The Inverted Yield Curve

[BandB]

Consumer sentiment (how the consumer feels) is a big factor also, as was pointed out previously. We see this drives stocks/companies beyond there evaluation and then some. Just look at, beyond meat, Netflix, even Tesla. It depends if enough american consumers will be excited about buying "American made" or maybe by the negative exposure china is getting, Hong Kong protests, patent theft, IP theft ... it will be enough to just not buy chinese made. Consumer spending is the biggest part of our economy. My hope is that we get some manufacturing back in the US but cleaner and more effecient than it was when it left. This could be an opportunity to build some state of the art polution free facilities without all the extra baggage the companies had before. The more manufacturing we have here the less the tariffs effect us except for exports of course.

Bud

The consumer has shown repeatedly that American Made might sound good as a theme, but they won't pay $1 more for it. They don't examine labels to tell China vs. Vietnam vs. Honduras either. They buy what they like. Our line is 100% made in the US and it's nice for discussions and stores glad to carry it, but it doesn't generate any more sales on the floor. Styling does.

As to getting some manufacturing back, it's just not going to happen. Many reasons for that. One of the biggest remains labor costs and there are too many other countries to choose from with labor costing 10-25% what ours does. Now, you could put tariffs to equalize that but do you really think the American consumer wants to pay that much more than they do today? The other reason is we have no industrialists. Think about that? We have no people running to build manufacturing, no one wanting to spend the many millions even a relatively small facility costs. The largest new manufacturing facilities built in the US in the past 20 years have been built by foreign companies. If there was someone ready to build, the trade war would even lessen their interest. There are many American farmers being hurt badly by the reduction of sales to China. There are boat builders hurt by tariffs with Canada and the EU. Look at Harley Davidson. We have had interest in our lines from European stores and the trade war has led us so far to say "no." We aren't going to build up to risk a sudden drastic drop in business due to whims of those in control. We know small custom boat builders who the European retaliatory tariff on boats cost hundreds of thousands of dollars. As a business person, you can't risk getting caught in a war. You can risk a 10-20% drop in business but not an entire market dropping 50% or more. China is a huge market and losing that market is very damaging to many US farmers and manufacturers.

 

[menzies]

IMHO I would draw the line at the intellectual theft. Its ok to make something invented in the US cheaper and sell it to us, but to steal the intellctual property associated with the product in the process is desrtuctive to us. Why should we continue to be China's enabler.

Bud

Shouldn't that be handled through the application of law - and negotiation. I can't see how tariffs would resolve that issue - unless just a way to get them to the negotiating table. And what about the EU, where are we will them?

 

[Bud]

I agree there does not seem to be any logical way that one could see manufacturing coming back in a meaningful way. Many headwinds as you point out. Maybe consumers feel like, been there, done that, have the superfund sites to clean up allready. It just appears to me the loss of those manufacturing jobs left a hole. There are alot of low paying service jobs and then a big jump to profesional type jobs not much in between. A good symptom of that is you have to have a college degree to compete for a job starting at $30k a year.

 

[BruceK]

The consumer has shown repeatedly that American Made might sound good as a theme, but they won't pay $1 more for it. They don't examine labels to tell China vs. Vietnam vs. Honduras either. They buy what they like. Our line is 100% made in the US and it's nice for discussions and stores glad to carry it, but it doesn't generate any more sales on the floor. Styling does.

As to getting some manufacturing back, it's just not going to happen. Many reasons for that. One of the biggest remains labor costs and there are too many other countries to choose from with labor costing 10-25% what ours does. Now, you could put tariffs to equalize that but do you really think the American consumer wants to pay that much more than they do today? The other reason is we have no industrialists. Think about that? We have no people running to build manufacturing, no one wanting to spend the many millions even a relatively small facility costs. The largest new manufacturing facilities built in the US in the past 20 years have been built by foreign companies. If there was someone ready to build, the trade war would even lessen their interest. There are many American farmers being hurt badly by the reduction of sales to China. There are boat builders hurt by tariffs with Canada and the EU. Look at Harley Davidson. We have had interest in our lines from European stores and the trade war has led us so far to say "no." We aren't going to build up to risk a sudden drastic drop in business due to whims of those in control. We know small custom boat builders who the European retaliatory tariff on boats cost hundreds of thousands of dollars. As a business person, you can't risk getting caught in a war. You can risk a 10-20% drop in business but not an entire market dropping 50% or more. China is a huge market and losing that market is very damaging to many US farmers and manufacturers.

