Investing in Carriages When They Are Making Cars

Since we are thinking of long term issues with your investments, we thought that a little history lesson would be useful. At the beginning of the 20th century there were both horses and cars on the road. But, anyone who invested heavily in making carriages instead of “horseless” carriages lost their money. We believe that investors looking to the future need to consider which of today’s investments will be tomorrow’s carriages and which will be the cars. In this regard, a recent article published by Bloomberg is instructive.

Investing in a World with Big Problems Coming

Bloomberg writes that the world might have a Bigger Problem Than a Potential Recession. Their argument is that governments, markets, and investors across the globe are being shortsighted. They are focusing on next quarter’s or next year’s profits when there are factors in the works that could change the economy and investing forever. They discuss a recent OECD report.

The latest outlook and policy prescriptions from the Paris-based group mark a step beyond its repeated warnings about threats to growth from U.S.-China tensions, weak investment and trade flows. Those remain, but it also flags more systemic challenges from climate change, technology and the fact that the trade war is just part of a bigger shift in the global order.

For OECD Chief Economist Laurence Boone, the worry is that the world could continue to suffer in the decades to come if authorities offer short-term fiscal and monetary fixes as the only response.

They say that global growth will decline. But, the decline will be worse in some countries than others.

There are many issues that require basic, structural, changes and governments are focusing on short term stimulus measures such as the Trump tax cut. These measures generally make things worse in the long run and benefit only a few in the short term. We noted the fact that much of the tax cut benefit has gone into stock buybacks which have propped up stock prices but not helped anything over the long term.

Investing a World of Climate Change Chaos

The article touches on historic fires in Western Australia and Venice amid a heat wave in Europe that reached into the Arctic. They note that many of the effects of a warming world cannot be forecast but that we seem to be getting a taste of them already. The economic costs of fires California, Australia, and the normally-humid jungle of Colombia may be substantial. All of the resources that go into fighting fires, fixing flood damage, and dealing with other “natural” disasters takes away from funds needed for infrastructure and other necessary functions of government. Our concern is that Trump’s trade war is only the first retrenchment that will be seen across the globe.

Asia is signing a trade pact that was originally supported by the USA. In all likelihood, this pact will help Asian economies to the detriment of the countries in the West who have excluded themselves (USA).

Safe Investments in an Uncertain World

If you buy the argument that changes are in store and they will hurt your investments, what do you do? Our first thought is that trade will shrink as countries adopt protective measures. That means you need to look locally for companies that are not dependent on foreign sales. These are the same sorts of investments that would be appropriate for a permanent trade war. In addition, if market become more volatile, the sorts of investments we mention in our article about investing without losing any money would be appropriate. No matter how all of this works out, the best stocks to invest in will change as conditions warrant.

Investments That Have Nothing to Do with China

CNBC was thinking along the same lines when they suggest that you should own stocks that have nothing to do with China. Three suggestions that they offer include Sherwin-Williams, Waste Connections, and Zoetis.

These picks make up an odd trio of companies in waste management, home construction, and animal health, but the strategy connecting them is: “You can own all sorts of names that are not related to the China deal that are still growing earnings 10 percent.”

The common factor with these investment options is that they all do business within the USA, are not dependent on materials or products imported from China or sales in foreign markets.

And, these stocks have other attractive features. For example, Sherwin-Williams barely noticed when the financial crisis occurred and the market crashed. And, its stock price has gone up from the $50 range to the $550 range since that time! Waste Connections is another stock that barely flinched during the 2008 market crash and has gone up from being a $13 stock in those days to a $90 stock today. Zoetis has only been listed for six years but has gone up from $33 a share to $120 a share during that time. And, it does not jump up and down with every innuendo in the trade war.

Investments That Will Detach Themselves from China

In our article about investing during a protracted trade war we noted that that the ABC (anywhere but China) movement is taking hold. As this advances, we will see more and more companies that are not dependent on China for their supply chains including raw materials and for their markets. This will add to your list of investments that have nothing to do with China but do have access to international markets.

Investments for the Coming Recession

We start off with an article from The Motley Fool about stocks to buy during a market downturn. They suggest Berkshire Hathaway and CME Group. CME gets their nod because trading volume in futures and options always goes up during a bear market. This is not a bad idea for the short term. They pick Berkshire Hathaway because of Warren Buffett’s ability to find bargains in bear markets and then watch those investments recover and grow over the decades.

