Return of manufacturing to America?

The article also says: “these advances play well into America's ability to innovate, demolish old industries, and continually reinvent itself. The Chinese are still busy copying technologies we built over the past few decades. They haven't cracked the nut on how to innovate yet”. To me, the latter part of that statement is as ‘American as apple pie’, as if American’s were the first to ever make pies from apples. I consider it nonsense to think that the Chinese are unable to innovate. The first part of the statement fails to consider what I think of a very important point, and one that I have mentioned frequently in these Newsletters, being that:

“advances in manufacturing technology inevitably results in new technology replacing manufacturing workers. That is good for cost in the first instance, but bad for employment rates in the second”. That said, the comments on how manufacturing might be influenced by new developments is interesting. You might consider reading the referenced article. Topical Reference: The Future of Manufacturing is in America, Not China, from Foreign Policy, July 17, 2012 – reading time 3 minutes. Financial Markets: An investment advisor comments on this Newsletter Why read: In order to learn something about how at least one investment advisor views this Newsletter. Commentary: I had what I think to be a very interesting discussion with an investment advisor in the past few days with respect to this Newsletter. I had given him a copy of one of last week’s Newsletters and asked him to critique it. I should say that I have known this person for some time, like him, and do not resent in any way any of his following comments: 1. He thinks the way I look at the world is far more detailed than virtually anyone else he knows. 2. He does not, and won’t going forward, read my Newsletters because he is:

• already overloaded with news flow from the likes of Barron’s, Forbes, and the Wall Street Journal, and
• in any event thinks he I am far to ‘doomsday’. Much, he said, like David Rosenberg and Nouriel Roubini are, to name but two well followed commentators.

3. In subsequent discussion he:

• agreed the news he read was largely, with he thought some exceptions, ‘reporting’ and not ‘analysis’;
• seemed to place little value on the analysis I do, as contrasted with ‘reporting the news’;
• seemed to place modest value at best on my unbiased, no vested interest approach, to generating my commentaries; and,
• seemed to place modest value at best on the possibility of him reading my commentaries so as to better understand underlying macro-economic numbers (e.g. U.S. net trade deficits, world and country specific GDP, and so on).

4. Even if he thought (which he doesn’t) that the time and effort I spend generating these Newsletters produced content that would save him time and keep him better informed on things important to the world and country-specific economies, he:

• would not recommend my Newsletter to his clients, because
• he would be concerned that some of those clients might read my Newsletters, lose confidence in today’s financial markets, and pull some of their investable assets out of those markets in circumstances where he doesn’t think they should do that.

5. In simple terms, he does not believe his clients should hold cash in this economic environment because he believes in a long-term investment strategy, irrespective of he thinks may be short-term market reversals. All of his clients are either 100%, or close to fully invested, in a mix of diversified debt and equity holdings held in pooled funds. 6. He acknowledged he was aware that to be fully invested (i.e. not hold any cash) at this point in time was ‘contrarian’ to the current thinking of some investment advisers. I pass this on to you as I thought you might be interested in how one investment advisor views my Newsletter commentaries, and how he views the financial markets at this point in time. While a sample of one has no statistical validity, I can assure you his comments have given me ‘pause for thought’. This because I spend a lot of time generating them, and don’t want to think I am wasting my time when doing that. As I continuously look around me and think about what I am seeing and reading, I don’t think I am. Note: I reviewed the foregoing with the advisor who made these comments. He asked that I add the following information: 1. He is based in Toronto and operates a fee based practice focused on high net worth individuals and families who have a minimum Cdn$1 million of investable funds. 2. He advocates capital preservation, a globally balanced portfolio approach, strategic asset allocation and downside risk management. 3. He believes that can be best achieved by using an independent investor risk assessment service that, by using numerous global asset classes and independent managers, focuses on:

• avoiding realized capital losses,
• protecting against inflation,
• minimizing portfolio taxes,
• avoiding market timing,
• automatic asset mix rebalancing,
• hedging foreign exchange risks,
• developing a target rate of return via computer optimization, and
• meeting with, and reporting results to, clients quarterly.

North America >> United States: Chairman Bernanke’s views in February 2009 Why read: To test the contemporaneous views I expressed four years ago, to observe similarities and differences then and now, and to determine if you agree with my current views. Commentary then: On February 25, 2009 I commented as follows: Articles have reported U.S. Fed Chairman Ben Bernanke has told Congress the U.S. economy is suffering through a “severe contraction” and pledged to use all available tools to lift the country out of the recession that already has cost millions of Americans their jobs. Bernanke said:

• the U.S. economy is likely to keep shrinking in the first six months of this (2009) year;
• expressed hope that the current recession will end this (2009) year;
• said there were significant risks to that forecast;
• that any economic turnaround would depend on the success of the Fed and the U.S. administration getting credit and financial markets to operate more normally again; and,
• “Only if that is the case, in my view there is a reasonable prospect that the current recession will end in 2009 and that 2010 will be a year of recovery”.

He also is reported as saying that risks to recovery include:

• if economic and financial troubles in other countries turn out to be worse than anticipated, that would hurt U.S. exports and further aggravate already shaky financial conditions in the United States; and,
• that the Fed and other Washington policymakers won’t be able to break a vicious cycle where disappearing jobs, tanking home values and shrinking nest eggs are forcing consumers to cut back sharply, worsening the economy’s tailspin where in turn, battered companies lay off more people and cut back in other ways.

The articles report that the U.S. unemployment rate is now (in 2009) 7.6%, the highest in more than 16 years, and that the Fed expects the jobless rate to rise to close to 9%, and probably remain above normal levels of around 5% into 2011. What Bernanke said today (2009) makes sense to me, including the caveats he placed on U.S. economic recovery. I do have difficulty with any prediction made by anyone that is longer than about one week in this current highly volatile, ‘every day is a new important news day’, economic environment the U.S. (and hence the rest of the world) currently is in. While I wish it were otherwise, I am a believer that the U.S. policymakers won’t be able to ‘break the vicious cycle’ Bernanke referred to in the near term – which leads me to be highly skeptical of Bernanke’s view that the U.S. recession might end “by the end of 2009, and that 2010 will be a year of recovery”. Commentary now: As things have developed over the past three and one-half years, Mr. Bernanke proved to be an optimist in February, 2009. Quantitative easing, or at least the form of quantitative easing introduced by the U.S. Federal Reserve may have averted/postponed a more serious financial crisis than occurred in 2008. Certainly the U.S. financial markets responded well to it, and now seem to look to more quantitative easing as a lifeline to maintain, and perhaps extend, its index increases. Consider that if Mr. Bernanke could have been as wrong as he was in his February 2009 predictions of U.S. economic recovery, how much wiser he may be in the summer of 2012. His predictions seem to be to be fewer in number, significantly more short-term, and significantly less extreme than the ones he was prepared to voice in February 2009. Important Snippets From Today’s Commentaries Snippet #1: Advances in manufacturing technology inevitably results in new technology replacing manufacturing workers. That is good for cost in the first instance, but bad for employment rates in the second. Snippet #2: Consider that if Mr. Bernanke could have been as wrong as he was in his February 2009 predictions of U.S. economic recovery how much wiser he may be in the summer of 2012. His predictions seem to be to be fewer in number, significantly more short-term, and significantly less extreme than the ones he was prepared to voice in February 2009.