Surely if tariffs are raised to a high enough level, local manufacturing becomes possible as overseas suppliers vacate the area. Even if it involves someone getting entrepreneurial and investing capital to set up.
Oddly enough, Bluescope Steel, an Aust. specialist steel maker,is making steel and good profits in USA. From memory, it has 6000 US employees.(Bluescope was a BHP spinoff/discard when BHP got out of steel making, it doesn`t do as well here.) Less odd but interesting, Aust company Breville (a kitchen appliance mfr/supplier) manufactures in China and sells in USA, as well as other places. I understand they do high end products and don`t expect tarrif market damage.

 

[BandB]

Surely if tariffs are raised to a high enough level, local manufacturing becomes possible as overseas suppliers vacate the area. Even if it involves someone getting entrepreneurial and investing capital to set up.
Oddly enough, Bluescope Steel, an Aust. specialist steel maker,is making steel and good profits in USA. From memory, it has 6000 US employees.(Bluescope was a BHP spinoff/discard when BHP got out of steel making, it doesn`t do as well here.) Less odd but interesting, Aust company Breville (a kitchen appliance mfr/supplier) manufactures in China and sells in USA, as well as other places. I understand they do high end products and don`t expect tarrif market damage.

Manufacturing is possible in the US. We do it. Toyota, Honda, Hyundai, GM and Ford do it. Others do. But for someone not currently manufacturing here to start is extremely unlikely.

Breville already has price resistance here and lots of competition. Problem is all their competition is also manufactured in China. Tariffs would increase prices of all and since they're all luxury items and not necessities, I'd expect to see them all suffer some.

 

[FF]

"But for someone not currently manufacturing here to start is extremely unlikely."

Perhaps if it did not take 1/2+ a decade to get permission from dozens of foot dragging buroRats & agencies more could be built in the USA.

If siting and building permits could be had in 90 days instead of thousands , it might be a different story.

Remember COSTS drove mfg out of the country , lower the costs more would choose not to flee.

 

[menzies]

I just don't think you can make up the gap in labor with reducing other costs. If foreign labor is 10-15% of American labor, and labor makes up half of your costs you just can't do it. And if labor costs are also built into the cost of your raw materials that you now want to source from the us as well, it compounds the gap.

 

[Bud]

The oil and gas industry here in the US is now the biggest producer globally. 10 years ago we were relying on imports. Now we even export some. Result has been stable prices in US.

 

[menzies]

Yes, but that's not manufacturing, it's availability of the natural resource.

You do raise an interesting point though. As we improve technology, extraction of fossil fuels gets more cost efficient.

That is one area where I think we still excel - technology, along with some other countries like Japan and Germany. The issue is the leadership cycle time is small, so you have to keep aggressively improving - this then gets to having better education etc.

Lots to discuss there!

 

[Bud]

I just don't think you can make up the gap in labor with reducing other costs. If foreign labor is 10-15% of American labor, and labor makes up half of your costs you just can't do it. And if labor costs are also built into the cost of your raw materials that you now want to source from the us as well, it compounds the gap.

Another big part associated with labor costs are the exchange rates. That is the important economical connection between countries. 1 US dollar worth 7 Yuans. The difference adds to the lopsided labor costs. A company like Apple that makes the Iphone in China and then imports it to the US, they get a big discount on labor when the yuan weakens.

 

[BandB]

"But for someone not currently manufacturing here to start is extremely unlikely."

Perhaps if it did not take 1/2+ a decade to get permission from dozens of foot dragging buroRats & agencies more could be built in the USA.

