The Investment Scientist

Archive for March 2018

trade war .jpgLet’s start with some basic facts. As of 2017, the US imports goods worth about $550 billion from China, while only exporting about $175 billion to China. The trade imbalance is about $375 billion in China’s favor. President Trump believes China is making off with $375 billion of the US’s money every year and he is out to stop that. He announced tariffs on $60 billion worth of Chinese goods yesterday, mostly targeting high-tech imports from China.

The biggest high-tech import item from China is … round of applause …the iPhone, totalling about $70 billion a year since China is the final assembly place of all iPhones using parts from Japan, Korea, Taiwan, the US and China.

If an iPhone sells for $1000 in the US, it is counted as $1000 worth of Chinese imports, but 60% of all its economic value is captured by Apple. China probably captures less than 10% of the economic value. The rest is shared primarily by Japan, Korea, Taiwan. A tariff on the iPhone will harm Apple more than China, and also hurt Japan, Korea and Taiwan along the way.

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It just caught my attention today that buried deep in the CNBC website was this headline:

Ameriprise Puts Retirement Savers at Disadvantage in High-Fee Funds, Says SEC

As the consequence of getting caught, the billion dollar company agreed to pay a fine of $230,000. If this is not a slap on the wrist I don’t know what is. Is it going to deter Ameriprise or any other brokerages from ripping off their clients? Nah, I don’t think so.

In a statement, Ameriprise pointed out “… It’s important to note that this is a long-standing industry topic and numerous firms have settled with SEC and FINRA on similar matters.”

This is actually a very honest statement that makes it clear that the dishonest practice of costly hidden fees is quite prevalent in the industry. I only take issue with their use of the word “topic” as if no harm has been done.

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Michael Zhuang is principal of MZ Capital, a fee-only independent advisory firm based in Washington, DC.


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