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March 12, 2019
Raymond F. Saleeby, Jr
President
Saleeby & Associates, Inc.
China’s Economic Challenges
Most major indexes have recovered from the December 2018 selloff. I believe two primary reasons for the
recovery are the Federal Reserves’ policy change and the significant progress in trade negotiations with China.
However, if a deal doesn’t develop shortly, it could have major consequences for the world economy and stock
market. The Chinese communist party remains in power largely because they provide strong economic growth
for their country. But they must maintain this growth, or it could lead to hostility and unrest. President Xi
Jinping needs to agree to a deal that satisfies President Trump but isn’t viewed by his country as giving too
much away or him being weak. If either one of these factors happen, President Jinping could be ousted.
Additionally, this trade negotiation comes at a time when
China’s economic numbers have been very weak. China’s
exports plunged 21% last month. “Economic growth in
the third quarter sank 6.5%, the slowest pace since the
depths of the global financial crisis in 2009.”1 Car buying
fell last year for the first time in more than two decades.
Even Apple iPhone sales to China were not so good.
Hence, President Trump is correct in saying they are
suffering from our trade tariffs.
What compounds trade issues with the U.S. is China’s large debt that continues to increase while questions
arise regarding their shadow bank lending. “Total debt relative to national output surged to 253% in mid-2018,
from only 140% a decade earlier, according to the Bank of National Settlement. No emerging economy since
the 1990s has had such an outsize debt expansion and escaped some sort of financial calamity.”1 However,
China has been able to grow its economy with excessive debt for a long time without a catastrophe. Thus, a
strong China is in everybody’s interest, but too strong or an aggressive China is not.
If a trade deal comes to fruition, I think it will be easy for China to dramatically increase trade with the U.S.
This will likely include purchasing significantly more agricultural products. However, the challenge will be for
China to change its way of doing business and reform its economy. One major problem resides in its state-run
enterprises trying to compete against other countries and companies. In my opinion, China’s top priority is
keeping its citizens employed, not economics. According to Matthew C. Klein, “Since the end of 2012, the
share of new credit extended to China’s state-owned enterprises has soared from about 50% to more than 80%.
China’s vibrant pockets of private innovation have been squeezed for political reasons.”2 Secondly, China
subsidizes many companies and industries by offering them competitive advantages over other companies and
countries. Third, they have unfair trade practices that make companies partner or transfer technologies to
China in order to do business. Because of this, technology theft, intellectual properties, and enhancement of
laws needs to be addressed. There are many other complex issues, but the latter part of these changes will take
longer to figure out and enforce. This is a lengthy process that will involve years before we truly see signs of a
working trade agreement. Consequently, I believe the world is waiting to see what trade agreement develops
between the U.S. and China and the repercussions.
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New York — Amazon Impact
An interesting note, “Chinese have topped the list of foreign
buyers of U.S. residential real estate for six consecutive years,
according to the National Association of Realtors. In the 12
months to the end of March, they snapped up more than $30
billion worth of American homes. Canadians purchased only a
third as much; Brits and Indians, a quarter each.”1
Just as tech is a big part of the China trade issue, it has also become an issue in U.S. wealth. In my last
newsletter, I discussed the issue of democratic candidates moving towards socialism to counter the wealth and
inequality in our country. In my opinion, we’ve experienced our first major casualty with Amazon deciding
not to put their headquarters in Queens, New York. The project was
supposed to create about 25,000 jobs for the area. Representative Alexandria
Ocasio-Cortez, along with other politicians, were instrumental on Amazon’s
decision. In my opinion, this is tragic for Queens and the New York region.