If siting and building permits could be had in 90 days instead of thousands , it might be a different story.

Remember COSTS drove mfg out of the country , lower the costs more would choose not to flee.

Well, the the story you're painting is just a false story outside of the west coast. I can get permits and construction underway in most areas within a month. Right now we have building permits for additional space and enlarging plants in 4 locations and all were obtained in less that a week from when submitted.

Now, if you're a business that is going to heavily pollute or leave behind lead or other such things, it's a different story. The only cost that drove manufacturing away was the difference in labor cost here and elsewhere.

 

[Bud]

Well, the the story you're painting is just a false story outside of the west coast. I can get permits and construction underway in most areas within a month. Right now we have building permits for additional space and enlarging plants in 4 locations and all were obtained in less that a week from when submitted.

Now, if you're a business that is going to heavily pollute or leave behind lead or other such things, it's a different story. The only cost that drove manufacturing away was the difference in labor cost here and elsewhere.

What kind of zoning are your facilities required to have, Industrial or just business zoned ?

 

[dhays]

I would like to know what the aim is.

To equalize trade flow? To make it somewhat better - if so, how much better? To bring manufacturing back, if so how would it do that versus higher prices? Where are we with the EU, didn't both sides apply tariffs there as well?

There are a dozen other questions I could ask, but right now I get the sense that it is more tit-for-tat and both sides saying "we can outlast you", rather than a cohesive policy a with a specific aim.

I think this is a major part of the problem. The Trump administration (ie Mr. Stable Genius himself) doesn’t really know what it wants to accomplish. Just as the US at times has entered armed conflicts without really knowing what victory will look like, I see the US now entering into a trade war with China without knowing what victory will look like.

We have heard a lot of rationalizations for it but nothing that I’ve seen that is clearly defined policy and goals. Right now it looks more like a pissing contest than anything else.

What is frustrating is that this overshadows the issues that really are important, such as intellectual property protection etc....

 

[dhays]

"But for someone not currently manufacturing here to start is extremely unlikely."

Perhaps if it did not take 1/2+ a decade to get permission from dozens of foot dragging buroRats & agencies more could be built in the USA.

If siting and building permits could be had in 90 days instead of thousands , it might be a different story.

Remember COSTS drove mfg out of the country , lower the costs more would choose not to flee.

There are reasons why communities are careful about manufacturing processes in their communities. I grew up near a copper smelter. Fortunately, the prevailing wind is out of the South and I grew up South of the smelter. Even so, much of Tacoma and the surrounding area has contaminated soil. We are warned not to let the kids play in the dirt due to the high levels of heavy metals, lead, and arsenic in the area around the smoke stack plume.

Add to that our history of ship building, oil refining, manufacturing, and the wood industry and much of Tacoma and the surrounding waterways have been heavily contaminated and unhealthy for humans and wildlife alike. So when someone claims they are going to start manufacturing in our backyard, it is understandable that folks are a bit leery to simply accept the protestations of “trust me its safe”.

Granted, the process can be cumbersome and there are those that abuse it to simply slow down develop of an activity that they simply don’t like for whatever reason, but given our history, caution really IS warranted.

 

[BandB]

What kind of zoning are your facilities required to have, Industrial or just business zoned ?

Industrial (Manufacturing) but are polluting industries. Textiles with dying and bleaching facilities and water discharge have similar requirements to what they've had for 30-40 years and anyone in that industry knows where they can locate and what is required. Could draw a project up correctly and get quick approval in most of the country. That would include a proper method of treatment and release. Only problem is there is no one wanting to add facilities in that part of the industry.

There are plenty of engineers who can properly design manufacturing facilities in most industries. Now, if you want to build a plant for lead smelting, forget it. But then that's an industry with a horrible reputation outside of one company which has been stellar for the last 30 years.

