Gold is not so Valuable

The price of gold has risen substantially in recent weeks.  It was hovering in the mid $900 range for quite long time but now has reached $1,100 per ounce.  The increase has occurred in a rather short time.  I then checked Morningstar premium service and Eric Tyson’s web site.  Both of them DO NOT recommend buying gold.

Eric Tyson says “gold is a dismal long-term investment.”  Morningstar points out that “the sharp gain should only remind them of how volatile this sector is because it follows a painful 23.8% decline in 2008.”

Both of these web sites suggest alternate investments.  Unless you are really convinced that the United States government is going bankrupt, you will be better off investing in inflation protected securities or perhaps the S&P 500.

The Lowest Cost Means the Highest Net Income

The average hourly pay rate in the state of Washington is $22.32.  The average hourly pay rate in South Carolina is $17.33.  So Boeing Company has decided to build their new 787 Dreamliner in a North Charleston facility in that Southern state.  Of course there is also an incentive package by South Carolina that sealed the deal.

The lesson learned is that free enterprise always looks for ways to lower its cost of doing business.  The state of Washington does not own Boeing.  There is no pact that requires their allegiance to that state’s population.  Lockheed moved from Los Angeles to Atlanta.  Technicolor has moved its CD and DVD manufacturing facilities that was located in Virginia and California to Mexico.  Many companies have outsourced their manufacturing to other countries. 

Let me put this another way.  Stock holders are not interested in providing welfare.  They are interested in net profit.  This too is part of America Incorporated.  Any questions? 

America Incorporated

The United States is borrowing a page from Red China.  China has adopted a model that includes both free enterprise and government control.  Red China actually is copying the American model that was partially implemented by the United States until President Ronald Reagan said “government is the problem.”  Ronald Reagan was wrong.

Reagan’s impact lasted until the election of Barack Obama.  The dismantling of many laws put in place after the Great Depression has caused the Great Recession.

The economic model that works best is one of both government and private enterprise working in unison to provide for continued moderate growth without creating a super wealthy class and reducing poverty.

Republicans and conservatives will fight the intent of this course because they believe it will destroy the nation.  They are wrong.  The United States is a consumer driven economy that is based upon the purchase of product.  It cannot thrive without employment of most people at salaries that enable that continuing purchasing power.  The public correctly objects to CEOs earning 200% to 300% more than the average wage earner.  

The government’s investment in companies like Fisker Automotive is the kind of step that the Chinese government makes to improve society by employing thousands of people.

Why Not Los Angeles?

Thanks to my father my family moved from Philadelphia to Los Angeles after WWII.  There are many reasons for not bringing your family to Los Angeles.  Most of them are poor arguments. 

Metropolitan Los Angeles spreads across five counties. Traveling north to south it spreads across a distance of about 75 miles and from the beach to inland cities and towns and spreads east about 50 miles.  Many people travel a distance of 30 to 35 miles just to go to work.  For most people a car is necessary for the commute to work.

Homes are relatively expensive.  Even with the downturn in housing prices for a home of 1700 to 2000 square feet will cost at least $350,000.  Those least expensive homes are in lower income neighborhoods.

What makes the city desirable are the following features:

1. Total annual rainfall averages 16 inches.  Snow is a rarity.  Temperature today reached 87ºF/30ºC at my home (October 26, 2009).  Winter temperatures drop below freezing at night for about a week every January.  How far below freezing?  One to three degrees.    

2. The entertainment facilities are second to none.  Live theater is in neighborhood venues, the Hollywood Bowl, L.A. Live, Staples Center, Disney Hall, comedy clubs, etc.

3. Medical facilities include UCLA, City of Hope, Cedars Sinai Hospital, etc.

4. Universities are too numerous to list but include UCLA, USC, California State University has four campuses.

5. Beaches include Santa Monica, Malibu, and Laguna.

6. Amusement parks include Universal City, Disneyland, Knott’s Berry Farm, and Magic Mountain.

7. The largest port in America and the entertainment industry brings lots of job opportunities.

8. There is also the zoo, museums, gardens, and wonderful shopping malls.

What’s wrong with this picture?  The people are too liberal, many races and ethnic groups are intermixed throughout the city.  West Hollywood is an internationally known gay and lesbian community.  You may have to wait an hour and a half to be seated at Miceli’s and parking at the Beverly Center is always a challenge.    

