Has Investing in America Become Passe? 22 comments
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You might think so, judging by the spate of articles, on Seeking Alpha and elsewhere, that advocate investment portfolios heavy on inflation defense at one end, deflation defense at the other, and emerging nations and basic commodities filling in between. We own many of these, as well, but I don’t understand analysts who have given up so easily on the US who now ask us to jump on some other bandwagon which I believe has less staying power – just because it’s an easier sell right now.
The engine that continues to eclipse all others in this world is still the combination of American entrepreneurs and American consumers.
We lived through Millard Fillmore, Richard Nixon and Jimmy Carter and continued to thrive. We’ve been through panics, recessions, idiot politicians, bank closures, corporate failures, idiot politicians, depressions and idiot politicians before and continued to thrive. We will emerge from this latest bout the same. Some of the best corporate entities in the world are right here in America. But many investors are so justifiably disgusted with Wall Street and our banking industry that they are overlooking the obvious in search of the ephemeral.
As the Italians say, “Basta!” (“Enough.”) Whenever this country goes through a rough patch, the naysayers and worry warts leach out of the woodwork and inform us we are killing ourselves with (pick one:) global freezing or global warming, tell us we have exhausted our resources, claim our entrepreneurial pool has dried up, and proclaim our best days are behind us.
The hell they are.
I had the same reaction when Jimmy Carter told us our best days were behind us, that we were just one more member of the world community with no responsibilities to friends and allies that the United Nations couldn’t fulfill more effectively, and that we should all turn our thermostats down and wear cardigan sweaters to stay warm in the winter.
Horsefeathers. The intervening decades have shown this is still a great country which regularly has to turn away some of the best and the brightest from every nation in the world because if we allowed them to legally immigrate in the numbers desirous of doing so, we’d be crushed under the weight.
The point is – there’s a reason smart people who want to make a better life and a better world are clamoring to get in to this country. In not a single one of the emerging nations touted as “owning the 21st century” are there the economic, social mobility, cultural diversity, and entrepreneurial opportunities that are found in the United States. And to become #1, they have one rather important task before them. They have to dethrone the current #1. Only if the current #1 rolls over and lets it happen will they succeed.
Who is the world’s largest manufacturer? China? German? Japan? Nope. It’s the USA. China may sell us cheap toys, trinkets, and slap-together furniture, but we sell the world commercial airliners, oil refineries, nuclear plants, locomotives, medical technology, and, to our allies, tanks, sophisticated air defense systems, and jet aircraft. Care to guess how many GI Jane dolls you have to sell to equal one Joint Strike Fighter?
You don’t have to guess. The bottom line is there for all to see. With nearly four times the population of America, China produces just 12% of all factory goods sold worldwide. Japan, for all the difficulties they’ve had, is right behind them with 11%. Germany, bulwark of the EU, is a distant 4th at 7%. And America is the world leader -- American workers manufacture more than 20% of all factory goods. That includes farm equipment, chemicals, shipbuilding, skyscrapers, airplanes, power generation equipment, mining and energy extraction and telecommunications equipment, semiconductors, metals, and a host of other products.
We make things that help the world work smarter and better. When I think of heavy equipment, so essential to emerging markets, I think of Japan’s Komatsu (KMTUY.PK) – formerly in our model portfolio – and Finland’s Konecranes (KNCRF.PK) – currently in our model portfolio – but I cannot imagine this sector without including US companies like Caterpillar (CAT), Deere (DE), and Titan International (TWI.) They are the true behemoths. It’s the same in aerospace, electronics, defense, metals fabrication, medical care products, and so many other fields.
Why is American manufacturing still #1 in the world? Because of American workers. The American work ethic is alive and well (maybe not on Wall Street, where they pout if they don’t get a million dollar bonus to match their million dollar salary for performing the arduous task of scalping a few pennies from investors on a few million day trades a day, but certainly everywhere else.) The more complex the task, as most are becoming, the more American firms benefit from using American labor. Because of their education and the cowboy spirit in this country, Americans’ learning curve is often faster. That’s why many of those outsourced jobs are coming home now.
