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Earlier conservative press reports



 

The following two articles are from our most prestigious conservative financial publication for serious investors, Barron’s.

They clearly describe the never ending class war between investors and workers:

• As wages go up, profits go down, and

• American investors, as a class, will always put their money into those countries that have the lowest wages and fewest protections of workers.

Both articles are from Barron’s, September 7, 2011

Corporate Earnings Look Marginal

By Randall W. Forsyth

 

Rising costs could squeeze profits, calling into question current low P/E ratios.

The problem with forecasts is that they are about the future, and the future is unknown. Even the recent past is subject to revision, which means what we know ain’t necessarily so. And so our expectations are off, which feeds into P/Es and equity-risk premiums.

That thought is prompted by the most recent report from Societe Generale’s lead global strategist, Albert Edwards, who is no stranger to readers of this space and Barron’s magazine as well. Corporate profit margins were terrific in 2010 but have become less so this year. Labor costs are surging, which is slashing margins. Edwards thinks we are at a tipping point at which companies no longer can pass on cost increases in a low-demand world….

Corporations have responded to higher expenses of all types, whether for personnel or materials, by battening down labor costs and whatever else that can be trimmed. Nil jobs growth in August is an example of this effect…

In any case, Edwards points out the “remarkable turn for the worse” taken this year by productivity, the ultimate source of our wealth. As a result, unit-labor costs — a major determinant of corporate earnings and inflation — have vaulted higher at a faster pace than selling prices.

“This is very bad news for profits. Bad news for equities,” he writes. “And because the pace of [unit-labor costs] is a key driver of inflation (upwards in this instance), it is bad news for an increasingly criticized and divided Fed.”

—————-

As Small Fry Flee, Pros Buy

Brazil, Korea and Taiwan are among the favorites of big investors.

…”This is a very opportunistic time to make a commitment to emerging markets,” says Tim Seymour, managing partner at Triogem Asset Management, noting that the group was trading at midweek around 10.7 times expected earnings this year. The hedge-fund manager, who occasionally uses ETFs (exchange traded funds) to complement core stock positions, focuses on emerging markets….

Two of Morgan Stanley Smith Barney’s favorites: Vanguard MSCI Emerging Markets(ticker: VWO) and WisdomTree Emerging Markets Equity Income(DEM). “Our strategists generally prefer emerging markets now over developed markets for their attractive valuations and positive long-term economic outlooks,” says Michael Jabara, an analyst at the firm, which tends to favor the biggest and most liquid ETFs in each market.

Despite stagnant wages and soaring corporate profits for the past thirty years, Mr. Forsyth still laments the fact that corporations have screwed every ounce of productivity they could out of workers, and, horrors, wages may start to go up.

This is especially bad news for the Fed, because increases in wages may cause inflation. Of course, the Fed never worries about inflation caused by increases in investor or corporate executive incomes. (That would be “socialism.” When the Fed stops wage inflation by cooling the economy—that’s just good “capitalism.”)

Mr. Forsyth also worries about the fact that “companies no longer can pass on cost increases in a low-demand world.” In other words: consumers are running out of money to buy products—just like in 1929.

————————————–

The article “As small fry flee, pros buy” is by now the same old news that’s been around for the past 30 years. America’s big investors always put their money in the countries that are destroying America’s industrial base and its decent paying jobs. These are the very same fat cats that Mick Mulvaney wants to give tax breaks to, “so they can create jobs.” They sure do, in the nations that are competing with us.

 



Even the conservative financial business publications are beginning to understand the disaster that globalization and unshared technological advances are creating.

Sue Myrick, her Republican colleagues and conned-or-spineless Democrats have accomplished two things:

  • They’ve enabled corporations to destroy workers’ wage levels in the U.S. by outsourcing well-paid jobs of almost all categories.
  • This outsourcing and the threat of more outsourcing have destroyed workers’ ability to negotiate for a better share of the increases in productivity what should be benefitting everyone.

