelected political party—the Communist Party of China (CPC). The CPC’s policies have resulted in a grand misallocation of capital. A mercantilist currency policy, perverse incentives for provincial government officials, and crude monetary policy tools have helped inflate a fixed asset and real estate bubble that puts the U.S. real estate bubble to shame.

A Quality Problem

It should be obvious to most that things are not as they seem in China. China has reported GDP growth of 9% or more in every quarter over the last two years, but the Shanghai Composite Stock Index has plunged more than 30% during that time. If China’s economy were truly booming, Chinese shares would most likely be trending up. China suffers not from a quantity of economic growth problem, but a quality growth problem. China’s GDP statistics are being propped up by unproductive fixed asset investment. The real estate sector is the most obvious example. To prop up GDP growth rates the Chinese are building entire cities, but they are virtually empty. For more on these ghost cities, be sure to check out the China’s Empty Cities video at www.youngresearch.com. It is perplexing that the world has allowed a command style economy run by an unelected political party to become such an important player in the global economy. China is now the world’s second largest economy and America’s second-largest trading partner. If China heads into the tank, the world economy will suffer.

No Profit Motive

China doesn’t play by the same rules or have the same motives as the world’s other large economies. China has consistently manipulated its currency to gain export market share and it has subsidized favored industries through its financial system to the detriment of non-Chinese companies. Take the rare earths industry as an example. China now has an effective monopoly on rare earths production. Not because of the country’s low labor costs or a lack of reserves in other countries, but because Chinese rare earths companies were provided with subsidized loans. Rare earths companies ramped up production in the ’80s and ’90s and drove prices down to unprofitable levels. The Chinese government was more interested in maintaining stability through high employment then, as they are today. Low prices pushed rare earths producers in the U.S., Australia, and elsewhere out of business. With the support of subsidized loans, China’s rare earths companies were the only companies able to remain in business at such low prices. Now the U.S. relies on China (at least temporarily) for a supply of metals vital to the defense industry and other high-technology industries. Sound like a smart strategy to you?

Four years ago, I told readers the story of David L. Stone, the manager of Beacon Hill Fund. The point of my story then, as it is now, was to encourage investors like you to avoid speculation, and instead to be patient with your money. Use simple strategies you can stick to in good times and in bad. Here’s what I wrote then:

As I write to you, I am listening to 1960s “Soul Station” by Hank Mobley, Wynton Kelly, Paul Chambers, and Art Blakey. It is an excellent remastered LP edition of the original on a stereo system that includes a Denon quartz lock turntable from the mid-’80s, a real basic NAD receiver that must be 20 years old, and a set of more than 10-year-old EPOS desktop speakers. Strictly low tech. Nonetheless, the sound in my office is quite pleasing. And vinyl records and their associated LP dust jackets offer a listening experience that CDs could never capture. In the case of Soul Station, the cover design by Reid Miles and Francis Wolfe are part of the Blue Note legend. Downloading? No thanks.

Complexity Destroying Value

So I am enjoying a musical experience today that I duplicated decades ago. And the foundation of this enjoyment is simplicity. On the investment front, the same simplicity prevails today as it has for decades. Jack Bogle, Vanguard’s founder, wrote in the WSJ recently that “hyperactive trading strategies offer incomprehensible complexity that ultimately destroys value.”

A Decision to Do Nothing

Over two decades ago, I read a Forbes article that I have kept and often refer to investors. The article was about the manager of the tiny Beacon Hill Fund. “David L. Stone, the 70-year-old manager of the Beacon Hill Mutual Fund, arrives early at his Federal Street office in Boston every day. He reads the newspapers, opens his mail and waits for a call from State Street Bank, the fund’s custodian, with the previous day’s closing price and cash position. He scribbles those down. Than he reads some more. Then he packs his briefcase and leaves.” Talk about simplicity. Stone commented, “People ask me what I do all day. Well a decision to do nothing is still a decision. It takes effort, psychological effort mainly. People get itchy. They trade too much, enriching their brokers and the tax collector in the process.”