Moving on to the service sector, the Cassandras bemoan that we have lost our manufacturing edge (which is simply not true) and we are becoming a nation of burger-flippers. Now, that is absolute malarkey. It is true that a greater share of GDP comes from services than in prior years. But that would be a good thing.
There is nothing wrong with switching assets from commodity manufacturing which anyone can do for lesser labor costs (as opposed to the skilled manufacturing the USA still enjoys a commanding lead in) over to the services sector. That’s where the future is! Being a cutting-edge nation that leads in information technology, life sciences research, internet content and so on is a far more intelligent use of resources than building mechanical toys. Why did Willie Sutton rob banks? “Because that’s where the money is.” Why is America on the leading edge of the information-based economy? Because that’s where the money is. Emerging nations are fine, but the countries that have made this switch, like Canada, Israel, Norway (and, indeed, most of Scandinavia), Singapore and the USA are the ones on the leading edge of the future.
“Services” doesn't mean flipping burgers. It includes software design, systems analysis, engineering services, retailing, transportation, and much more. If manufacturing declines as a percentage of total goods and services because the US is on the cutting edge of the global shift for advanced nations with high literacy and education to lead the new information economy, so be it!
Finally, America-bashers say we are a nation which has exhausted its natural resources. That’s going to come as a shock to the clean alternative energy natural gas industry, which estimates over 100 years of proven reserves, or the dirty old coal industry, which estimates 200 years of proven reserves! We have geothermal, hydroelectric, timber and all sorts of metal resources we haven’t even begun to tap. And we have a friendly neighbor in our biggest trading partner, Canada, which has far more than even the US does of these resources and a population that is just 8% our size.
This is a marriage made in heaven. (Rather than repeat what I’ve recently written about the extent of US and Canadian natural resources, you can read more here and here if you are interested.) Finally, while others are desperate to find ways to feed their people, between the US and Canada, we have what are probably the most abundant resources in agricultural land, food production and clean water of any two contiguous nations in the world.
Let me leave you with this. Because the United States is one of the world’s most open societies with a vibrant and muckraking free press, most of our problems are known. This can overwhelm an investor at times, leading us to believe things are worse than they are. Our problems are known, if only we will listen and observe. Many of the emerging nations, however, are statist, corrupt, centralized autocracies that manipulate the news at their pleasure. So the next time some tout tells you to sell Caterpillar, Deere, Honeywell (HON), Raytheon (RTN), Boeing (BA), 3M (MMM) and other American manufacturing stalwarts and put everything into Russia, China and Vietnam, look before you leap…
I promise I’ll write a follow-on article about the good side of investing in emerging markets as well as the bad and the ugly!
Full Disclosure: We own Konecranes and Honeywell, as well as beaucoup American and Canadian natural resource firms.
The Fine Print: As Registered Investment Advisors, we see it as our responsibility to advise the following: We do not know your personal financial situation, so the information contained in this communiqué represents the opinions of the staff of Stanford Wealth Management, and should not be construed as personalized investment advice.
Also, past performance is no guarantee of future results, rather an obvious statement if you review the records of many alleged gurus, but important nonetheless – especially so you are not over-impressed by the fact that our Investors Edge ® Growth and Value Portfolio has beaten the S&P 500 for 10 years running. What if this is the year we under-perform it?
It should not be assumed that investing in any securities we are investing in will always be profitable. We take our research seriously, we do our best to get it right, and we “eat our own cooking,” but we could be wrong, hence our full disclosure as to whether we own or are buying the investments we write about.
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I was once a patriotic American until I realized your generation has thrust mine into the woes of debt slavery. I am not your serf. I am learning Mandarin Chinese and leaving this place before it collapses.
On Aug 24 12:40 AM Zhubajie wrote:
> America produces (and sells, presumably) 20% of the world's manufactured
> goods, and the main reason is outright trade protectionism. If free
> trade is truly observed, that percent would drop to 5% in no time.