 

[BandB]

There are reasons why communities are careful about manufacturing processes in their communities. I grew up near a copper smelter. Fortunately, the prevailing wind is out of the South and I grew up South of the smelter. Even so, much of Tacoma and the surrounding area has contaminated soil. We are warned not to let the kids play in the dirt due to the high levels of heavy metals, lead, and arsenic in the area around the smoke stack plume.

Add to that our history of ship building, oil refining, manufacturing, and the wood industry and much of Tacoma and the surrounding waterways have been heavily contaminated and unhealthy for humans and wildlife alike. So when someone claims they are going to start manufacturing in our backyard, it is understandable that folks are a bit leery to simply accept the protestations of “trust me its safe”.

Granted, the process can be cumbersome and there are those that abuse it to simply slow down develop of an activity that they simply don’t like for whatever reason, but given our history, caution really IS warranted.

Smelting is deservedly a big issue as are certain other industries. Boat building can be due to the chemicals and paints used. No community should accept "trust me". Many manufacturing industries are not and have little problem getting permits.

There are a lot of manufacturing and industry types that are in the middle. Have a potential for pollution but are easily designed to be safe and to get permits most anywhere. Anyone with chemicals in their discharge water is in this group. Commercial and industrial laundries are an example as they discharge water with chemicals in it and discharge lint into the air. The same design I used in the 90's and my predecessors used in the 80's can pass anywhere today.

There was a time of much learning. Now those with experience in various industries know what they must do to be "clean."

 

[BruceK]

I just don't think you can make up the gap in labor with reducing other costs. If foreign labor is 10-15% of American labor, and labor makes up half of your costs you just can't do it. And if labor costs are also built into the cost of your raw materials that you now want to source from the us as well, it compounds the gap.

But you can do it by ratcheting up tariffs to kill off imports, by making imports so expensive local manufacture becomes profitable. Surely that is the Trump aim. Big cost to US residents, but local manufacture restored.

Rather than approvals, I think the issue for start ups is feasibility and economic safety with a threatened Recession,as forecast by the inverted yield curve. Recession as a result of world trade destabilization due to the war between USA and China, and the knock on effects. You can`t turn world trade on its head without consequences, For USA it seems free trade is dead, tariffs and bans are in.

There is a real possibility Chinese imports will be tariff repriced out of budget for many,while entrepreneurs lack confidence to begin replacement start up manufacturing. Leading to some products hitherto imported becoming unavailable/unaffordable to many.

Was the tarrif "strategy" fully thought through before it began? Seems to me it has taken on an egotistical life of its own.

 

[Bud]

But you can do it by ratcheting up tariffs to kill off imports, by making imports so expensive local manufacture becomes profitable. Surely that is the Trump aim. Big cost to US residents, but local manufacture restored.

Rather than approvals, I think the issue for start ups is feasibility and economic safety with a threatened Recession,as forecast by the inverted yield curve. Recession as a result of world trade destabilization due to the war between USA and China, and the knock on effects. You can`t turn world trade on its head without consequences, For USA it seems free trade is dead, tariffs and bans are in.

There is a real possibility Chinese imports will be tariff repriced out of budget for many,while entrepreneurs lack confidence to begin replacement start up manufacturing. Leading to some products hitherto imported becoming unavailable/unaffordable to many.

Was the tarrif "strategy" fully thought through before it began? Seems to me it has taken on an egotistical life of its own.

I like the fact we are standing up to china. The only thing that will change their behavior is serious economic consequencies. The big question is will they continue to devalue the yuan more, to offset this second round of tariffs. The yuan is at an all time low to the US dollar and thats not a coincidence. That is by chinese design. That is why potus has been hounding the fed to lower interest rates to weaken the dollar and strenthen equities.
He sent Larry Kudlow out a couple of months ago he made all the rounds at all the major channels selling the idea of lowering interest rates. Larry did an impressive job Then he followed it up with his usual tweets and spur of the moment press confences. Believe me, they have a strategy and it might just work if they have the fortitude to stick with it. I am pretty sure we will have to feel some economic pain ourselves for the tariff strategy to work. China is not going to cave easily. This constant talk about recession seems to be an obsesion of the media allthough a real possibility but not imminent

 

[BruceK]

Here is a quote from Morningstar`s Report this morning:

"Morningstar with AAP]: US stocks have fallen as investors worried about global growth prospects after data showed US factory activity shrank in August for the first time since 2016 and the US and China imposed new tariffs on each other over the weekend."

