Double Edged Sword - Productivity vs. Consumption
Gary Tanashian
Today
we can the incessant technical analysis and turn to an issue that is
fundamentally critical in trying to determine our future investment
positions. Peter
Schiff's article entitled More
Consumption Less Production inspired some interesting responses
on Safehaven.com's "Talk Back" feature. Interesting
to me anyway, given my long time participation in the US
manufacturing sector. From Mr. Schiff's article:
December's larger than expected
jump in non-farm payrolls is predictably being touted as evidence of
a more vibrant U.S. economy. Unfortunately, the data does not
support this conclusion. The bloated service sector added 178,000
jobs, while manufacturing shed another 12,000 jobs. What this means
is that 178,000 more workers will be consuming goods while 12,000
fewer will be making them. The result will be larger trade deficits
that merely compound already stretched global imbalances and
exacerbate America's inevitable day of reckoning.
A service sector can only exist so
long as it is supported by a vibrant manufacturing sector. The
reason is simple. People employed in the service sector consume
goods but do not actually produce any of them. Therefore they must
rely on others, who presumably benefit from their services, to
produce goods in their stead.
"Talk Back" commentators
correctly point out the linkage between automation, productivity and
declining manufacturing employment. For reference I will trot
out an old Biiwii.com nugget, Deflation:
A Manufacturer's View, where the many benefits of automation and
the drive toward ever-increased productivity has truly been a
"good thing". My concern was then, and remains today
one of proportions. In reference to Schiff's concerns
noted above, it is not the decline in manufacturing jobs that
bothers me. Not at all. That is natural, expected and
highly efficient and progressive. Where I continue to have
concern is of course with the "bloated service sector" and
the consumer economy that continues to float ever higher on an ill
wind of helium (some elements of which are derivatives leverage, the
US Fed and its easy credit policies, BOJ and an entrenched culture
of speculation that these stimuli have promoted) filled expectation.
I saw a headline this week that
President Bush plans to balance the budget going forward.
Unfortunately, given the full time job of running a business with
the added part time job (yes, I think I am productive :-)) of
running a website, I do not get much time to read fully the
main-stream media. So, all I got was a sound bite, where Mr.
Bush is attempting to counteract sentiment aimed at rolling back his
tax cuts. Believe me, I am all for lower taxes, but again, the
proportion of the massive and growing consumer and services elephant
(in the room) vs. the puny but ever more productive manufacturing
sector is what concerns me. I will have to look into his plans
more closely at some point and see if there is anything in there
resembling actual productivity as opposed to ever-more debt
leverage.
But I have come to realize that if
perma-bullishness and levered speculation are a major industry, the
packaging and selling of negativity and doomsday scenarios is at
least a cottage industry. Moving away from manufacturing and
the headline hyperbole about "outsourcing of American
jobs" for a moment, a look at the various technology sectors
shows awesome progress toward a better, or at least more efficient
modern world. Examples include the high speed connection I am
about to upload this article through to an entire world of potential
readers, remote surgery where the doctor sits at a console across
the room (or across the continent or world?) from the patient (see ISRG,
a former customer of ours), the fact that instead of getting in our
petroleum fueled vehicle and driving to a big box store and buying
our petroleum based plastic packaged software, we can simply
download our software at the click of a mouse... these are important
trends. I do not see them presented often enough in the
doomsday cottage media.
But Biiwii.com has presented
nightmare scenarios repeatedly in the 2.5 years of its existence
among trillions of other data bits floating around out there.
That is because it is difficult to rationalize the excesses and
assumptions we all see every day, which seem to outweigh the
progressive and wonderful impulses of productivity and efficiency on
the scale of the previously mentioned bloated elephant vs. let's
say, a hamster or perhaps a small dog. Those who have followed
the website over time have seen a penchant for a favorable view of
technology (in the real economy if not always as a stock market
investment) and realize we are always on the lookout for signs that
we are missing the "big picture". Given the
proportions of the negatives vs. the positives, I must still come
down on the side that Mr. Schiff is trying to present, although his
"Talk Back" critics make some strong points that resonate
with yours' truly.
There is hype everywhere; bullish and
bearish. American manufacturing workers are most definitely
feeling a strain on the whole. As a manufacturing employer I
can tell you that I have felt the strain many times myself (just
this past week I found out that a large customer had attempted an
"outsource" to China on a critical medical component that
we have produced as a sole source for the last five years.
Well, "China" screwed it up and we remain on firm footing
- for now. But these are the ever-present potential hazards in
the minefield known as the global economy. We take the
challenge seriously and are committed to winning. What other
choice is there?
I suppose the main point I am trying
to make is that investors should attempt to meet each new day with
an open mind and a serious attitude. Nobody, but nobody knows
what will happen or where we are going. There is a spectrum
encompassing everything from technological nirvana and global
productivity to the fear of the dreaded "Amero" (memo to
global elitists if you exist: that is a really tacky name, how
about something like the "Monopo") and it is the job of
investors, if they are serious, to approach it all with balance and
thoughtfulness. My personal stance remains one in which I
actively and optimistically participate in the real economy with
hopes for the best, but also with extreme awareness as to the size
of that elephant.
Gary Tanashian
www.biiwii.com
gary@biiwii.com
6 January 2007
Disclaimer: biiwii.com does not recommend that any trading or investment positions be taken based on views expressed on this site. If you speculate or invest it is suggested that you consult a financial advisor qualified in your area of interest.
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