One of the many great things about Berkshire Hathaway (NYSE:BRK-A) (NYSE:BRK-B) is that it tends to create tremendous value for its shareholders during periods of market distress. The mega-conglomerate is led by Warren Buffett, one of the most successful investors of all time.

Buffett excels at identifying mispriced assets, such as businesses that have temporarily fallen out of favor with investors. During bull markets, these opportunities are few and far between, but during bear markets, these profit opportunities are abundant. This is when Buffett is at his best.

We recently wrote about Buffett’s growing cash hoard as a silent warning for investors about the scarcity of good investment opportunities in today’s markets. But the truth of the matter is that Berkshire Hathaway will not stay out of stocks forever. Their favorite time to buy is when prices are depressed due to panic selling while long term growth prospects are good.

What Are Your Investments for the Coming Recession?

You do not have to be Warren Buffet to use intrinsic stock value as a guide to investing as he does. And, you do not have to buy stock in his company to follow the same approach. When choosing your investments for the coming recession, you can follow his approach which includes the following:

• Only invest in companies whose businesses you understand
• Don’t be disappointed if you end up throwing out 95% of the stocks you investigate
• Identify stocks that will have good cash flow going forward
• Identify a price at which buying those stocks will be profitable for the long term
• Pay attention as the market panics and many good stocks see their prices slashed
• Accumulate a pile of cash and be ready to buy when the time is right

And, if you think that wise investing during the coming recession will make Berkshire Hathaway more valuable, you might consider including them in your list of possible purchases. CME Group sounds like a good idea for the short term if you buy the argument that The Motley Fool makes. Utilities are usually a good bet when the economy weakens, but you need to get in before the market falls and not afterward.

We wrote recently about Disney as buy and hold investment. They have a business that is likely to grow over the years and will be rather recession-proof. The problem, in that case, is that the Disney stock price might not fall far enough to make it a wise purchase in your list of investments for the coming recession.

The best approach is to start with businesses that you understand and develop a short list of ones that have great long term prospects and whose stock prices will probably take a hit during a recession. Then start putting cash aside and wait for the inevitable.

Will There Be a Trade War Peace Dividend?

Bloomberg notes that a potential trade thaw sent stocks up.

Signs of progress in U.S.-China trade talks sent stocks to the biggest gain in a week and had Wall Street handicappers making odds on a bigger rally to come.

The S&P 500 Index climbed to within 1.8% of a record after President Donald Trump said the two sides agreed to the outlines of a deal that could be signed as early as next month. The equity benchmark rose 1.1% Friday, closing off its session highs since several of the thorniest trade problems remain unresolved. Equities also got a boost from signs of progress in Brexit negotiations.

At JPMorgan Chase & Co., strategists led by John Normand estimated there is 10% upside or more in the stock market under a “blue sky” scenario where agreements are reached in both cases, based on the way past geopolitical crises played out.

Is There Likely to Be a Trade Thaw?

We have been writing about this issue ever since Trump started the trade wars with China and everyone else. And, we have noted that the issues go a lot deeper than the balance of trade. The USA does not want to lose global technological and economic leadership and China wants to displace the USA at the top. A core issue is the intent of the Chinese Communist Party to stay in control and direct the economy instead of letting a true market-driven economy develop. The demands of Chinese companies for technology transfers as the price of access to their markets are a key issue.

To the extent that a partial trade deal addresses these key issues, it is possible that a trade thaw will happen. Trump needs some sort of deal going into the 2020 election. And, the deal will need to benefit his supporters! The Chinese are watching their economy slow down and trade suffer. They need help before they replicate the collapse of the Japanese economic miracle of the 1980s.

How Will a Trade Thaw Help Your Investments?

Investors do not like uncertainty. When Iran hijacks tankers in the Persian Gulf, Great Britain does not manage a clean break with the EU; and China is in a trade war with its biggest customer, nobody is happy. The prospect of a trade war truce sends stocks like Apple upward. Apple sells millions of iPhones to the Chinese. Boeing should prosper as well as this growing market is not shut off to them.

