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CHINA IS DEAD. YOUR PORTFOLIO DOESN’T HAVE TO BE.

Charles Sizemore


Chief Investment Strategist, The Freeport Society


September 16, 2024

Hello, Fellow Navigator.

It seems that tinkering with the Social Security retirement age isn’t only an
American phenomenon. China just announced it would be raising its retirement age
as well. For men, it’s going from 60 to 63. For women in non-management roles,
it’s going from 50 to 55. And women in managerial roles will retire at 58. 

OK, I’ll start with the obvious questions: 

Chinese men were seriously retiring at 60? And women at 50!? 

I understand it wasn’t that long ago that the typical Chinese worker endured
grueling conditions in a sweatshop. In the early 1960s, the average life
expectancy in China was only about 50 years. So, it made sense to offer
retirement at 50 or 60. The average worker wasn’t going to live long enough to
cash the checks anyway.

But things change. 

Life expectancy in China today is about 78 years, which is comparable to the
U.S. and much of the developed world. Still, a guaranteed retirement of 20 to 30
years is just a tad too generous, even in a “workers’ paradise” like China!

That’s clearly not sustainable. And given China’s demographic outlook, the
government had to act. They don’t have a choice. Their workforce is dying. 

Literally. 

It’s a crisis with no real solution. But the collapse in China’s workforce
creates some fantastic opportunities for us.


A POPULATION IN DECLINE

China’s population began its decline in 2022. The most recent estimates from the
United Nations show the country’s population shrinking by 109 million by 2050.
To put that in perspective, that’s roughly the entire populations of Germany,
Belgium, and Sweden combined. 

Not only is the country shrinking. It’s aging. Already, about 21% of the
population is 60 or older. In about 10 years, fully a third will be at that
milestone. 

It’s hard to imagine even a wealthy country like Sweden being able to support a
third of its population in retirement. The Swedes have a generous social safety
net, but they’re not that generous. How’s that going to work for a middle-income
country like China?


WHY THIS MATTERS

We know how this happened: China’s infamous One-Child Policy, which was strictly
enforced between 1980 and 2016. 

But here’s why it matters… and why it ties into two of our core investment
themes at The Freeport Society.

China has been a major exporter of deflation for the last 40 years. It’s why
manufacturing in America and most of the developed world was “hollowed out.”
China was cheaper than the competition, and they exported those lower prices.
It’s a large part of why American inflation fell throughout the 1980s into the
2010s. 

Well, all of that is finished. China can’t export deflation anymore because its
cheap labor supply is long gone. Chinese workers are increasingly a scarce
commodity.

And this would be true even if trade with China were allowed to continue
unfettered… which it most assuredly isn’t.

In short, the trend of deglobalization is accelerating. 

At The Freeport Society, we’re believers in free trade and in the Thomas
Jefferson ideal of “peace, commerce, and honest friendship with all nations.”

Unfortunately, that ideal is dead.

The United States and China are decoupling. 

Most of this is political. As China has gotten wealthier and more assertive on
foreign policy, the U.S. moved its foreign policy focus to Chinese containment.
This is one of the few policies on which the Biden and Trump administrations
seemed to agree. Trade with China – particularly when it comes to cutting-edge
tech – is to be curtailed.

But even without the political tensions, deglobalization to some extent was
going to happen. 

The COVID-19 pandemic gave us a crash course on how dangerous it is to have a
complex, far-flung supply chain. It took years to untangle the supply chain
snarl from 2020. No American company can ever put themselves in that position
again. 

And given that China is no longer a bottomless pit of cheap labor, continuing to
manufacture there makes less sense by the day.

Of course, this creates massive opportunities for us. Deglobalization means a
massive rebuilding – to the tune of trillions of dollars – of America’s
industrial infrastructure, and we’ve been actively playing that trend in The
Freeport Investor. 

Back in December, we added both Caterpillar (CAT) and Quanta Services (PWR) to
our model portfolio. 

As a premier maker of heavy-duty construction vehicles and equipment,
Caterpillar is especially well positioned to benefit from the deglobalization
underway. Since 2000, its shares have risen by 1,100%. Under the current
circumstances, I expect that trend will only continue. 

We’ve only had Caterpillar in our model portfolio for nine months, and we’re
already sitting on open gains of 20%. 

As for Quanta Services, we’re showing open gains of 25%. The company builds
infrastructure solutions for the electric and gas utility, communications, and
pipeline and energy industries worldwide. Specifically, it builds smart grids
designed to maximize efficiency. That’s exactly what American manufacturers and
businesses will need to contain prices on locally produced goods.

Of course, those two stocks are only the tip of the iceberg. I see limitless
opportunity in this trend, and it’s a core investment theme of The Freeport
Investor.

As and when opportunities arise, I will email my Freeport Investor subscribers
with instructions to back up the truck and load up on more of these two gems.
And, of course, I’m always actively looking for new opportunities in this space.
As I find them, and once I’ve vetted them thoroughly, I will reveal the details,
with clear instructions of when to buy and what risk-management strategies to
put in place.

You can easily join us so you never miss an opportunity to grow your wealth as
deglobalization accelerates. Simply follow this link.

To life, liberty, and the pursuit of wealth,


WRITTEN BY CHARLES SIZEMORE

September 16, 2024
Learn more

Charles Lewis Sizemore is a market veteran of 20-plus years. He holds an MSc
Finance and Accounting from the London School of Economics and a BBA in Finance
from Texas Christian University in Fort Worth. He is a keen market observer,
economist, investment analyst, and prolific writer, dedicated to helping people
achieve financial freedom through smart investing.


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