Corporate executives and their investors want it all. They don’t want to share any of it, even with the workers who made their successes possible in the first place.

From Bloomberg Businessweek, August 29-September 4, 2011, p.26:

The slow disappearance of the American working man

A smaller share of men have jobs today
than at any time since World War II

The falloff in wages “takes men and puts them
back at their earnings capacity of the 1950s”

As President Barack Obama puts together a new jobs plan to be revealed shortly after Labor Day, he is up against a powerful force, long in the making, that has gone virtually unnoticed in the debate over how to put people back to work: Employers are increasingly giving up on the American man.

If that sounds bleak, it’s because it is. The portion of men who work and their median wages have been eroding since the early 1970s. For decades the impact of this fact was softened in many families by the increasing number of women who went to work and took up the slack. More recently, the housing bubble helped to mask it by boosting the male-dominated construction trades, which employed millions.

When real estate ultimately crashed, so did the prospects for many men. The portion of men holding a job—any job, full- or part-time—fell to 63.5 percent in July—hovering stubbornly near the low point of 63.3 percent it reached in December 2009. These are the lowest numbers in statistics going back to 1948. Among the critical category of prime working-age men between 25 and 54, only 81.2 percent held jobs, a barely noticeable improvement from its low point last year—and still well below the depths of the 1982-83 recession, when employment among prime-age men never dropped below 85 percent. To put those numbers in perspective, consider that in 1969, 95 percent of men in their prime working years had a job.

Men who do have jobs are getting paid less. After accounting for inflation, median wages for men between 30 and 50 dropped 27 percent—to $33,000 a year— from 1969 to 2009, according to an analysis by Michael Greenstone, a Massachusetts Institute of Technology economics professor who was chief economist for Obama’s Council of Economic Advisers. “That takes men and puts them back at their earnings capacity of the 1950s,” Greenstone says. “That has staggering implications.”…

The economic downturn exacerbated forces that have long been undermining men in the workplace, says Lawrence Katz, a Harvard professor of labor economics. Corporations have cut costs by moving manufacturing jobs, routine computer programming, and even simple legal work out of the country. The production jobs that remain are increasingly mechanized and demand higher skills. Technology and efforts to reduce the number of layers within corporations are leaving fewer middle-management jobs…

For generations, American workers kept up with technological change by achieving higher levels of education than their parents. High school education became the norm as the country progressed from an agrarian society to an industrial one. After World War II, increasing numbers of Americans went to college as the economy became more complex. But for reasons not fully understood, college graduation rates essentially stopped growing for men in the late 1970s, shortly after the Vietnam War ended, perhaps in part because draft deferments were no longer an inducement….

While unemployment is an ordeal for anyone, it still appears to be more traumatic for men. Men without jobs are more likely to commit crimes and go to prison. They are less likely to wed, more likely to divorce, and more likely to father a child out of wedlock. Ironically, unemployed men tend to do even less housework than men with jobs and often retreat from family life, says W. Bradford Wilcox, director of the National Marriage Project at the University of Virginia.

The long-term fix is simple to spell out and tough to achieve: getting more men to attend college and improving the skills of those who don’t. Reducing financial barriers to higher education would be a start. But there isn’t much political appetite for spending the billions it would take to make that happen. Even once-sacred Pell Grants are on the block as Washington looks for budget cuts. A strapped public education system that leaves many young men unprepared for the workplace, let alone college, doesn’t help. It’s noteworthy but not especially comforting to know that this is not just an American problem. The same gender differences in college attendance and employment are emerging in rich societies around the world….

If there is any upside to recessions, it’s that they tend to expose deep problems that go ignored or at least overlooked in better times. The short-term fixes the President proposes may provide much needed relief for the millions of people looking for a job. The danger is that the fixes will work just well enough to let us pretend—for a while longer—that the real problem is no longer there.