Restricting imports via tariff imposition was intended to increase factory activity but instead it shrank. Is it working, maybe not. Not helping stock prices either.
One reason an entrepreneur might hold back from spending $ gearing up to fill the import void is the possibility of a change of Administration at the 2020 election to a less tariff directed policy. If that happened, a newly geared up entrepreneur manufacturer could stand to lose the whole investment as cheaper imports return making the domestic product economically uncompetitive overnight.

 

[Boat]

Arbitrage. It's all a bunch of arbitrage and should be taxed as capital gains but tariffs are quicker and easier. Tax arbitrage, labor arbitrage, environmental, insurance, INSURANCE, legal, it's all arbitrage, tax it.

When China retaliates it is purely retaliatory because the arbitrage is a disadvantage in that direction.

 

[BruceK]

Arbitrage. It's all a bunch of arbitrage and should be taxed as capital gains but tariffs are quicker and easier. Tax arbitrage, labor arbitrage, environmental, insurance, INSURANCE, legal, it's all arbitrage, tax it.
When China retaliates it is purely retaliatory because the arbitrage is a disadvantage in that direction.

Send that to POTUS. It may not be understood, by him, or others, but could be a new stick to wield in place of a broken one.

 

[FF]

"Granted, the process can be cumbersome and there are those that abuse it to simply slow down develop of an activity that they simply don’t like for whatever reason, but given our history, caution really IS warranted."

More than a year to decide how the run off from a parking lot will be treated?

"to simply slow down develop of an activity that they simply don’t like for whatever reason,'

Some believe capitalism is theft, and would prefer the gov to control all banks and businesses.

 

[Boat]

More than a year to decide how the run off from a parking lot will be treated?

"to simply slow down develop of an activity that they simply don’t like for whatever reason,'

Some believe capitalism is theft, and would prefer the gov to control all banks and businesses.

In OLD Economics you could read about such under the heading of Barriers to Entry. I highly doubt they any longer teach such poison to the masses.


Building inspectors, planning boards and such are in the pocket of local developers, contractors, etc, in exchange for protectionism. Environmental groups are often tools of protectionism.

Have you seen any of what they teach now? MMT? Granted, things change, but it seems that, oblivious to history, believing that money grows on trees is dogma for socialist democrats. Rewritten history for useful idiots - 101.


https://en.wikipedia.org/wiki/Modern_Monetary_Theory

Modern Money Theory (MMT) is a heterodox macroeconomic theory that describes currency as a public monopoly for the government and unemployment as evidence that a currency monopolist is overly restricting the supply of the financial assets needed to pay taxes and satisfy savings desires

 

[Boat]

It turns out that this isn't the first time that the media, propaganda services, and extortion industry has tried to tank the economy for political reasons, fun and profit. Short the markets, crash the economy, elect your shill, one of the oldest games in town.


And those bad guys want to drain the swamp? That big sucking sound when they go down the drain, wonder if it can be set to music?

 

[Boat]

AND, back to the inverted yield curve, someone made a funny. They said short term bonds pay better 'cause they know Trump will be in office. Investing after the next election gets too risky. If any of the current crop of dems get in office, it's all downhill.

 

[BandB]

Well, now this has been turned into a political thread with attacks on those sharing opposing views. Enjoy yourselves while it lasts as the thread is likely to be closed soon.

 

[menzies]

Well, now this has been turned into a political thread with attacks on those sharing opposing views. Enjoy yourselves while it lasts as the thread is likely to be closed soon.

Actually better to just ignore his posts as I have been, and keep the good conversation going.