Looking into the future, more important aspects of a trade war deal emerge. If more foreign investment in China is allowed, forced technology transfers go away, and China buys more from the USA, all of these will drive investments and send stock prices up. However, we will need to see the details of any deal before it will be clear what investment opportunities will arise.

Will Trump Delist Chinese Stocks?

Reuters reported the possibility of delisting and the fact that U.S. investors have billions at risk in Chinese stocks.

U.S. fund managers, especially, are heavily invested in Chinese stocks, which is what worries the folks at Reuters. But regular investors may hold ADR shares of Alibaba or JD.com. Will these companies end up listing on other exchanges and will U.S. investors follow them? The suggestion of delisting may be just a game of “chicken” as part of the trade war.

Risks of Investing in China

But, other risks are real. China’s economy is slowing down and the Chinese Communist Party is not taking the steps needed to liberalize, give up central control, and move away from its export-dominated model. Their level of debt is high and is growing rapidly. The collapse of the 1980s Japanese economic miracle comes to mind. There is evidence that Chinese policymakers are studying what happened when Japanese debt situation made their economy implode and go into thirty years of stagnation.

If China ceases to grow at its former pace or has an economic hard landing, which stocks in China will be hurt and how should you adjust your investments in that market? Alibaba may have had the benefit of a lot of hype when it got started but it seems to be well-diversified and active in the growing internet-sales niche. This may be your safest bet if you stay with a Chinese stock. But, what happens to your ADR shares if delisting occurs?

What Is Really Happening in China and How Does It Affect Your Investments?

For years the baseline concern about investing in China has been the concern that economic numbers have been fudged and that the government publishes data that it wants investors to see and not data that could help investors direct their investing. That will probably not change in the near future.

For the time being, the threat to “delist” is probably just a threat. But, if the trade war really does become permanent, you can expect to see delisting of Chinese stocks and a lot more. But, at that point, you will invest a greater portion of your portfolio in US stocks, as will Chinese investors who have pulled their assets out of China.

Will There Be a Recession Starting in 2020?

The trade dispute with China has gone from being a protracted trade war to likely being a permanent trade war. The Trump tax cut was a bust for investment and hiring. And, on top of that, the national debt is soaring even higher as the promised economic benefits of more jobs, more income, and more taxes have not come to pass! But, analysis may be wrong and, maybe, we can just close our eyes and hope for the best. Right? Wrong!

The New York Times has a good article that looks at how the recession of 2020 could happen.

The chances that the nation will fall into recession have increased sharply in the last two weeks.That is the unmistakable message that global investors in the bond market are sending. Longer-term interest rates have plunged since the end of July – a shift that historically tends to predict slower growth, interest rate cuts from the Federal Reserve, and a heightened risk that the economy slips into outright contraction.

They refer to the chances of a “self-inflicted” recession with these causes:

• Business uncertainty tied to how Trump is playing the trade war game
• Softening of business spending as the tax cut windfall is wearing off
• Central banks across the globe with limited ability to respond to a financial crisis
• Populist turning inward in many major economies

An interesting observation they make is that previous recessions have followed the collapse of incorrect and irrational beliefs:

• 2001- The internet would lead to perpetual growth with a new kind of stock market.
• 2007- The housing market would never collapse in all parts of the country at once.

To their observations we add the 1929 crash which was preceded by the belief that a brand new world of wealth was in store and that one only needed to “play the market” to become rich. (For more on this topic take a look at our article about intrinsic stock value.)

Another is the lack of leadership that led the United Kingdom into the Brexit mess.

And, we add the ambitions of the Chinese Communist Party in believing that the rest of the world would passively stand by while they targeted all of the high-tech sectors for dominance over the coming decades. Their apparent short-sightedness is based on the desire of a small group of oligarchs to maintain their authority, power, and personal wealth above all.

Lastly, we believe that Donald Trump may be an effective rabble-rouser and outright demagogue who can get votes, command the attention of the media, and perhaps even get re-elected. But, we also believe that he simply does not have the horsepower for this job. The most effective ways to maintain peace and prosperity in the post-WWII era have been with coalition building, confidence building, and maintaining the strong historical alliances that were so painstakingly built in the aftermath of the last World War. Trump’s willful destruction of our alliances may, in the end, be that which causes the most damage.

What Does Money Say about a 2020 Recession?