A major change should be made in the above report: “Employers are increasingly giving up on the American man.” It would be more accurate to say: “Employers deliberately and knowingly gave up the American man so they could replace him with desperate workers in impoverished countries—and all to enrich themselves and their investors.”

A second statement needs a reality check: “The long-term fix is simple to spell out and tough to achieve: getting more men to attend college and improving the skills of those who don’t.” Education—although vital and necessary—isn’t and never has been able to protect American workers from lower wage countries, at any skill or educational level.

America desperately needs the kind of industrial and fiscal policies we had between 1932 and 1980.

 



The report below demonstrates beyond any conceivable doubt that “globalization”—unregulated international trade—is a disaster for our country. Remember, the new “green technologies” were supposed to be America’s new industry that could compete on a global basis.

From The Wall Street Journal, August 22, 2011:

China storms into wind and solar power

The paradox of wind and solar power is that they are too expensive to compete properly with conventional fuels like natural gas, yet lower equipment prices from competition can prove fatal to manufacturers. Last week, U.S. solar panel maker Evergreen Solar went bankrupt. Despite shifting its factory to China, from a state-supported facility in Massachusetts, it couldn’t compete.

China figures large in renewable energy’s future. It already is the world’s largest market for new wind turbines. In solar, China’s share of global demand is set to rise to 13% in 2015 from 7% this year, says Barclays Capital….

Chinese demand for renewables is underpinned by economic development and government backing—handy when cash-strapped European governments are cutting subsidies. But Beijing isn’t interested in helping Western suppliers. In wind power, for instance, foreign manufacturers’ share of the Chinese market has collapsed from 80% in 2004 to less than 15% today.

Having conquered their home market, Chinese wind manufacturers aren’t content to stay at home. Four Chinese companies made BTM Consult’s top 10 list of wind turbine suppliers last year, up from two in 2008.

Xinjiang Goldwind Science Technology, No. 2 in China by shipments, has recently won orders in the U.S. and aims to derive 30% of gross profit overseas by 2015….

Chinese expansion will accelerate this trend. Credit Suisse reckons China’s GCL-Poly Energy, for example, could have production capacity equal to two-thirds of the entire global solar panel market in 2012. What’s more, by then it could be churning out panels at a lower all-in cost than current cost leader First Solar, an American firm.

There you have it! It’s time to face reality. America needs a tariff on imports from countries that actually have an industrial policy. (The U.S. abandoned any semblance of an industrial policy years ago.)

We’re still the No. 1 consumer nation in the world, and the benefits of becoming an industrial nation again would outweigh any cost increases due to long overdue increases in workers’ wages.

No matter how talented and innovative we are, there is no way we can compete with nations with low wages, terrible working conditions, and subsidies for their growing industries.

Republicans like Sue Myrick and Blue Dog Democrats are in willful denial of this fact and need to be removed from office.



The report below demonstrates beyond any conceivable doubt that “globalization”—unregulated international trade—is a disaster for our country. Remember, the new “green technologies” were supposed to be America’s new industry that could compete on a global basis.

From The Wall Street Journal, August 22, 2011:

China storms into wind and solar power

The paradox of wind and solar power is that they are too expensive to compete properly with conventional fuels like natural gas, yet lower equipment prices from competition can prove fatal to manufacturers. Last week, U.S. solar panel maker Evergreen Solar went bankrupt. Despite shifting its factory to China, from a state-supported facility in Massachusetts, it couldn’t compete.

China figures large in renewable energy’s future. It already is the world’s largest market for new wind turbines. In solar, China’s share of global demand is set to rise to 13% in 2015 from 7% this year, says Barclays Capital….

Chinese demand for renewables is underpinned by economic development and government backing—handy when cash-strapped European governments are cutting subsidies. But Beijing isn’t interested in helping Western suppliers. In wind power, for instance, foreign manufacturers’ share of the Chinese market has collapsed from 80% in 2004 to less than 15% today.