Allowing Interest & Dividends to Work

Most investors do not have the patience of David L. Stone, and it is a pity, as investors would be well ahead of the game by holding costs and transaction activity to the minimum while allowing interest and dividends to work for them through the mathematical miracle of compounding. In my own accounts, I have not recorded a sale this year, nor did I record a sale for investment reasons last year. Thus, I have not turned over one red cent, due to trading, to the profligate government in Washington.

Not a down year this century. Projected by Richard C. Young to advance again in 2018!

How does your retirement portfolio look?

• Do you actually have any idea what you are doing? Do you feel like you are over your head and investing with a crap-shoot mentality?
• Are you subsisting on outmoded, far-too-big mutual funds or, worse yet, those ghastly oversized index funds?
• Are you a total neophyte on bond investing and pretty much devoid of understanding the miracle of interest, patience, and compounding?

If your answer is yes to any of these questions, you may require a whole new battle plan to strengthen your investment strategy.

Since 1978 Young Research has developed strategies for conservatives like you.

My son Matt Young, CEO of our family investment counseling firm, writes our monthly client letter to level the playing field for concerned conservatives.

After four decades of writing my monthly subscription-based strategy reports, I have retired. Now, I concentrate 100% on international research that supports the efforts of Matt and his senior leadership team at our family investment counseling business. My research is a fundamental component of Matt’s monthly client letters.

If you like the feel of my Dynamic Maximizers and the scenario I have painted for you, why not stay in touch with Matt and me monthly. If you are not yet signed up, simply add your name to our inquiry register below.

My family looks forward to welcoming you and your family to a whole new world of compounding, consistency, and comfort.

Warm regards,

Dick

Retired or retiring not too far down the road?

You will be a winner if you are “the ultimate patient investor.”

To be a genius in the financial markets you need a steel-trap grip on the single concept that virtually guarantees long term financial security.

The strategy is based on Einstein’s miracle of compound interest.

Here, in a nutshell, is the story:

Young Research’s Dynamic Maximizers® (DMs) portfolio is a maximum safety portfolio ideal for retirement investors, IRAs, and education programs. The Dynamic Maximizers® portfolio model invests primarily in dividend and income paying securities. Past performance should never be considered predictive of the future. Despite the dotcom bust and the 2008/2009 financial collapse, the DMs, however, have yet to record a single down year this century.

Young Research’s annual target total return range for the Dynamic Maximizers Portfolio® is 3% to 10%. Given those returns, investors have been able to comfortably enjoy a 4% retirement draw without depleting principal.

Double your Money over 10 years

Over this century, the DMs have generated a 6.9% compounded annual return*. Compare that to a more speculative portfolio such as the NASDAQ which has generated less than half of the gains of the DMs over the same time period.

Using the rule of 72, at a 6.9% annual return, an investor can expect to double his money every ten and a half years. The rule of 72 states that you can estimate the number of years it takes to double your money by dividing 72 by an assumed rate of return.

If you like the feel of Young Research’s Dynamic Maximizers and the scenario outlined here for you, be sure to sign up for a complementary copy of Young Research’s Dynamic Maximizers Over the Century display by sending us your name and email address in the box below.

*Past performance is not a guarantee of future results.

On Wall Street, traders and speculators are closing their doors. The Wall Street Journal’s Rachael Levy recently reported:

Boston-based hedge fund Frontlight Capital LP is shutting after fewer than three years in operation, people familiar with the matter said.

Four other hedge funds earlier this month announced they were closing, as investors re-evaluate a once-highflying industry plagued by weak returns.

Through September of this year, Frontlight’s fund, Frontlight Enhanced Macro Master Fund I, LP, lost 4.17%, according to a document reviewed by The Wall Street Journal. The fund lost 5.6% last year. The firm managed about $280 million, the document said.

Such speculators have no use for the ONLY three components of investor success I care about, and you should care about too.

1. Cash flow
2. Compounding and
3. Patience

Over the long term (patience) always leads to capital appreciation. ALWAYS.

Follow the cash, and compounding and time will allow the power of cash to steadily and relentlessly pull capital appreciation forward.

Stick with cash flow always.

Trading, and speculating that there will be a greater fool available to sell your shares to in the future is what has driven these hedge funds out of business. Don’t make the same mistake, focus on my three components for success.