More Conference Notes

In recent posts I’ve called out takeaways from conferences I’ve attended in the past month or so. Here are a couple more and, in the interest of brevity, we’ll look at the last few next week.

On Investing in China –

Andy Rothman is a strategist at Matthews Asia, a mutual fund company based in SF and known for specializing in financial markets of the Pacific Rim. Andy has been working in and on China for decades and talked about attending the first pop concert in the country by a western band, Wham!, in 1985 while stationed in Beijing with the State Department. His experience in the country is long and varied and gives him a unique perspective. Similar to Liz Ann Sonders of Schwab, Andy is someone to make time to pay attention to.

The title of his talk was “Xi Returns to Pragmatism”, a perplexing topic in the context of post-trade war, post-Covid, and post-positive working relationship with the US. Andy spoke highly of China and its people, emphasizing that as with here at home, much of the fiery rhetoric happens within the political class and state-run media, and isn’t necessarily reflected in the daily lives of typical Chinese people.

Andy spoke of how our economies are still highly (and positively) interconnected and how, according to his understanding through interviews with business owners and even higher-ups in the Chinese military, the government has no intentions of overtaking the US as a leading world power but wants to own its neighborhood. And it wants to have a greater voice in world affairs because, essentially, there’s more money in it. Pragmatism rules the day with President Xi, according to Andy Rothman, and not political ideology. And since Xi seems to have real staying power, his pragmatism should matter longer-term to the rest of us.

Andy made the point that, for long-term investors, China presents a huge opportunity. The country’s markets are underpriced after recent declines, but he talked about risks and suggested that much of the financial data coming from China is untrustworthy. Andy emphasized sticking with larger companies and said that stock picking with boots-on-the-ground research is key in sniffing out good opportunities. Obviously this can mean buying a Matthews fund or, perhaps also or instead, an emerging markets index fund to broaden your exposure. The biggest options in this space probably have nearly half of fund assets invested in China and Taiwan, so are simple and cheap ways to access Chinese markets.

All in, this was a different perspective regarding China than we hear in the news and that’s good. Real risks remain for investors and from a geopolitical perspective, but reality might contradict the mainstream narrative at least somewhat.

CA’s Energy Policy –

Severin Borenstein is a professor and economist at UC Berkeley and an acknowledged expert on CA’s energy infrastructure and policies. He sits on the board of the CA Independent Systems Operator, for example, and was an advisor to the Bay Area Air Quality Management District. You may wonder what a speaker like this is doing at a financial planning conference and so did I. That’s why I attended the talk. It was labeled an “Ask me anything…” sort of discussion, with few slides but a lot of good baseline information about the reality of the state’s energy priorities.

Borenstein painted a rather bleak (at times) picture of a state committed to decarbonizing its economy while suffering through household energy prices that are the highest in the country. The “leading edge and bleeding edge of technology”, he said. Gasoline prices are high but still too low compared to the societal costs of extraction and pollution. And he questioned the state’s ability to maintain a stable market as it attempts to phase out gasoline. (For example, refiners could continue to leave the state if conflicting priorities – “We want your product now but not forever” – make business planning too challenging and this would send prices even higher.) That, he predicts, will be awhile and wouldn’t impact sectors like commercial trucking and the airlines. He discussed how a “mystery tax” of perhaps 40 cents per gallon adds billions of extra cost per year on top of other taxes and surcharges. He thinks this money is simply going to the oil companies and said that the state will soon investigate the cause of the mystery tax. Okay...?

Borenstein went on to discuss natural gas prices and how those are also high, mostly because of additional costs baked into monthly bills. Fire-related infrastructure improvements and policies and programs associated with the “electrify everything” movement might be 2/3rds of your bill. He suggested that Californians often pay 50 cents or more per kWh when most of the rest of the country pays less than half that. This is a form of regressive tax disproportionately impacting lower income households and he discussed how we got to this point via legislative decisions. The details are beyond the scope of this post, but it’s fascinating.

The professor alluded to an eventual reprieve offered by new technologies, but much of that looks to be well off in the future. If anything, costs could rise as the state continues toward decarbonization.

The subtext of all this in a room full of financial planners, most of whom live and pay in CA, was one of frustrated acceptance. I don’t know how else to describe the outlook except, as I mentioned above, rather bleak cost-wise, especially for lower-income households and people living on a fixed income.

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