Pundits can write what they want but, to our way of thinking, the best evidence is in what people are doing with their money. And, that is where an inverted yield curve and decreased corporate investing and putting money into stock buybacks are the canaries in the coal mine that have stopped singing and are warning us to get out now.

How Do You Get Ready for the 2020 Recession?

With the trade war being a major issue in a coming recession, many investors will look for stocks that are not affected by problems with China or elsewhere. As interest rates go down, utility stocks go up in value as their dividends do not necessarily fall with interest rates. A while back we wrote about how to invest without losing any money. This article focused on a buy and hold strategy for Treasuries, AAA and AA bonds, ladders of CDs at your bank. This is likely what many investors are doing now as they lock in today’s rates before the Fed is forced to cut rates again to fight the 2020 recession. The last part of that formula was to look for stocks that will weather the storm, will become bargains as the market crashes, and will turn into excellent long term investments. That may be the best strategy for getting ready for the 2020 recession. If you want to look for an example of someone getting ready to buy value investments when the market falls, look at our article about the silent warning for investors in which we note that Warren Buffett is accumulating an impressive hoard of cash. Many believe that he simply does not need any stocks that meet his criteria for value and price. We believe that he is also getting ready for the next recession and market correction or crash.

Investing in the Trade War That Was Not Resolved

Just a year ago, in a fit of optimism, we looked at what happens to your investments when the trade war is resolved. At that point we predicted a surge in the stock market and all sorts of success for companies that were being threatened by the trade war. Our rationale, at that time, was to look for stocks that would capitalize on reduced trade tensions and, perhaps, better investment opportunities in places like China. Of course, none of that has happened as China, and the USA, have dug in for a long struggle for global dominance.

Reasons for the Protracted Trade War

Last September we seem to have come to our senses and started to consider what happens to your investments if the trade war becomes permanent. We worried about US multinationals that would suffer more from a slower global economy that from a trade war with China. And, we suggested that companies like utilities, which are purely domestic, would be safe havens. However, the larger part of that article was devoted to looking the why the USA and China are having a trade war, the effects of trends like automation on employment, social unrest, and global politics. Anyone who wants to understand what is going on and how the trade war will very likely be a permanent fixture, should look at our comments about the rise and decline of US economic power and the rise of China. As we noted at that time, a major factor is the grip that the Chinese Communist Party has on power in China and its desire to hold onto that power no matter what.

We also looked briefly at social unrest in the West due to automation and other factors and how that is giving voice to demagogues with the potential for social, political, and military disasters!

The bottom line, as we saw it, was that the trade war would be very protracted until at long last the USA and China would come to some sort of mutually unsatisfactory agreement. We are no longer so sure about that.

Tangible Trade War Damage

Still last year, we looked at the trade war’s effect on investment in US agriculture. The loss of China as a market for US soybeans has undercut investments in places like South Dakota where farmers and investor poured money into storage and shipping facilities to sell soybeans to China. Many farmers and businesses will never recover. And, despite China’s assurances that they will buy soybeans again, they are still using it as a bargaining chip to allow them to keep stealing technology from the US or extracting technological secrets as a price for doing business there.

Winning the Trade War and Losing on Investments

Last February we speculated that a trade war “win” would be combined with reduced global trade, a lower trade deficit, and losses in the stock market. This though came from an article in Market Watch which in turn cited economic figures. Thus we could win the trade war and lose on our investments. Because the major concern of the government in this is long term competition with China for economic, technological, and military dominance, this may be a price that the USA will be willing to pay.

Will We Have Protracted Trade War or a Permanent Trade War?

In June we had come to believe that trade war would be very long term. In this view of a protracted trade war, we considered how trade between the USA and China and China versus the rest of the world could be reshuffled and where to invest and what investments to avoid. In this world, issues arise such as China being a major processor of the so-called rare earth minerals use in high tech devices and the reapportioning of global outsourcing to a ABC (anywhere but China) approach. As we noted, these are long term investment approaches and are reminiscent of dealing Russia and the entire Communist block for decades during the Cold War. As with the Cold War, the issue is not specifically a trade war but rather trade warfare for global economic, military, technological, political, and social dominance on the planet for centuries to come.

How Will the Trade War Affect Investments?

To the extent that you are invested in China, you may need to worry about the companies that will be sanctioned or cut off from high tech American products. The New York Times writes that the USA blacklists more Chinese tech companies over security concerns.