AARP is Just Another Business

The good news is that more businesses than ever before are trying to appeal to the over 50 crowd.  I never thought that being over 50 years old as being part of the senior generation.  That is the age when AARP starts sending out their membership packets.  I through them in the trash can for five years.  Then one day someone in a video rental store said he thought I was entitled to a discount due to my age.  Hmm, did I look that old?  Oh well, they gave me a 25% discount on VHS rentals so why not accept this opportunity?  That is when I joined AARP.

AARP does send out an entertaining magazine and newsletter so there is a benefit.  AARP did work with President Bush on the drug plan for Medicare and that seems to have lowered the cost (at price to the government) so perhaps they do help seniors.  I do obtain lower rates at hotels when I travel thanks to AARP and used the “AARP Travel Center powered by Expedia” to get a good deal on our trip to Toronto last June. 

A little investigation showed that my Auto Club insurance is cheaper than insurance offered through AARP and the Auto Club’s life insurance is much cheaper too.  That is the case in California.  Now I found this article published by Bloomberg that confirms my worst concerns about the organization.

AARP is not a bad or dishonest group.  They are just not as good as they want all the older Americans (Canadians too) to believe.

Getting Happy with the Future

America has finally obtained what so many of us has wished and hoped for, the success of countries all over the world.  It’s not just European nations that have become prosperous.  Even China and India have become nations with growing middle class societies that can afford homes, cars, and wide screen television. China has been documented on television in the United States about its growing middle and upper classes.  Fareed Zakaria reports in Newsweek that China “will spend $200 billion on railways in the next two years, much of it for high-speed rail”.  The Los Angeles Times reported on October 21, 2009 that China’s growth is at 8.9% thanks to their stimulus and lending programs. BusinessWeek reported on the growing middle class in Turkey.   

The bad news is that their prosperity impacts our prosperity.  Why? If those other nations prosper they will compete with the United States for the sales of many of the products we export to the rest of the world.  Most other nations have lower labor costs than the United States and that affects our competitiveness.

For the United States to continue its economic dominance will require at least two occurrences. 

First there will have to be a new advance in part of our economy that will be a show stopper.  It will need the next new thing.  It will be something that everyone realizes is a “must have.”  The federal government is trying to motivate this idea with talk of the new “green” environment and the possible development of new energy sources. 

Second, the cost to produce this something new will be accomplished in the United States at a competitive rate with the rest of the world.  That evolution is already happening with the lower trade value of the American dollar.  Americans may not like this outcome because the cost of oil, cars, televisions, and cameras will be higher.  The cost of traveling to another country will be higher.   

Just as buggy whips and newspapers are part of the past, new ideas are part of the future.  Our inventiveness will make Americans happy with the future.

The Unspoken Change in our Economy

Americans are changing their spending behavior.  The impact of this change could also result in a deflationary economy.  That is a situation where prices are dropping and everyone is waiting for the next drop in prices before making a purchase.  It’s great for consumers but businesses are forced to carry reduced inventories because they fear sales will not be sufficient to provide a return on their investment.

The ongoing recession could impact our country in a way that few people have discussed.  When so many people do not have jobs or have taken lower paying jobs a level of depression begins to set in.  Stores have less to sell and people have less to spend.  It is a cycle that is difficult to break.

The real unemployment is totaling about 17%.  That is the combination of the reported unemployment of 9.8% added to those working reduced hours, those working at jobs paying less than their historical pay rate, and those that have given up searching for a job.  All of those people have reduced their spending.  The impact is seen in retail sales.  Most retail businesses are reporting losses.  A walk through the malls tells the story with many vacancies and too few shoppers.  The Christmas selling season is expected to be slow.

For many of us our homes were our piggy banks.  With housing prices dropping by 30% to 40% and banks asking for higher credit card interest the outcome is obvious.

The stock market is up based on higher profits.  It is a temporary condition. Those profits are the result of reduced labor costs not increased demand.  This economy is based on consumers buying.  We the people have run out of money. 

American Competitiveness – Are We Serious?

The United States is the only industrialized nation that does not use the metric system as its predominant system of measurement.  We use a modified form of the English system of weights and measures.  The U.K. for the most part converted to the metric system in 1995. 

Both Canada and Mexico are on the metric system.   Mexico has an obligatory use of metric units established by law of June 19, 1895.  Canada made the change in 1971.

