Obsolescence

Several years ago my wife and I considered a Portuguese Water Dog (PWD) for a family pet. Unfortunately, a breeder informed us that Catherine (then, age 3) was too young to be able to effectively discipline the dog. Even though we did not get a PWD, I uncovered some very interesting information while researching the breed. Years ago, PWDs were paid the equivalent of a man’s wages for the work that they performed. Since a PWD can swim underwater they were utilized aboard ships to retrieve ‘overboard’ items, round up broken nets and swim messages between ships. Unfortunately, the breed became obsolete and was almost lost after technology (electronics) was introduced aboard vessels.

I write to tell you this not because we considered a PWD before Obama but as an intro to an observation regarding technology, obsolescence and US manufacturing.
US manufacturing has been declining in terms of its share of overall US employment since the late 1970s. During the past decade, the number of workers employed by manufacturing has fallen from 17.3 million in 1999 to 11.7 million last year, according to the Labor Department. However, according to the US-China Business Council “the US share of global manufacturing is just over 22% - the same as it was in 1995.” In fact, according to the Bureau of Labor Statistics, “the US led the world with its 7.7% gain in manufacturing productivity in 2008-2009.”

What has declined in not manufacturing output - but manufacturing employment. The primary reason behind this is major gains in productivity; productivity advances achieved primarily through the use of technology. US companies that have survived as competitive global manufacturers have shifted from low-skill manufacturing jobs to those requiring higher skill sets, employing those with the knowledge to handle new technologies.

To reverse this decline in manufacturing employment Obama has vowed to "do every single thing we can to hasten our economic recovery and get our people back to work." and last year signed "The Manufacturing Enhancement Act of 2010 (to) create jobs, help American companies compete, and strengthen manufacturing as a key driver of our economic recovery.” Despite a number of initiatives the administration has undertaken, the job market remains sluggish. In fact, the unemployment rate has stayed flat at a near record high of 9.5 percent. Is unfair foreign competition to blame? Or is there more to the story?

One can well argue that unemployment benefits incent people not to look for work, but we will save this for another discussion.

Unfortunately the gains in manufacturing productivity have been lost on the current administration. Instead of trying to create low paying manufacturing jobs, the focus in my opinion, needs to be on educating workers and soon-to-be workers so they can handle the higher skilled jobs upon graduation, and not on competing with low wage countries for low paying manufacturing jobs. We are pursuing policies which will make some of our work force obsolete sooner or later, just like the PWD years ago.


Securities and Investment Advisory services offered through NBC Securities, Inc., member FINRA and SIPC. Investment products 1) are not FDIC insured, 2) not guaranteed by any bank and 3) may lose value including a possible loss of principal invested. NBC Securities, does not provide legal or tax advice. Recipients should consult with their own legal or tax professional prior to making any decision with a legal or tax consequence.

This is not an offer to sell or buy any securities products, nor should it be construed as investment advice or investment recommendations.

Year-End Reflections

A wave of sovereign debt dilemmas, an earth quake in Chile, a Gulf oil rig explosion, a "flash" crash, a Gold rally, sovereign debt aftershocks, a mid-term election and then another debt debacle in Europe; the year of 2010 is behind us, thank goodness. If we were looking at a snapshot of the market taken at the beginning of the year, and another taken today, we would be hard pressed to find many significant changes. 3 out of every 4 stocks listed on the NYSE entered 2010 in a positive trend, and about as many will exit the year trending higher. Within the 40US economic sectors, 5 of the top 10 sectors at the beginning of the year are among the top 10 as we exit the year. 6 of the bottom 10 sectors entering 2010 are among the bottom 10 exiting 2010 as well. Had we not lived through 2010 we might come to the conclusion that very little change actually came to pass during the past 12 months. By comparison to 2008 & 2009 the past year could arguably be described as mild. It has been one of those years where when the dust settles, all the major domestic equity indexes will have had positive returns, with double-digit returns for the equity markets.

Despite all that has occurred on the surface of the market the words "what is, is" comes to mind as the leadership within the market has a very similar complexion to that of a year ago. The primary market indicator remains positive, albeit in overbought territory. Despite an exhale in the market since a peak in early November, trends remain positive. Certainly these things can change, and at some point they certainly will, but for now we see a market that remains generally strong longer-term but far less overbought near-term than we were just a few weeks ago.
Both domestic and international equities remain emphasized. Large caps have been out-of-favor relative to mid and small caps for the duration of 2010. Masking this a year in which knowing where to be in the market was more valuable than knowing whether to be in the market. 2008 was obviously an example of knowing whether to be in (or out of) the market, as equities were out of favor for the duration of the year. The International market leadership still points to the emerging markets. Weakness in the broad fixed income asset class continues as interest rates rise and demand falls. The 10 year yield index (TNX) has risen from 2.30% to 3.45%. Commodities continue to remain resilient overall.


Securities and Investment Advisory services offered through NBC Securities, Inc., member FINRA and SIPC. Investment products 1) are not FDIC insured, 2) not guaranteed by any bank and 3) may lose value including a possible loss of principal invested. NBC Securities, does not provide legal or tax advice. Recipients should consult with their own legal or tax professional prior to making any decision with a legal or tax consequence.

This is not an offer to sell or buy any securities products, nor should it be construed as investment advice or investment recommendations.