The Trump administration added five Chinese entities to a United States blacklist on Friday, further restricting China’s access to American technology and stoking already high tensions before a planned meeting between President Trump and President Xi Jinping of China in Japan next week.

The Commerce Department announced that it would add four Chinese companies and one Chinese institute to an “entity list,” saying they posed risks to American national security or foreign policy interests. The move essentially bars them from buying American technology and components without a waiver from the United States government, which could all but cripple them because of their reliance on American chips and other technology to make advanced electronics.

The entities are one of China’s leading supercomputer makers, Sugon; three subsidiaries set up to design microchips, Higon, Chengdu Haiguang Integrated Circuit and Chengdu Haiguang Microelectronics Technology; and the Wuxi Jiangnan Institute of Computing Technology.

US policy makers have worried for years about China moving past the mass production of products to becoming dominant in ultra high tech. This is seen as a concern for US national security seems to have been the red line that China crosses when it set its sights on dominating supercomputing, artificial intelligence, and other ultra high tech areas.

For investing during a protracted trade way you will need to look at who loses markets and sales because of these restrictions. US chip makers are still at the forefront of manufacturing the highest quality of the fastest and most powerful chips. To the extent that they lose their markets, it will hurt anyone invested in these companies. To the extent that you are invested in a company like Huawei which seeks to dominate the newest and highest tech levels of telecommunications, you need to be concerned about the US and perhaps the Europeans banning their products and technology outright and continuing to do so for years. Then, a smart investor will look around to see who else is working in these echelons of high tech to see where to invest next.

The Trade War and Investment in Raw Materials for High Tech

We recently wrote about investing in non-Chinese rare earth producers. As we noted, the rare earth minerals that go into computer chips and other high tech products are not really rare. But they don’t exist in concentrated amounts that make mining economically feasible in most areas. China has invested in mining these minerals because it can do so cheaper than companies working in the West. And, they are doing it to control the market. To the extent that mining rare earth minerals outside of China because a defined national security concern, look to see government subsidies and support for these types of operations and more profits for investors.

Investing and Manufacturing Anywhere But China

There is a belief now that ABC is the best place for supply chains. “ABC” means anywhere but China. However, much of the manufacturing in Asian nations outside of China is taking place by Chinese companies setting up shop in places like Vietnam. Beware of investments in these countries if the USA starts looking closer at who owns a company, where the profits are going, and how much control the Chinese government is still exerting. To the extent that manufacturing is taking place in countries like Mexico, and the Trump administration is not applying punitive tariffs, these might be safer investments.

As you will note, we have not made any specific investment recommendations, which we rarely do. But, we hope this article has provided “food for thought” as the trade war goes forward and even lasts for another generation or two. We suggest that you read an article in the South Morning China Post about prolonged tensions with the US. A better way to view this subject is perhaps not to think in terms of trade but to look at who wants to dominate the planet for centuries to come and how much suffering they will inflict on their own people in order to achieve that goal.

Rare-earth miners toil in obscurity, operating a fancy-sounding but grungy business. They have hit pay dirt on the stock markets late this month, with it looking increasingly likely that China will restrict U.S. supply of the minerals they produce.

The Global Times, a mouthpiece for the Communist Party on foreign affairs, has run an article stating that it’s only a matter of time before China will “weaponize” its rare-earth exports in the trade war.
The shares of the listed miners operating in this space have surged. The CSI Rare Earth Industry Index (index code 930598) tracks 50 of these stocks, companies that mine, extract, process, trade or apply the minerals. The index is up 45.4% so far this year.

Real Money goes on to state this.

There are 17 rare-earth elements, metals used to make magnets for electric cars, earphones and computer hard drives. China accounts for 90% of global production and 80% of worldwide export shipments.

They go on to talk about a Chinese rare earth producer whose stock trades on the Hong Kong Exchange. We don’t think that Chinese producers will be a good investment choice in this situation because they stand to lose if 1) they cannot export to the U.S.A. and 2) if more and more companies follow the ABC (anywhere but China) course for outsourcing their manufacturing. We think that investing in non-Chinese rare earth producers may be a better idea in case Chinese exports get cut off. And, if the trade war becomes even uglier, we may see countries like the U.S.A. find ways to subsidize rare earth producers through tax incentives and more.

