Hello traders everywhere! Adam Hewison here, co-founder of MarketClub with your mid-day market update for Monday, the 8th of October.
I've been thinking about this for a while and decided today was the perfect day to put my thoughts in writing...
I think the Internet is a job killer and not a job creator.
Here are my reasons why:
A relatively small number of staff can run a multibillion dollar company. For example, FaceBook only has 3,000 employees. Compare that to General Motors, who currently employs 202,000 folks.
Amazon, another name that is ubiquitous on the internet, has only 69,100 employees. Now compare that to traditional retailers that have millions of employees in malls across the country. More and more Americans are turning to to shop online because of its convenience and that could be the demise of many jobs in traditional shopping outlets. For example, Circuit City could not complete in the new world and quickly fell prey to the Internet. Is Best Buy the next company to throw in the towel?
Apple, the most valuable company in the world, even with its retail outlets, still only employs less than 65,000 Americans. However, Apple in China through a company called Foxconn has over 400,000 Chinese working to make iPhones, iPads, and practically everything "i" for Apple. You can only wonder what kind of impact almost half a million manufacturing jobs would have in the US. Think about what it could do for our economy.
America has to rethink, reset, readjust and retool if it is going to get serious about creating jobs in the new global internet world. Countries, including the United States, cannot just rely on past successes. History has proven time and time again that a country resting on its laurels soon becomes a country in trouble.
QUICK TAKE ON THE MARKETS:
EQUITIES: The trend is your friend and we are sticking to our Trade Triangle analysis. We have an upside target of $1,550 on the S&P 500 sometime next year.
CRUDE OIL: Mixed trend picture. While the long-term trend is positive for crude, the intermediate-term trend remains negative based on our Trade Triangle technology.
EURO: All Trade Triangles are green and are bullish for the Euro.
GOLD: Two of our three Trade Triangles are green and are bullish on gold.
COPPER: Two of our three Trade Triangles are green and are bullish on copper.
SILVER:Two of our three Trade Triangles are green and are bullish on silver.
WILD CARDS: Syria, Turkey, Israel. The general election, "the Fiscal Cliff", and let's not forget Europe.
Now, let's analyze the major markets and stocks on the move using MarketClub's Trade Triangle Technology.
In a world open to information large disparities in standard of living (equal to large disparities in wages )
cannot exists in the long run. For awhile the disparity may be kept through large investments in physical or intelectual
properties but in the long run everybody may do the same until the disparity diminishes to objective facts. Many
americans believe that the "export of jobs" is the evil but it was proven by history that trade is the best tool to improve
the situation of all parties involved and protectionism is a sure way to diminish the standard of those who pursue it
in the long run.
Economical science does recognise the usefulness of protection for infant industries, temporarily, but if continued
beyond a limited period it sinks in inefficiency and is a drag on the economy. As I mentioned above, investments
may slow the process of equalisation among inequal parties. But the US consumer, by and large, shies away from
saving so that the investment in the economy can be done only through borrowing which involves paying interest to
the lending nations.
If one considers the situation one step further, the process of equalisation could be slowed if the upper ten
percent would lower its income, which presently is a real drag on the economy The executive, the doctor , the
lawyer and the accountant, all among others, that take a large part of the economic pie, eat up a large part of
productivity and efficiency gained through investments in the production process. I wonder if the circles who have
the power to change the situation are ready to participitate in such an effort
It is not only our inability to produce things but the huge costs from overabundant regulations which destroy capital for generations, present and future. The socialist Commonwealth of Massachusetts enacted environmental regulations in 1995 requiring the upgrade of on site wastewater systems for every home and business served by a septic or other treatment system at staggering costs to property owners. They are now claiming that their forced upgrades (having cost tens of billions) did not perform to expectations and are calling for another experiment and additional spending of 8 to 12 billion dollars to tear up Cape Cod roads and landscapes to build central sewers to allegedly prevent septic nitrogen from traveling to coastal embayments.
We must reduce the number of people employed by wasteful bureaucracies, unacceptable mandates and bring manufacturing back to the US. It may even require some measure of protectionism (temporary tariffs and duties) if we are to survive the present crisis. Further, we can not afford to give access to the worlds largest market without those foreign corporations (benefitting) sharing in the costs of managing and servicing this lucrative market.
Bottom line: When you are functionally insolvent as in buried by insurmountable and exponentially growing debt, these things tend to happen. The debt monster overrides all else, nothing will "work as it used to" until the debt bomb blows up (very, very bad) and the reset button is hit by default.
