Kunst

What Are Some of the Best Hedge Fund Managers Doing?

Aren't these positions as of September 30? A lot can change in nearly two months time.

The Great American Sellout - Cramer's Stop Trading! (7/15/08)

When you send $700B a year overseas, you can expect that money to buy things in America eventually. You want them all to buy subprime real estate and go to Disney World? Maybe they would rather have productive US corporations instead. A lot of us will wind up working for foreign-owned companies in the future.

Foreign Investment in the United States: Reverse Globalization?

We are seeing a late chapter in a long book. The US came out of World War II with an abnormal advantage. Our economy was hitting on all cylinders while most of our potential competitors were in ruins. For decades, Americans were able to be paid much more money for a given kind of work than people overseas, in large part because the work wasn't available overseas. I remember in the 1980s US steelworkers making $40/hour for the same work that earned a South Korean $8/hour. Guess what happened to us in the steel business.

There was a huge difference in pay scales and living standards. I remember the 1950s and 60s when the US dollar was king and products from/in other countries were dirt cheap. Other countries didn't have the industrial base or capital to compete. They had cheap labor, but for a long time that did them no good because most US-based work couldn't be transferred easily overseas. Also, the US had a major technology advantage.

But the labor price differential remained, and slowly it started a process that is nearly complete today. After WWII, "Made in Japan" meant junk. But the Japanese imported technology, partnered with the US to develop its industry, and over time, built their auto, semiconductor, and other industries, all fueled by the wage difference. Japan of 1960-1980 was China of 1990-2010.

Technology broke down the barriers that protected US workers from cheaper overseas competition. I remember 20 years ago US financial companies sending paper documents to the Caribbean for data entry at 10% of the US cost, including transportation. Sending information between continents used to be awkward and expensive; today it is virtually free.

I spent 41 years in the computer software industry, starting in 1965. There was no non-US computer industry until the 1980s. I remember the first Indian programmers coming to America. We had to tell the Indian contracting company that they had to pay their first guy at least minimum wage and quit treating him like a prisoner.

The wide moat that kept other countries from competing and kept US wages many times the rest of the world has pretty much collapsed. I worked for a Dow 30 tech company in the 1990s and 2000s. We went from designing and developing everything to outsourcing the manufacturing to Asia (first low-level stuff, eventually the entire process) to offshoring half the software development and bringing in lots of expatriates (mostly Indians) to work here. While software development is still a pretty good field, I would say wages are half what they would be without these changes.

In the process, we transferred the technology/processes along with the work itself. Japan, South Korea, Singapore, and others are now at our level, and still with lower wages.

This was all driven by large corporations whose prime goal was to lower costs. Big US companies aren't really American companies. They have no loyalty to the US or US workers. Their sole focus is to maximize profits. In a competitive world, any company who doesn't may not be around for long. It simply isn't competitive to manufacture most things in the US; if you do, you will be undersold and put out of business.

This process could have been slowed but not prevented. There is no inherent reason why American workers should make a lot more money, and live a lot better, than equivalent people in other countries. With our low level of education, other countries can often offer better qualified workers at significantly lower cost. Again, if you turn down that offer, your competition will put you out of business.

Bottom line, it's time for America to rejoin the world. The days of living high on the hog just because we are America are over. The fact is, as a country, we are fat, dumb and lazy, the product of too many decades of living well without the effort required elsewhere. America = hare, rest of the world = tortoise.

One key factor: we can't keep consuming 25% of the world's oil and giving fake money in exchange. What do we produce to trade for that oil? Not much. So we are going to wind up selling our productive assets in exchange for transient consumption. The US could look like a 3rd world country a lot sooner than you might think. A lot of us are going to wind up working for foreign owners, and the good life is going to be elsewhere.

Now it's our turn to dig ourselves out of a hole. It won't be a quick or happy process.