Investing in Rare Earth Mining Operations

There are rare earth mining operations scattered across the globe. Here are the companies in the U.S.A, Australia, and Canada that mine rare earth elements and produce rare earth metals.

Rare Earth Producers in the U.S.A.

The one active rare earth mining operation in the U.S.A. is Alkane Resources Limited. (Mining Feeds Rare Earth U.S.A.)

This company has been a penny stock for the last twenty years with the exception of 2011 and 2012 when it “surged” as high as $2.52 a share before falling back. Its mining operation was shut down for a while about a year ago but is open and producing again.

Rare Earth Producers in Australia

Australia has seventeen companies that do rare earth mining as part of their operations. (Mining Feeds Rare Earth Australia)

The list of Australian stocks is a better place to look for investing in non-Chinese rare earth producers because it includes mature and strong mining operations that are not totally dependent on profitable rare earth extraction and processing for their survival.

Rare Earth Producers in Canada

There are seventeen Canadian mining companies that extract and process rare earth elements as part of their operations. (Mining Feeds Rare Earth Canada)

As with the Australian companies, investing in non-Chinese rare earth producers will work better with Canadian companies that are large, have been in business for years, and have operations in numerous countries extracting numerous metals.

Rare Earth Elements Are Not Really Rare

Rare earth elements are not rare. They simply don’t occur in the kinds of concentrations seen for copper, gold, silver, and other minable metals. This makes them more expensive to mine because a lot more ore needs to be extracted and processed than with other metals.

For more insight into Australian rare earth elements and rare earth production, you can look at information about rare earths published by the Government of South Australia.

Rare earths were named by Johann Gadolin in 1974 for a group of chemically similar, metallic elements with atomic numbers 57 through to 71.

In order, these are lanthanum (La), cerium (Ce), praseodymium (Pr), neodymium (Nd), promethium (Pm), samarium (Sm), europium (Eu), gadolinium (Gd), terbium (Tb), dysprosium (Dy), holmium (Ho), erbium (Er), thulium (Tm), ytterbium (Yb) and lutetium (Lu).

These elements are commonly known as the lanthanide series and are divided into light rare earths (lanthanum–gadolinium) and heavy rare earths (terbium–lutetium). Scandium (Sc, atomic number 21), yttrium (Y, atomic number 39) and thorium (Th, atomic number 90) are also generally included in the rare earth group because of their similar chemical properties.

The rare earths were originally thought to be rare in crustal abundance but this is now recognised not to be the case and they have a similar crustal abundance to elements such as nickel, copper, silver, lead and tin. However, mineable concentrations are less common than for most other ores.

And, the lack of easily minable concentrations is what has hindered mining operations outside of China. China still has a lower wage scale than countries like Australia, Canada, or the U.S.A. And, the government heavily subsidizes these operations in various ways, not all of them plainly visible from outside the country.

Investing in Non-Chinese Rare Earth Producers

Our considered belief is that threats of cutting off rare earth exports by China will at least temporarily drive up stock prices and make investing in non-Chinese rare earth producers more profitable. Over the longer term, governments in countries like the U.S.A., Australia, and Canada will be able to mine these elements because they are common and can be extracted from things like coal deposits. Higher prices will make these operations more profitable and to the extent that their production is seen as critical to national economies and national defense, governments will find ways to subsidize such operations to ensure their long term survival and success.

Investments in China

For the average investor, the best ways to invest in China are through a mutual fund or other stock fund that holds Chinese assets or by purchasing ADRs. You don’t need to speak Mandarin or deal with a foreign stock market and can let someone with the time and expertise pick the individual stocks. But, if you want to pick and choose the right individual stocks, you can buy ADRs of large Chinese companies who provide financial reports on a par with what US companies provide when they are listed on the US stock exchanges. In regard to our concern about safe investments in China, here is where our focus is. Investor Place looks at 3 Chinese stocks which they say you should buy and hold. Their article not only offers three stocks that may be safe investments with high returns over the years and therefore safe investments for retirement. They also give us some insight into the current state of the Chinese economy what the future holds for investing in China.

To say that Chinese stocks have been a roller coaster over the last year would be an understatement. Already, China has seen slower growth as it shifted from being a solely manufacturing-based economy to one based on services/consumerism. But with the trade war, Chinese stocks have been hit even harder, only to bounce back as a deal with the United States seemed to be within grasp.