The voluntary plan for conversion to metric has met a wall of refusal.  The arguments are from those who say the change over will be too expensive and the change will be too confusing.  Interestingly the United States has been making the change but very slowly.  Soda bottles are now available in liter sizes, liquor is sold in metric sizes, and both prescriptive and non- prescriptive drugs are measured in metric weight.  Cameras/photo supplies, car tires, and a few other items are measured partially in both systems.

American competitiveness would be enhanced by a total conversion.  Still, neither The U.S. Chamber of Commerce nor The National Association of Manufacturers (NAM) has the question of conversion on their list of issues.  Why haven’t American manufacturers and scientists been more forceful in bringing the nation in compliance with the rest of the world?  I cannot think of one good reason.

The Great Recession of 2007 to 2010

Despite the stock market’s recent optimism there is nothing to celebrate!  No industries are in a growth mode now.

New claims for unemployment benefits declined from 574,000 to 570,000 for the week ending August 29.  It most likely is no change because the weekly report is a preliminary number.  In the previous week the preliminary number was 570,000 and was adjusted up to 574,000.  The September 4 report of 9.7% unemployment rate for August supports this column.  Retail sales are down for most national chains.

The very worst layoffs are probably over but the rate is still astonishingly high.  When there is no recession the weekly layoffs amount to about 350,000 people.  The lay off rate in excess of 600,000 people per week lasted for 14 weeks.  So now everyone is celebrating nine weeks of layoffs in the 500,000 to 600,000 range.  Even as I write this commentary the AP headlines a story Improving economy not likely to lower jobless rate.  This does support my contention that we won’t see  job growth any time soon.

The stimulus package has not done its job.  Those opposing it were correct. The government posted distribution confirms the argument that too little of the stimulus money would not be put into the economy quickly enough to create any short term benefit.     

Recessions are frequently the time for new business ideas.  I believe that will be the source of our next boom.

The 21st Century World Economy Has Arrived

The United States was not interested in the rest of the world until WWII.  Our nation kept up its protectionist and no alliance philosophy until that war thrust us (were we dragged?) into a position of leadership.  Exceptions to that basic idea did occasionally occur.  There was the famous bombardment of pirates off the north coast of Africa in the early 1800s.  That was an independent action that led to know alliances.  WWI is the outstanding example of working together with other countries to defeat a common enemy.  At the end of that war the United States did not join the League of Nations.  Instead the country reverted to its no alliances philosophy.

The idea of no alliances apparently dates back to Thomas Jefferson. He extended Washington’s ideas in his March 4, 1801 inaugural address: “peace, commerce, and honest friendship with all nations, entangling alliances with none.” 

A Cato Institute article on free trade confirms the philosophy of high tariffs. The article provides a U.S. Department of Commerce graph that shows 30% import duties on durable goods until WWII.  Pat Buchanan, the conservative talk show host and former presidential candidate, still contends that the United States would be better off economically if trade barriers were in place.  He repeated that position on the McLaughlin Group on Friday August 21, 2009.  When was the last time he went shopping?  Walmart, Target, Sears, Best Buy, etc. are all part of the global market place.

It’s understandable why Buchanan and others believe that protectionism is the salvation for the United States.  We can’t compete with other nations for many goods and services.  Our cost of living is just too high.

Listed on President Barack Obama’s top five books to read this summer is Thomas Friedman’s The World is Flat.  It’s a book that tells us something we already know but in horrifying detail.  This book tells us about the interdependence of every nation in the world.  The quote “President Obama will probably learn of the operation from CNN” evidences how well we have connected everyone.  Even Mayanmar’s (Burma’s) secretive government has been unable to keep events in that country a secret from the world.  Neither 10th century Muslims nor Asian dictators can stop the interconnected world.  Visit Toronto, Canada and it’s like visiting the United Nations.  You will realize the world cannot be turned back.

The answer to our dilemma is innovation and invention.  This nation gave birth to assembly line manufacturing (Henry Ford’s factories), the telephone, the computer world, and the internet.  It was Thomas Edison who invented the light bulb and the first recording devices.  The largest and most successful aircraft manufacturing companies were built in the United States.  It’s that creativity that will revitalize this nation.

What will it be?  I don’t know.  It could be new car batteries or new ways to generate electricity or something else.  The new world has arrived.  Get excited!