> The reality is that, whenever there is free trade, the competitive
> advantage will flow to the nations with the lower labor cost, unless
> there are technology factors (IP, etc.) preventing such flow. That
> IP gap is fast narrowing. Patents are only good for 20 years at
> most. Yet the pay gap is not. Today an engineer or technical laborer
> in America still cost 5-10 times as much as in India or China. So
> the trend is irreversible. America has long lost the competition
> in manufacturing. The protectionism is only a delay tactic. Those
> jobs are never coming back. It will take a 80% devaluation of the
> US Dollar to get to labor cost parity. I strongly doubt if that
> will ever happen.
Did America learn its lesson? No. The author is saying that it is business as usual. Yes, it is. NONE of the perpetrators of the largest fraud in human history, bar none, is even facing trial, let alone go to jail. What is poignant is that just this month, Beijing announced the execution of 2 for commiting financial fraud, with victims losing over $200 Million RMB. What was the total American loss in this round of fraud? $20 trillion? And I think it is this month also, that the investment banks are announcing the largest bonus yet. And the govt. is busy throwing borrowed money (which we and our kids and their children and their children and their children will have to try, but would never be able to, repay) at that poisonous pit, trying to reflate the fraud, which was the fastest growing and most profitable American industry (for those at the top of that pyramid, that is) in this 21st Century.
It is perhaps unfortunate, but the fraudsters get what should be coming, until the voters take back the economy, investing in Chinese stocks is many times safer than American financial assets.
Nixon & Carter eh.
I still can't bring myself to even watch a movie satire of W.
When the light is climbing it is very individualistic, courageous, and entrepreneurial -- and creative. When the light is falling, it has suddenly lost its exceptionalism. It is heading into darkness and poverty, and it joins other humans for the sake of survival. Populism appears. The health of the masses.
We endure the darkness together. We celebrate the light as the resource of our private dreams of Eden.
It is a process. Heat and expansion of the dream comes as light; Cold and contraction of the dream comes as darkness. It is a metaphor upon which history is constructed.
On Aug 24 12:47 AM Dave Wrixon wrote:
> It will happen, it has to happen, but America will on ever compete,
> it will never again dominate, but were are probably decades away
> from the point were America will again become competitive. In the
> meantime, the economy will contract not only in dollar terms but
> even more in absolute terms as the dollar becomes increasingly worthless.
> I can understand patriotism, but denial is not patriotism, it is
> simply folly. Those that fail to be proactive to bring about the
> changes required to make the US competitive are not patriots, they
> are populists.
On Aug 24 01:58 AM MarkS2002 wrote:
> I just spent two of the past four weeks in California and Seattle
> and after all of the conversations and all of the news broadcasts,
> I was happier than ever to be back in Canada. Nobody screaming at
> others with guns strapped on their leg,
I agree with this. A problem we have is the current #1 is being undermined by our own financial masters, who are selling our future to the Chinese. The ruling class masters don't care how they make their money, they don't care if American jobs are sold to the highest bidder (or lowest bidder I should say), they don't care if devaluation of the dollar increases social stratification (class differences) because their goal is to get richer and richer, separate themselves more and more from the dirty masses. They don't really care if America falls -- since America is only a vehicle for their own kingship. They can move to China with their money and be a king there, or France, or the Caribbean.
The drive to 'be rich' has no conscience and no loyalty, except to itself.
On Aug 24 12:00 AM Moon Kil Woong wrote:
> Mr Schaefer: I really appreciate someone pointing out all the right
> things in our system. It is true that so far, the US has survived
> the slings and arrows of a slew of bad governments and their decisions.
> It is also true that in terms of opportunity, the US offers it bar
> none. However, the millstone of government debt, currency depriciation,
> and bad and lacking regulatory systems and accounting is gradually
> increasing.
>
> It is true that no other nation comes close to the US in terms of
> productivity and creativity and certainly technology will lead the
> path to future prosperity as it always has. Unfortunately, that path
> has been marred by allowing financial institutions to create a large
> brain drain in the US as it increased leverage and its component
> of the economy to occupy 21% of the profits in 2007-2008. This discturbance
> has been gradually shifting our manpower from productive sectors
> in the economy to the less productive portion of financial manipulation.