The European giant Phillips Co. (Norelco) is moving the manufacture of shavers back from China to Holland. Not so many Dutch jobs though. Robots are building the shavers.
Tesla is building electric cars in/near Silicon Valley in California where the wages are sky high to pay for the high cost of living. No problem. Robots are building the cars.
This may be the start of a trend. The newest generation of robots can see and sense things as well as humans. They work faster and continuously. Even Foxconn in China is starting to add many robots to build iPhones. Better quality, faster, cheaper. Those jobs don't belong to China. They belong to whoever gets their robotic factories running first.
I agree completely. We cannot let up the pressure on R&D. Another factor here is wage pressure is one of the key forces that causes this upgrading in efficiency. If the general employment levels can take it, then a rising wage that will encourage automation will drive both consumption and production at the same time, and the golden rule of economics is that you have to increase efficiency and consumption together and anything you do that helps one while hurting the other will be a bad thing unless the one you help is the missing ingredient. Helping both factors at the same time is a no brainer, but this also helps show why soaking up excess labor with infrastructure projects like building the next generation of highway or rail is sometimes necessary.
We could argue about the reasons "why", but the US recovery is stalled (in my opinion) because of the inability of the nation to generate revenue (creating wealth by making things). We, as a nation, find it increasingly difficult to perform those tasks that traditionally created wealth for our country including, but not limited to, manufacturing, mineral extraction (mining), textiles, timbering, and other "basic" industries that create wealth by making things that are worth more than their component parts; i.e. transforming materials into marketable commodities. A "service economy" simply cannot create wealth; the money simply moves from one entity to another.
During a recent trip through Canada it was clear to me that most Canadians are more prosperous than most Americans at this time. I think this is because they are actively indulging in mining, logging, manufacturing, and doing precisely the things that we have managed to make so difficult here in the US.
Before responding, I should say kudos for a well-balanced article that looks at specifics.
Our inability to produce real things is more a result of changes to our monetary economy than changes in our physical industry. We have continued to get more and more efficient at the same rate we always have. We haven't been compensated for these increases, though. If wages had gone up with revenues between 1970 and 2010 the way they did from 1945 to 1970, then the average person making $50k today would be making between $80k and $90k instead, just by maintaining the same share of revenues. Ironically, we have been able to maintain much of the spending growth because even as wage growth hit a wall, wealthy people have become more and more desperate to make loans and real estate investments, etc., thus pushing rates to 0 just like they did in the 1920's. Tellingly, financial and asset industries stood at the same 40% of the economy in 1928 that they are at today. But a wage-based economy and an asset-growth economy (admitting that these are merely two ends of a spectrum) differ in one important characteristic - the asset economy comes with crashes built in, and the bigger compared with the real economy, the bigger the crashes.
Of course, no matter how efficient a worker is, there exists an exchange rate where he is inefficient given free trade with cheap labor countries. In an economy with moderate trade barriers in place, that is no longer true and high efficiency has a better chance of holding sway over at least the local marketplace, which is a large enough market by itself to keep most industries alive if they are able to capture it. This starts to explain why we stopped seeing new first world countries in the mid-1800's when we "learned" that mercantilism was inefficient and therefore inferior with the obvious counter-examples - South Korea, Japan, etc. actually ignoring common wisdom and striking a balance between raw capitalism and industry patronage with market protections.
Adam is right on the money about THE fundamental reason why we are going nowhere with the so-called recovery. No industrial production, no production of goods, 70%+ of US jobs in the "service sector". The "low-cost solution" that facilitated the export of most of our industrial base to Asia was not a solution at all, it was suicide for the American economy. All of China's trade surplus comes from industrial production that once resided in the US.
I was looking online for a number of specialized goods, and I kept coming up with Chinese ads for the product. What happens when they don't want hyper-inflated US dollars to pay for all the stuff we have to purchase but no longer make?
I wouldn't worry too much about the dollar losing buying power. A strong dollar is one of the biggest factors is creating this mess and when the dollar weakens it will help to bring manufacturing back. The real problem is that the extremely high levels of wealth inequality make it hard to weaken the dollar.
A flat revenue tax (quite a different thing from *the* flat tax, which is a bad thing...) of 10% on imports and on goods produced by a company with CEO to lowest worker pay ratio greater than 20 would do wonders to bring us out of recession quickly and might even put us in an FDR-like environment. For reference, the economy grew more under FDR then the last 48 years of Republican presidency combined...