Having conquered their home market, Chinese wind manufacturers aren’t content to stay at home. Four Chinese companies made BTM Consult’s top 10 list of wind turbine suppliers last year, up from two in 2008.

Xinjiang Goldwind Science Technology, No. 2 in China by shipments, has recently won orders in the U.S. and aims to derive 30% of gross profit overseas by 2015….

Chinese expansion will accelerate this trend. Credit Suisse reckons China’s GCL-Poly Energy, for example, could have production capacity equal to two-thirds of the entire global solar panel market in 2012. What’s more, by then it could be churning out panels at a lower all-in cost than current cost leader First Solar, an American firm.

There you have it! It’s time to face reality. America needs a tariff on imports from countries that actually have an industrial policy. (The U.S. abandoned any semblance of an industrial policy years ago.)

We’re still the No. 1 consumer nation in the world, and the benefits of becoming an industrial nation again would outweigh any cost increases due to long overdue increases in workers’ wages.

No matter how talented and innovative we are, there is no way we can compete with nations with low wages, terrible working conditions, and subsidies for their growing industries.

Republicans like Mick Mulvaney and Blue Dog Democrats are in willful denial of this fact and need to be removed from office.



Small, “job creating” businesses in the U.S. aren’t the only ones in trouble. They’re also in trouble in one of the fastest growing economies in the world: China.

There are significant lessons here for those who can’t figure out why our country is in so much trouble.

From Bloomberg Businessweek, August 15-18, 2011, p. 10:

Small Companies in China Feel the Squeeze

Wenzhou-based Topsun Group makes diesel generators and runs hotels in China. Chairman Wang Chonghuan is a typical entrepreneur—hard-working, hands-on, ready to pounce on any opportunity, accustomed to bouncing back from difficulties. Yet he doesn’t sound very optimistic when he talks about the credit situation that China’s small business sector faces today. “I have been doing business for 30 years, and I have never seen such high interest rates,” says Wang. “Borrowing any money almost amounts to committing suicide.”

Small and medium-sized companies in Wenzhou are getting hit hard by the credit crunch, which the central authorities have imposed on companies to stem speculative investments and slow inflation. Middling-sized firms in exporting provinces such as Guangdong in southern China and the towns of the Yangtze River Delta are struggling, too. Many have already felt the pinch of higher wages, rising raw material costs, and the appreciating currency.

“The situation is getting worse and worse,” says Zhou Dewen, head of Wenzhou’s trade association for small and medium-sized enterprise in the province of Zhejiang. “There are widespread accounts of smaller businesses struggling to gain access to credit,” wrote Jing Ulrich, head of global markets, China, at J.P. Morgan on Aug. 9.

Wenzhou’s Zhou estimates that about one-fifth of China’s more than 10 million small and medium-sized enterprises, most with fewer than 300 employees, are producing at half capacity and risk bankruptcy. “If the government doesn’t come up with new policies to support them and loosen credit, then the number facing possible bankruptcy will double to 40 percent” by the next Chinese New Year, he predicts.

First, note that huge multinational corporations in both the U.S. and China are making record profits, have extensive money reserves, and are delivering huge dividends and capital gains benefits to their shareholders.

Second, large corporation profits in both countries are benefitting a relatively small percentage of the populations, and their significantly increased living standards are creating rapid inflation for everyone else—and to the detriment of small and medium-sized companies and their employees.

Third, the national governments of both China and the U.S. are pursuing policies that favor multinational corporations (tax policies, credit policies, regulations, etc.) at the expense of those with less political clout.

Fourth, if Chinese factories are having trouble surviving in the world market, with labor costs one-tenth to one-fifth of America’s workers, what does that say about U.S. factories? (Don’t we need tariffs to protect American jobs against low-wage foreign compteition?)

And Fifth, again we find that, without government oversight and controls, so-called “free markets,” nationally and worldwide, will be controlled by the world’s biggest corporations—and to the detriment of everyone else.

The biased conservative
financial press

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