Then, President Trump tweeted. With no deal in sight, tariffs rising and even lower growth on the horizon, Chinese stocks have continued to sink over the last week or so.

But this could be an interesting opportunity for long-term investors. China continues to dominate on the world stage and is arguably one of the most important economies. And while a deal may not be in sight today, there’s a good chance that one will be ironed out eventually. Meanwhile, with its huge and growing consumer base, domestic growth continues despite various trade pressures. In the end, Chinese stocks could be a wonderful long-term play. And the recent hiccups have provided a “reset” in valuations ripe for the picking.

At this point, we are looking for safe investments in China and investments with high return. As China’s foreign sales level off or are rolled back due to trade war and cybersecurity issues, they have a huge internal market to develop and that may well be where to invest in China. And, in that regard, the first Investor Place choice fits right in.

Investing in Alibaba

Alibaba is generally thought of as the Chinese Amazon.com. They serve as a marketplace for selling products online but do not hold any inventory. As such, they may be more similar to eBay. Either way, Alibaba is a huge and growing company in the huge and expanding Chinese market. And, like Google, Alibaba is not resting on its laurels but reinvesting its profits in a variety of other businesses such as social media, cloud computing, mobile devices, and peer-to-peer lending.

In our article, Is There a Safe Fifty-year Investment, we noted that companies like AT&T, General Motors, Coca Cola, Kodak, and others were uniquely positioned to provide products and services to the growing US economy over much of the twentieth century. Their level of success and even dominance did not last forever, but it lasted for a long, long time. This is a good way to look at Alibaba. They are positioned very well in a very large and growing market. Their wide range of virtually recession-resistant products and services protects them again be totally devastated by a prolonged or permanent trade war.

Are there safe investments in China today? Yes, and Alibaba seems to be one.

Investing in Baidu

Baidu is often referred to as the Chinese Google. They control 80% of internet searches in China. Like Google, they make billions of dollars a year on selling ads. And, like Alphabet, Google’s parent company, Baidu has diversified into other tech areas such as autonomous vehicles, artificial intelligence, and video with its iQiyi subsidiary. Baidu’s growth is based on still-expanding use of the internet in China and not on exports to saturated and increasingly trade-protected North American and European markets.

Are there safe investments in China? Baidu is one and will likely be for a long time.

Investing in Ctrip.com

This is not a big company but rather a normal company that is well-positioned in a growing niche market. They run accommodation and travel booking sites. Airlines, hotels, cruises, and others use Ctrip.com to list their unsold services. This is an extremely low-overhead business in a growing market. As China shifts to a consumer-driven economy and focuses more on internal growth, this company has the potential to keep expanding the Chinese travel more and more. The risk of investing long term in these folks, like the rest, is that this is a business that competitors can mimic and take market share.

Safe Investments for Beginners in Chinese Stocks

Beginners at investing should typically stick with investments that they know and investment vehicles that protect them against undue risk. In regard to risks of investing in China, ADR’s of companies doing business solely in China, like Alibaba, Baidu, and Ctrip.com are a good idea. At this point, we prefer the few stocks mentioned because of their Chinese consumer focus. Our concern about Chinese tech companies and exporters is that the trade war with the US is not going to end soon and may spread to involve other nations. China has grown fast and is getting to a point where it wants to display regional and global dominance. This will meet resistance across the globe and make much of China’s export-driven growth slow even more.

Chinese Debt and Investment Safety in China

Much has been made of China’s increasing debt at a time when their economy is cooling off. Comparisons to Japan thirty years ago are appropriate and China seems to be concerned about following the same path into economic stagnation. There has been money flowing out of China for years is wealth investors there have been hedging their bets. Chinese banks and exporters in heavy industry are at substantial risk of a hard landing due to a debt collapse and loss of external markets. However, China has $3.25 trillion dollars in cash reserves which will provide a cushion if needed. It should be noted, however, that they had nearly $4 trillion in reserves just four years ago.

To sum up, there are safe investments in China, safe investments for seniors and safe investments for beginners. The first trick will be to invest in companies you can track. This means investing via ADRs. And, the second is to pick companies with a strong consumer focus in the still-expanding Chinese economy.