April 2025 Newsletter

CHINA?

Of all the economic challenges our country faces China is by far our biggest. They have spent the last 30 years or more investing in manufacturing goods to export around the world, and wherever they found an opportunity monopolize trade and production of goods not easily sourced.

Our open political system has aided them in their efforts. Our huge trade deficit with China didn’t happen overnight and many of our largest companies have used China.

Chinese production was utilized to increase margins on products. So much so, that many domestic companies have become dependent on China for their own survival. Boards of many U.S. companies have increased profits by increased dependence on Chinese production.

China is not an open political or economic system. There are many ways to try and describe what they have. Dystopian society is often used; my favorite is Techo Totalitarianism. China gives you a political score basically monitoring what you spend your money on and where you work etc., they have so many cameras that they can track your movements with face recognition tech. The Chinese political system is nothing the world has ever seen. Technology has aided the communist party greatly in their efforts to control society.

The Chinese government controls all enterprise. You cannot open a business without the approval of local officials. Most larger enterprises depend on government funding. Nothing happens by accident. Often, Officials keep funding businesses even when they are losing money just to keep the jobs going. Bankruptcy in China is sometimes hard to do. Sooner or later history has proven that government money will run out. The irony is our trade deficit with them helps keep their economic balls in the air.

The Chinese educational system runs circles around ours; especially when it comes to math and science. They have spent the last 50 years making this happen. They are proud of what they call playing the long game politically. Behind closed doors, they view our free system as weak and vulnerable. A recent example of this is the trade deal that Trump made in his first term. The deal was promptly ignored when Biden took office.

The West, including Europe (maybe more than us), have set up production in China. A good example is VW cars. Over many years the Chinese have used their local production as a springboard to steal intellectual property and industrial know how. This has enabled the Chinese to gain an advantage in the production of Chinese products. Some VW’s are made in China but every year their production seems to decrease. GM is all but out of the Chinese domestic market. One big example of China’s industrial aggressiveness is wind turbines. They stole the technology, gave low interest loans and promoted an all-out effort to dominate wind turbine production over many years. They now account for almost 60% of the worldwide wind turbine production.

I love my I phone, it was made in China. It was a mistake by Apple to depend on Chinese production and parts to such a large extent. It was, however, such a good deal the Apple board of directors could not turn it down. It is estimated that Apple accounts for about 25% of cell phone sales worldwide and they also account for 80% of cell phone profits worldwide. Based on the bottom-line, Apple’s board and CEO did their job well.

There are many more examples of Chinese industrial might that was grown on the backs of western technology and know-how. It seems like this might be the moment in time when maybe the west is ready to rip the band aid off when it comes to doing business with the Chinese. To do this it will take much more political will than the western world has displayed in a very long time. It will take many years to reinvent manufacturing in the U.S. You can’t just start making stuff, and we gave up the tech and fired trained workers many years ago.

I am rooting for a smart and well thought out approach to ending much of Chinese industrial dominance. At some point our freedom and independence as a nation is at stake. Change is hard, and mad consumers and stockholders will march down to the poles and vote every 2 years. That fact is exactly why the Chinese long game is a threat not to take lightly.

General Intelligence (AGI) is where AI technology ultimately is headed. This type of AI is designed to think and act. It can learn, reason, and make decisions with many different contexts. OK, well we can all breathe a sigh of relief. AGI is not here and maybe decades in the making. My guess sooner than later exponential growth does not take long to cover everything.

Limited memory is the most common type of AI used today. Limited memory uses historical data to make predictions and classification tasks. Think about Chat GPT.

Theory of mind AI understands the needs emotions and thought processes of the entities it interacts with. Chat Bots are scary, and criminals are all over this tech.

Self-Aware AI would have its own conscious emotions and self-awareness. This could lead to its own desire and beliefs. This is a theoretical concept for now.

Reasoning AI would solve problems at a human level.

Clearly, we are way beyond the parlor trick stage of AI. It is real and will only invade our everyday lives more and more. Every facet of our economic wellbeing will be invaded with AI. There is a real reason that China and the U.S. are duking it out and pouring billions into efforts to get ahead on AI.

Just last month an open-source AI tech called Deep Seek rolled out onto the world stage. It is an open-source AI tech developed in China that much more efficiently (needs much less computer power) gets AI results. The good part is its open source, which puts developers on an even playing field. The prospect of less computers sent Nvidia’s value down over 1 trillion dollars in one day. This really should not be a surprise. Programmers have forever strived to write an economic code, this is a much more advanced example. As usual, the consensus is that the Chinese stole a lot of Chat GPT code and cobbled together some ideas of their own to create this efficient AI. The U.S. tried to ban China from getting the Nvidia chips needed for their endeavor. They figured out a way to get them, at least enough to get this tech started.  Heck, most of China’s brightest programmers were trained here, then headed home.

It is a big world out there, and any attempt to limit information is futile. We will have to win this fight the old fashioned way: with hard work and money. We must win or at least keep up. At the risk of sounding alarmist, our economic future depends on our ability to harness AI and its inevitable ability to make us more efficient at almost everything. Will it happen overnight, no. Will it happen faster than we think, yes.

One great example of how AI can and will change our lives is Self-Driving. Imagine a world where a blind or wheelchair bound person can get a ride on demand to the doctor’s or grocery. It is already happening, and this year may be the inflection point.

Google with its Waymo transport service in San Francisco, Los Angeles, and Phoenix will expand to Miami and Atlanta. Their tech relies on precise mapping and will operate within the geo fence the mapping provides. Their tech is also expensive. The latest version vans are estimated at over $100,000 each and that does not include the tech required in the back office to keep it going.

Tesla has stated that they will roll out their Robo Taxi in California and Texas before the end of this year. Their tech is not as expensive and does not depend on mapping, which means it will drive you anywhere. This is truly an AI miracle when it gets to the real world. The ultimate goal for all this is a future where it may be unlawful to drive yourself since the tech will be 10 times safer than we are on our own. As of now Tesla’s driving with FSD (full self-driving where drivers must still pay attention) have .31 accidents per 1 million miles of driving vs. humans 1.53 accidents per 1 million miles.Unless inflation really becomes a problem, I look for a good year for stock investors.

2025 MARKET RESULTS

4/14/25