> Although the efficient allocation of wealth is laudable, there comes
> a point where such allocation, especially when it needlessly encourages
> overleverage and consumption of your precious little assets (like
> encouraging second mortgages), is not only unneccesary but is outright
> detrimental to the market.
>
> Certainly I hope for the US to continue to be a beacon for democracy,
> capitalism, freedom and the right to choose one's destiny. However,
> allowing TARP and arbitrary giveaways, moral hazard, and socializing
> large swaths of our economy while protecting bankrupt companies with
> public funds all fies in the face of what is uniquely American. I'd
> rather suffer a depression than than suffer the destruction of the
> American system of capitalism and risk reward that made and will
> keep America great.
>
> When you hear people complaining about the direction America is taking
> in a negative light, many on that side are 100% in agreement with
> your position in wanting to keep all that is good and deride all
> that is ruining it. Bulls and bears alike must unite in keeping a
> capitalist economy alive and thriving. For without it, we need not
> even have a market, only the connected and the poor like say North
> Korea.
> So far this downturn has only resulted in greater concentrations
> of wealth which also has meant gerater government as a component
> of GDP and greater percentages of total assets resting with the very
> banks and financial institutions that promulgated the downturn in
> the first place. Those that caused the recession are the principal
> beneficiaries. This is moral hazard on the highest level and goes
> 100% against everything positive you mentioned in your article. I
> hope you understand and agree.
Tough to get confident in a corrupt system like that. On a per capita basis, the American system is today 10,000 time more corrupt than that in India or China.
You live in the U.S., and yet are blind to the advantages, even when your comments convey their very value. Zhubajie, your earlier comments say how wonderful that China's self-appointed, un-elected masters choose to execute the perps of financial fraud. And yet, don't forget, that same China power structure has executed people just because they had different religious orientation or wanted more freedom. Would you feel free to make your comments in a country like China?
Marks2002, I see the displays in Arizona and other places where open carry is legal as a healthy sign. The people complied with the regulations of their state, and behaved themselves. Sure, their behavior increased nervousness, but in the face of wholesale abandonment of the principles of accountability by member of our so-called House of Representatives, I can understand a few people might want to remind them of the right to bear arms. Don't forget, the unilateral, uncontrolled decisions by California officials (rinse, repeat, many times) are in large part what has led to an overburdened, indebted California government.
The U.S. is still in the top 3 countries by almost any metric; it is better off economically, socially, and from a perspective of freedoms. Is it as dominant as it used to be? No. But the press greatly exaggerates its demise in all facets.
I merely pointed out the stark contrast. Shoot the bostards for $30 million in financial fraud over there, give the bostards another $50 Billion in new bonuses this year over here, for causing $20 trillion in damage to everyone else. Irresponsibility is not freedom. Letting the fraudsters increase their awards of themselves in the face of collective pain and ruin of the bulk of Americans, is simply wrong. 25 million houses are "under water". What should be the response of the plebians? Refuse to pay? Pull a short sale? Even then they can sic the dogs on ya, in the form of forgiveness of debt INCOME (!!). "The Mortgage Forgiveness Debt Relief Act" is only temporary, and can be not-renewed by the 2009 deadline. Don't really know what the final mess would look like, but
Look, the gist of the article is that one should not give up hope on the American stock market, and that many of the companies still do well. That may very well be true. But confidence in the system must start with accountability. When the system actually awards fraud, and continues to do so, and adds insult to injury by regularly (still does) invite the titans of the financial (fraud) industry into the top echelons of government, it leaves the world shocked and awed, that's all.
"We own short-term bond funds like SHY and TUZ and slightly longer-term (5-10 years) BND, AGG and TIP; and inverse ETFs like SKF, SRS, SBB, EUM, PSQ, SH, and DOG."...but NOW: "We own Konecranes and Honeywell..."...HAW, HAW, HAW!!...ya' just gotta luv him!!!...
But you have to quit waving the flag long enough to see that the greedy elites in Wall Street & Washington are corrupt and are destroying the country.
By the way, don't put your flag down - it may get stolen by one of the greedy elite.