An open letter to Chinese President Xi regarding the trade war and how it is helping the energy sector and dividend paying stocks from Eddy Elfenbein.
Recently I was contemplating the spill-over effects of the continuing trade war and got to thinking about crude oil. I figured it was time to send a (very) informal thank you letter to China’s President Xi. Here’s the initial draft.
Dear President Xi,
I wanted to drop you a real quick line to say, “Thank you!”
Look, I know you’re a very busy dude what with running the world’s most populous country and all. But I need to thank you. Why? Because you’ve helped give us prudent, income-oriented investors some very generous yields in our stock market. I’ll explain it all in a bit.
I have to say up front that I’m a big fan of China. I find the history and culture endlessly fascinating and an integral part of the world story.
But the current government of China, well… let’s just say I’m not such a fan.
Of course, your human rights record ain’t exactly good. Also, I think Communism is a bunch of nonsense. But I’m willing to look past all that, and in the name of world peace (and my portfolio), thank you!
For one, the Chinese economy is slowing down big time. This isn’t like a couple years ago when you were growing by leaps and bounds. That’s taken a toll on the world’s commodity markets.
Have you seen copper lately? Yikes! Or nickel? It ain’t pretty. A lot of that is due to slowing demand from China.
Crude oil is in the dumps as well and that’s brought down oil stocks right here in the good ole U.S of A. I’ll give you an example, the yield for Occidental Petroleum (OXY) is now over 7%; up from 6.4% a little over a month ago when I first bought it. And that’s not some fly-by-night stock. They just raised their dividend a few months ago.
President Xi, have you checked out interest rates? It’s crazy. Bond yields are plunging. Savers can’t catch a break. How is someone supposed to save for retirement at 1.5% per year?
I guess I don’t have to tell you since you own so many of our bonds. LOL! I promise. We’re good for it!
Any who, if you think rates are bad here, it’s far worse in Europe. The entire German yield curve is negative! There’s more than $15 trillion in bonds with negative yields. It’s funny, a bank in Denmark just launched the first mortgage with a negative yield.
Compare that to ExxonMobil (XOM), which now yields close to 5%.
I also have to thank you for ratcheting up the trade war tensions with the United States. On this point, I can’t blame you entirely although not buying our agricultural products was a bad move that just punishes a lot of poor people in your country.
Those tensions have helped drive people to load up on bonds in a major way and the strong U.S. dollar has put pressure on commodities. Even outside the world of commodities, some stock yields look pretty good.
Have you seen the yield on Johnson & Johnson (JNJ)? It’s up to 3%. Truth be told, you’re probably a lot better off owning JNJ than any of our Treasury debt.
Shares of JNJ have gotten knocked down. It’s not all your doing. The company got dinged hard in a lawsuit related to the opioid crisis. I won’t say if JNJ is right or wrong, but I will say that it’s very likely the company will move past this crisis just as it has many others. They’ll probably reach some deal with the Government.
Mind you, Johnson & Johnson isn’t just a blue chip. They really don’t come much bluer. JNJ has increased its dividend every year for 57 years! It’s like the Joe DiMaggio of stocks.
Thanks in part to your policies, high-dividend blue chips are pretty much the only game in town for U.S. investors. Especially for those of us looking for income.
We’re certainly not getting any help from the Federal Reserve. They’re looking to cut rates again soon. We’ll probably get another cut soon after that.
But for all your work helping us investors, thank you.
Love – Eddy