New York City has tried to wean itself off its reliance on the financial and
real estate sector. Both areas have flourished, and New York is benefiting
from the anxiety caused by Brexit. However, New York does not want to
become like Detroit, who was too reliant on the auto industry. The Amazon
headquarters would’ve helped diversify jobs in their economy. Secondly,
this happened at a time when many wealthy New Yorkers are choosing to
leave the state due to the new tax laws. New York authorities are going after
people who supposedly change their statehood from New York per the
article in the following link: https://www.cnbc.com/2019/03/08/tax-
collectors-chase-rich-new-yorkers-moving-to-low-tax-states.html 3 Furthermore, I believe this was short-term
thinking on the part of politicians to fight Amazon’s decision to locate their headquarters in Queens.
Unfortunately, we have seen this short-term thinking many times.
The Hudson Yard project received far more tax benefits and subsidies
than Amazon was offered. The project was responsible for developing
a part of New York that was unattractive. “But with far less public
attention, the city government has for more than a decade been
funneling even more aid to Hudson Yards, a 28-acre complex of
gleaming office buildings and luxury residential towers that is one of
the nation’s biggest real estate projects in recent years.”4 “The $25
billion neighborhood has 13 buildings, including a school and parks,
that will bring more than 55,00 employees to new offices there.”4
Many people don’t realize the benefits of having Amazon’s headquarters in Queens. For example, thousands
of tradesman’s jobs would’ve been needed to build the headquarters along with vendors and suppliers of
materials. There are other jobs and services beyond the estimated 25,000 Amazon jobs plus the prestige
associated with the world’s greatest online retailer being in Queens. Lastly, the supply chain supporting
Amazon would be relocated to the surrounding areas which means more companies and warehouses in the
area. Consequently, I think New York City would have benefited immensely from this project and I believe the
oppositions short-term thinking was wrong. As the old saying goes “You have to pay to play” and that’s what
New York was doing to compete with other cities for Amazon’s headquarters, but it looks like they blew it.
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Saleeby & Associates, Inc.
Importance of Immigration Policies
Canada’s immigration policy is luring more brain power for
the technology sector. According to Andrew Edgecliffe-
Johnson, a writer for the Financial Times paper, “Canada’s
largest city had created more tech jobs than San Francisco – or
any other US metropolis – in the preceding five years. Its
population of software developers, engineers and program-
mers grew by more than half between 2012 and 2017, accord-
ing to CBRE, the commercial real estate firm. The 82,100
technology jobs it added over that period made it North
America’s fastest-growing tech centre, CBRE calculated, to
the surprise of many south of the border.”6 “There is nothing
new about Canada being receptive to immigration: some 51
percent of Toronto’s residents were born in another country –
more than New York’s 40 percent. But the strategy has given
a new tech focus to Canada’s immigration policy: the most common professions among those admitted were
developers, computer analysts, university professors and software engineers.”6
Conclusion
In conclusion, this newsletter serves to inform and convey my thoughts and opinions based on what I have
read and learned for 37+ years. The purpose of my reading various periodicals is to find interesting companies
to place in my clients’ portfolios to give them a chance to make a possible return on their money while
minimizing risk. My experience plays a large role in both processes. If you would like to have more infor-
mation about a certain subject, industry or company, we can certainly send you information upon your request.
As always, you may not agree with my opinions or statements, but my hope is to at least inform and enlighten
you or share a different perspective. At Saleeby & Associates, we try to emulate one of the greatest money
managers of our time, Peter Lynch’s philosophy... “The person that turns over the most rocks wins the game.”5
It’s independent research and diligence that guides us in making informed decisions about your portfolio.
Lastly, I would like to thank our employees who provide white
glove service to our clients and help make this newsletter possible.