 

[Bud]

Lets get back to the manufacturing discussion! I believe that technology can step up and solve some of the labor cost issues and polution issues. One idea I would float is give the EPA a dule mandate. The additional mandate would be to solve some of the polution issues. Mandate all EPA penalty monies collected will be funneled to grants to the scientific and academic community to solve the specific polution issues they were collected for. Put our college students to work it will be good for them. Help businesses find solutions for there manufacturing byproducts and not just push the problem to another country. The amount of coal power plants in China are staggering and that is where our pelagic fish (tuna) get there mercury from. We can push the pollution away but it can still come back, Why not just help solve the problems these manufacturing processes face.

Bud

 

[BandB]

Lets get back to the manufacturing discussion! I believe that technology can step up and solve some of the labor cost issues and polution issues. One idea I would float is give the EPA a dule mandate. The additional mandate would be to solve some of the polution issues. Mandate all EPA penalty monies collected will be funneled to grants to the scientific and academic community to solve the specific polution issues they were collected for. Put our college students to work it will be good for them. Help businesses find solutions for there manufacturing byproducts and not just push the problem to another country. The amount of coal power plants in China are staggering and that is where our pelagic fish (tuna) get there mercury from. We can push the pollution away but it can still come back, Why not just help solve the problems these manufacturing processes face.

Bud

What businesses are you talking about and what by products?

The vast majority of manufacturing businesses don't have by products and then most that do long ago figured out solutions. The largest losses of jobs were in apparel and soft goods and shoes and computer chips and electronics and none of those face any environmental challenge. Pollution had nothing to do with the US loss of manufacturing. It was all labor cost driven.

We also forget that the US is still one of the largest manufacturing countries, perhaps #2 to China. We produce petroleum products, we manufacture steel and cars and airplanes and boats, telecommunications equipment, farm and other industrial equipment. Consumer goods is where we really lost market share and while we do still manufacture a lot, we once produced the vast majority of what we and others consume.

You look at textiles, apparel, soft goods such as linens, computers, televisions, cell phones, there is just no way for the US to be competitive with other countries that have cheaper labor. Those markets could have been protected with tariffs and quotas long ago, but then the consumer would be paying substantially more for all those products and more than people in the rest of the world would be paying.

 

[Bud]

What businesses are you talking about and what by products?

The vast majority of manufacturing businesses don't have by products and then most that do long ago figured out solutions. The largest losses of jobs were in apparel and soft goods and shoes and computer chips and electronics and none of those face any environmental challenge. Pollution had nothing to do with the US loss of manufacturing. It was all labor cost driven.

We also forget that the US is still one of the largest manufacturing countries, perhaps #2 to China. We produce petroleum products, we manufacture steel and cars and airplanes and boats, telecommunications equipment, farm and other industrial equipment. Consumer goods is where we really lost market share and while we do still manufacture a lot, we once produced the vast majority of what we and others consume.

You look at textiles, apparel, soft goods such as linens, computers, televisions, cell phones, there is just no way for the US to be competitive with other countries that have cheaper labor. Those markets could have been protected with tariffs and quotas long ago, but then the consumer would be paying substantially more for all those products and more than people in the rest of the world would be paying.

The two places I lived in New England lost there industries because of enviromental issues, I am sure labor was a part of it. Where I grew up the city next to the town we lived in was full of manufacterers, Everything from transformers to golfballs Aerovox to Titalist and textile even Morse twist drill most busineses were on the river which emptied into the harbor and my whole childhood nothing grew in that harbor not even a barnacle. The damage was mostly from PCB's. It became a superfund sight. The majority of those businesses were shut down for polluting.
The second place we lived where I raised my family was southern Maine. They had a Paper mill Industry and a saw mill lumber industry that was booming. the sawmill/lumber industries were put out of business or pushed into Canada because of an endangered owl and the claim was they were destroying there habitat when they would harvest an area. The papermill business got slowly pushed out because of poluting the local lakes and the smell ( the state has a warning to not eat the fish from the lakes more than once a week). Now the largest industry in Maine is the Lobster industry. There are no jobs left in Maine last year the population in New Hampshire exceeded Maines. Maine is three time the size.