Who's To Blame For The Loss Of Our Manufacturing Base?

NO ONE!   Let me "splain", as Ricky Riccardo might say.

Long ago, the U.S. was an agricultural leader, with 1 of 2 people making their livelihoods on the farm.  Following that came the "assembly line", which ushered in a period during which agricultural workers were drawn off the farms and into the factories, especially the early auto industry.

While this process temporarily displaced those who only knew milking cows or plowing fields, it was very good for society as a whole, as FEWER people were needed to grow MORE food and an embryonic and powerful manufacturing sector was born.  Today, only about 3% of the population grows enough food to feed our country and much of the rest of the world!

 Post World War II, another transition occurred as fewer employees were needed for manufacturing and a "Services" based economy came into existence. 

By 2006, according to America.gov (http://www.america.gov/st/econ-english/2008/April/20080415222038eaifas0.9101831.html), services produced by private industry accounted for 67.8 % of U.S. Gross Domestic Product (GDP), with real estate and financial services such as banking, insurance and investment on top.  Some other categories of services are wholesale and retail sales, transportation, health care, legal, scientific and management services, education, arts, entertainment, recreation, hotels and other accommodation, restaurants, bars and other food and beverage services.

Production of goods accounted for 19.8 % of GDP:  manufacturing - such as computers, autos, aircraft, machinery - 12.1 %; construction - 4.9 %; oil and gas drilling and other mining - 1.9 %; agriculture - less than 1 %.  Federal, state and local governments accounted for the rest - 12.4 % of GDP.

An article in "Suite 101" explains why it appears the U.S. is losing its manufacturing base (http://us-trade-policy.suite101.com/article.cfm/robots_are_replacing_workers).

"So, how is it that manufacturing production continues to grow, while employment declines? Listening to Washington policymakers, one might assume that all the manufacturing jobs have simply been moved to Mexico or China, but that's only a part of the story -- and not even the largest part. By far, the biggest factor impacting manufacturing jobs is technology and automation -- e.g. smart robots. Don't worry, it is not the Terminator or the Matrix Americans have to fear, but automation is capable of higher functioning tasks than ever before and the scope of work robots are able to manage grows every year.


Even as companies open new facilities in the United States, the expected job creation just is not at the scale people are used to seeing because so much of a factory's operation is automated. There are even dark factories being built that do not have lighting because no humans are working there."

Economist Joseph Schumpeter argued that capitalism exists in the state of ferment he dubbed "creative destruction," with spurts of innovation destroying established enterprises and yielding new ones. 

What is taking place now is nothing new.   

The process of transition from one state to another is painful.  Many of us have been forced out of our safety zones and turned to practices such as blogging in order to re-create new livings.  In the short run, the process is distressing.  In the long run, the process is GREAT!

You know what to do if this article promotes some thinking or disagreement.  TAKE ME ON!

Marko's Take

Commodity ETFs As A Way To Play The Coming Hyper-Inflation

Before launching into this essay, we must first make a distinction between an ETF (Exchange Traded Fund) and an ETN (Exchange Traded Note).

An  ETN is a senior, unsecured, unsubordinated debt security issued by an underwriting bank.  Similar to other debt securities, ETNs have a maturity date and are backed only by the credit of the issuer!  Therefore, they carry "counter-party" risk, as do derivatives.

ETNs are designed to provide investors access to the returns of various market benchmarks. The returns of ETNs are usually linked to the performance of a market benchmark or strategy, less investor fees. When an investor buys an ETN, the underwriting bank promises to pay the amount reflected in the index, minus fees upon maturity. Thus, an ETN has additional risk compared to an ETF - upon any reduction of credit ratings or if the underwriting bank goes bankrupt, the value of the ETN will be eroded.

For those reasons, I think ETNs should be avoided while ETFs are much, much, safer.

The number of ETFs and ETNs for that matter, have exploded in issuance and continue to do so.

If you want to play various commodities or even currencies, a number of ETFs exist for that purpose.

In the Metals sector, ETFs exist for Platinum (PPLT), Palladium (PALL), Gold (GLD) Silver (SLV) and Gold and Silver Mining Stocks (GDX and GDXJ).

As to Agriculture, one can play overall agri-business with DBA.  A rather large variety of  currencies have ETFs.  One can invest in the Australian Dollar (FXA), Brazilian Real (BZP), Canadian Dollar (FXC), Chinese Yuan (CYB), Euro (FXY), Indian Rupee (ICN), Mexican Peso (FXM), Pound Sterling (FXB),
Russian Ruble (XRV), South American Rand (SZP), Swedish Krona (FXS) and Swiss Franc (SXF).

Other commodity-related ETFs include Oil (USO) and (USL), Gasoline (UGA), Heating Oil (UHN) and Natural Gas (UNG).

Before you dive-in, make sure that the ETF does indeed accurately track the underlying index!  One ETF that has done an abysmally poor job is USO, which has embarrasingly underperformed oil prices.  I've also expressed concerns about GLD in prior essays.

A couple of other interesting ETFs include meat products (MOO) and water resources (PHO).

Note:  I'm NOT recommending any of these.  The only ETF I have experience with is TIP, which mimics Treasury Inflation Protected Securities (http://markostake.blogspot.com/2009/12/tips-on-grabbing-higher-yields.html) and GDXJ..

Tommorow, we'll cover some interesting ways of hedging against inflation without going through the ETF route.

Thanks for reading!

Marko's Take