A Black Hole and a Ray of
Hope
Gary Tanashian
April 8, 2005
There will be no charts today.
No speculation about the direction of long term interest rates
or markets. No analysis of the push and pull relationship of
inflation and deflation, and no discussion about what asset classes
are best suited for a given environment.
After reading Mark Rostenko's The
Recovery That Isn't & The Bust That Will, I want to reflect
on the subject on which I am most qualified, American manufacturing.
I appreciate Mr. Rostenko's style of telling it like it is, getting
straight to the matter at hand and not sugar coating.
A quote:
"We are no longer a
nation of producers. America is the world's biggest consumer.
When's the last time you saw a new factory being built? Where's
our textile industry? Gone. Where's our steel industry? Almost
gone. That TV in your house: made in America? Nope. How about
the computer? Your appliances? Washing machine? Nope, no way
and nada. The automobile industry is on its last legs, as GM's
recent news makes abundantly clear. Wave "bye-bye"
as soon as the Chinese advance their factories to a competitive
level.
We're consumers and borrowers. And that's no formula for wealth.
Wealth is built from savings and our savings rate continues to
flirt with historical lows. Consumption isn't a bad thing, mind
you. But when it's the primary thing, we have a problem."
There is the nut, direct and
to the point. On the whole, we certainly are a nation of consumers,
and as I have tried to point out in several articles, a nation
of consumers who feel entitled to consume as it has become the
American way and the American role in the global economy. I have
a vantage point as a producer
(raw materials such as aluminum or copper metals come into our
plant and leave a few weeks later as finished components, assemblies
or instruments. It is a microcosm of the most basic function
of a healthy economy. A sustainable economy. Unfortunately, I
have witnessed over 20 years of degradation of this simple concept.
The concept that you sell what you produce. Speaking of which,
this just in:
"Stock Futures Slip After Wal-Mart Outlook" (Reuters
8:14 AM, 4/7/05). See what I mean? Our retailing bellwether is
a massive conduit for Chinese goods destined for the American
consumer. This is the essence of the black hole of consumption
that America is sliding into, even as all seems well on the surface.
I find it very unsettling that a giant retailer, that imports
cheap foreign made goods has reached "bellwether" status
for the economy. Now for the ray of hope: The same press release
contains a blurb that Alcoa boosted sales due to "higher
metals prices and strong industrial demand." The Alcoa news
is not all good of course, since the effects of inflation are
apparent. It will be interesting to see what percentage of total
sales were attributed to American companies that actually produce
within American borders (anyone with a little extra time may
find it interesting to research this). But I assume Alcoa's American
sales grew, so there are still some of us out there, buying raw
materials and fashioning them into finished goods that meet actual
demand.
Approximately 90% of my company's sales are to the healthcare
industry. Medicare plays a large role there. There is some hefty
production for the defense sector, with the Pentagon playing
the demand role. I would like to think that America's manufacturers
have not lost the majority of free market demand in industries
like semiconductors and telecom, but that is probably too much
to hope for.
Still, when the black hole becomes seen for what it is, when
one of the links in the "we inflate our money supply and
buy while you arbitrage your labor pool and produce for us"
daisy chain breaks, the United States will need an industrial
base to fall back on. I am proud that my company is a small,
surviving part of that base and look forward to a day when our
sector is revalued within the massive papier-mache beast we pretend
is a fully functioning economy. Those manufacturers who survive
the coming adjustment however, will surely be the ones who have
attended to debt and have not levered up into the current and
ongoing inflation.
In short, when our currency is exposed as the debt instrument
it truly is, on a mass and global scale, the only ones that are
going to want to sell to us is us! At least until America addresses
and repudiates its current ways of using debt as fuel. The adjustment
will be hard, and throughout its duration, the country will need
to depend on its own industries. Let's hope they are intact at
an acceptable level when the time comes.
Gary Tanashian
email: info@biiwii.com
website: www.biiwii.com
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Copyright ©2004-2006 Gary
Tanashian
Disclaimer: Gary Tanashian does
not recommend that any trading or investment positions be taken
based on views expressed here. If you speculate or invest it is
suggested that you consult a financial advisor qualified in your
area of interest.
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