Optimistically Yours,
Raymond F. Saleeby
President
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Did You Know
32 science-backed ways to reduce your risk of developing cancer
https://www.businessinsider.com/how-to-reduce-your-risk-of-cancer-2019-2
How the Waltons – America’s wealthiest family and heirs to the Walmart empire – their lives
https://www.businessinsider.com/life-of-the-walton-family-behind-walmart-and-sams-club-2018-12
7 dangerous foods that could raise your risk of developing cancer
https://www.businessinsider.com/foods-that-contribute-to-cancer-2019-2
Bill Gates says a diet ‘breakthrough’ based on the microbes crawling in your gut could help the world’s
waistlines
https://www.businessinsider.com/bill-gates-diet-breakthrough-microbiome-2019-2
10 Must-Have Apps for Seniors
http://money.com/money/5482150/the-best-apps-for-older-adults-you-should-download-right-now/
Bill and Melinda Gates shined a spotlight on at-home DNA tests like 23andMe, calling them one of last
year’s biggest surprises
https://www.businessinsider.com/bill-melinda-gates-spotlight-dna-tests-23andme-surprises-letter-2019-2
Best B-Schools
https://www.bloomberg.com/business-schools/2018/
Bigger, Saltier, Heavier: Fast Food Since 1986 in 3 Simple Chartshttps://www.nytimes.com/2019/03/03/
business/fast-food-health-salt-calories-portions.html
Peek inside Michael Jordan’s houses, cars, and travels and see what $1.9 billion buys
https://www.businessinsider.com/how-michael-jordan-spends-his-money-2015-3
The 32 most dangerous jobs for your health
https://www.businessinsider.com/most-dangerous-jobs-for-your-health-2019-3
Water-Damage Claims Flood Home Insurers
(Requires subscription; copies provided upon request)
https://www.wsj.com/articles/american-homeowners-and-their-insurers-face-a-flooding-crisis-
from-within-11551960001
How we’ll invent the future, by Bill Gates/10 Breakthrough Technologies 2019
https://www.technologyreview.com/lists/technologies/2019
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Footnotes
1. Schuman, Michael. (17, Jan 2019) “Forget the Trade War, China is Already in Crisis”. Bloomberg. Retrieved from
https://www.bloomberg.com/news/articles/2019-01-17/forget-the-trade-war-china-is-already-in-crisis 11 March
2019
2. Klein, Matthew C. (28, Jan 2019) “China’s Slowdown Is Only Just Beginning”. Barron’s. Retrieved from https://
www.barrons.com/articles/chinas-slowdown-is-only-just-beginning-51548447250 11 March 2019
3. Frank, Robert. (8, March 2018) “Tax collectors chase rich New Yorkers to low-tax states. Auditors even inspect
your dog’s vet bills”. CNBC. Retrieved from https://www.cnbc.com/2019/03/08/tax-collectors-chase-rich-new-
yorkers-moving-to-low-tax-states.html
4. Haag, Matthew. (9, March 2019) “Amazon’s Tax Breaks and Incentives Were Big. Hudson Yards’ Are Bigger”. The
New York Times. Retrieved from https://www.nytimes.com/2019/03/09/nyregion/hudson-yards-new-york-tax-
breaks.html 11 March 2019
5. Lynch, Peter. Peter Lynch Quotes. Brainy Quotes. Retrieved from https://www.brainyquote.com/quotes/
peter_lynch_173397 11 March 2019
6. Edgecliffe-Johnson, Andrew. (27, Feb 2019) “The Canadian brain gain”. Financial Times. Retrieved from http://
digital.olivesoftware.com/Olive/ODN/FTUS/default.aspx?olv-cache-ver=20190206053905 11 March 2019
Disclaimer
• Past performance is not a guarantee of future results.
• While the information has been obtained from sources we believe to be reliable, Saleeby & Associates, Inc.,/Raymond Saleeby and/or Cutter &
Company does not guarantee its accuracy or completeness. Yields are annualized and also from sources we believe to be reliable.
• Securities and Investment Advisory Services offered through Cutter & Company, Inc.; 15415 Clayton Road, Ballwin, MO 63011 (636) 537-8770;
member FINRA, and SIPC
Saleeby & Associates, Inc.
Achieving your goals is our passion
11301 Olive Blvd.
Creve Coeur, MO 63141
Phone: 314-997-7486
Fax: 314-997-1417
E-mail: rsaleeby@cutterco.com
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