US Manufacturing Renaissance

US manufacturing costs have become much more competitive over the past decade. Lower unit labor costs are driven in part by above-average productivity, globally competitive wages and greater use of technology. US employment gains remain sluggish however, due to outsourcing of lower-cost tasks and labor intensive jobs. Despite US natural gas prices having risen from a low of $2/million BTUs to closer to $3/million BTUs recently, natural gas remains inexpensive and abundant in the US, companies in other parts of the world pay significantly more. A declining dollar has also contributed to making US products more competitive globally. Despite the renaissance of US manufacturing, investors have continued pouring money into bonds versus equities. The ten-year US Treasury bond, currently yielding around 1.5%, generates a negative rate of return after inflation is factored in. This perception of safety creates a false sense of security and results in a loss of purchasing power. From a broad portfolio perspective, our focus is on US equities as they continue to rank as the strongest of the six “big picture” asset classes. (The six asset classes, in descending order of strength, are: US equities, bonds, currencies, international equities, cash and commodities.) When we drill down into US equities, we find that the next level of relative strength is that of Mid-Cap; although Small Cap also deserves some attention. 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.

"US Drought Persists" How you can benefit

Following is an excerpt from a Bloomberg article published last Monday titled, "Crop Ratings Drop as Worst U.S. Drought Since 1956 Persists”: "About 26 percent of the corn was in good or excellent condition as of yesterday, down from 31 percent a week earlier, the U.S. Department of Agriculture said (Monday) in a report. An estimated 31 percent of the soybeans got the top ratings, down from 34 percent. The assessments are the worst for both crops for this time of year since a drought in 1988.” Looking back to August 1987, Soybean prices bottomed around $5/bushel and Corn fetched $1.60/bushel. Due to that drought, by June 1988 both commodities had more than doubled in price, with Soybeans peaking at $10.70/bushel and Corn at $3.64/bushel. Fast forward to now; Soybeans hit a low of $11.00 in December, and Corn brought $5.52 in June. Today they trade at $17 and $8.14 respectively, well above their recent lows but also materially beneath levels which would be equivalent to the prices observed in 1988. Assuming we can use the drought of 1988 for perspective, it is worth noting that a similar trough-to-peak rise in US grain markets would put Soybean prices at $23.54/bushel and Corn at $12.56/bushel, some 40-50% above the levels at which they trade today. How can you benefit? As an investor you may invest in agricultural commodity ETFs. These ETFs will increase in value commensurately with the price of a bushel. There is no way to know how this drought will play-out however, if it persists, expect higher prices, across the board, at the grocery store. Fortunately, the federal tax credit for ethanol, in existence for more than 30 years, expired in early January 2012, ending more than $20 billion in subsidies and easing the demand on corn. A consequence of this drought could well be an amplified debate on the scarcity of water where it is needed. There are water based ETFs as well. Give me a holler if you care to discuss any of these opportunities (205)583-3237. 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.

Obamacare - What you Need to Know

“It is not our [the Supreme Court’s] job to protect the people from the consequences of their political choices.” stated Chief Justice Roberts, after voting with the majority for Obamacare. Speaking for the dissenters Kennedy said, "In our view, the entire Act before us is invalid in its entirety". The majority’s opinion stated that while the Commerce Clause would not allow Obamacare, the power of Congress to tax and spend does allow it. In other words, you can be “taxed” if you don’t buy health insurance. I believe this is the first tax in American history which can be levied for not doing something. The tax is projected to be 2.5% of income with a ceiling linked to the average cost of insurance and a floor of $695 no matter what your income. At least, for now, everyone has to pay… There may be a silver lining in the majority’s decision; if the “penalty” is now considered a “tax,” a tax can be repealed with a simple majority in the US Senate via the budget reconciliation process, with no filibuster allowed. Bottom line, the US is looking much more like Europe. Our government’s size is increasing and its reach is expanding, taxes are rising and a single-payer healthcare system is looming on the horizon. The upcoming election has suddenly become one of the most important in our lifetimes. Disclosures: 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.

Why are we paying less at the pump?

In March when Iranian oil was boycotted because of suspected nuclear activities, Iran responded with a threat to shut-down the Straits of Hormuz. This tension caused oil to break above $110/barrel pushing gas close to $5/gallon; we were on the verge of a crisis threatening to push oil prices even higher. What occurred subsequently to push prices down? Obama threatened to release oil from the Strategic Petroleum Reserve and Saudi Arabia was enlisted to increase production causing crude oil to promptly drop $5/barrel; it continued to slide to $77/barrel. Further assisting this price decline was Libya quickly adding supply and the sovereign debt crisis in Europe and the slowing Chinese economy which have both contributed to fears of a world-wide economic slowdown. Interestingly, additional downward pressure came from the US. Over the last two years, US oil production has grown from 8.5mm barrels to 10.5 per day; this is more than we purchase from the Saudi’s annually! The Bakken field in N. Dakota has helped push ND ahead of Alaska as the second largest oil producing state, thanks to advances in fracking technology. Overall US oil imports have dropped from 13 mm barrels/day to 9 million – making a positive contribution to our balance-of-trade by some $308 million/day. Additional unintended consequences of the plethora of natural gas in the US include an improvement in air quality as utilities and other industries convert from coal. Conversely however, lower coal shipments are contributing to a decline in rail traffic. Additionally, in the foreseeable future the US should become an exporter of LNG (liquefied natural gas); natural gas costs approximately $2/BTU here and around $15/BTU in Europe and Japan... Disclosure: 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.

The Market Exhaled

On Tuesday (3/6) the S&P 500 Index (SPX) fell about 1.54%. While this decline may have left some of you feeling a little rattled, since it has been about 3 months since we experienced a pullback of that magnitude (for the record, 1.54% can hardly be categorized as a move of ‘magnitude’). More than anything, this pullback has helped contribute to a much needed exhale for a market that had reached overbought levels.


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.

View of the World from Jim Roger's Perspective

Last night several guests and I had the honor of attending the “2012 Forecast Dinner” at the Barber Museum, featuring Jim Rogers. Jim is an author, financial commentator and a Guinness Book of World Record holder; earned by circumnavigated the world twice, first on a motorcycle and then in a vehicle. Originally from Demopolis, AL he currently resides in Singapore with his wife and two daughters. He has chosen to live in Asia so that his girls can become proficient in Mandarin. An acquaintance of mine, Jack Willoughby who pens a regular column in Barron’s, was the moderator.

The discussion ranged far and wide so I will summarize several key points:

Global Outlook: Britain was the 19th century power, the United States was the 20th century power and China is/will be the 21st century power. This does not mean that China will have a smooth trajectory as history indicates that no country’s ascension to power is smooth. Despite being a communist country, Jim believes that the Chinese “are the best capitalists in the world”.

Careers: Jim advises against urging our children to pursue MBAs and careers as bond traders in favor of degrees in mining and farming. As anecdotal evidence Jim shared that, within the US, the last smelter was constructed more than 40 years ago and the CO School of Mining is now offering MBAs because of a lack of mining students.

Asset Classes: Bonds are nearing, or are at, the end of a bullish secular cycle. If you must own bonds, only invest in short-term bonds. In his opinion, commodities and hard assets are the asset class to focus on for the long-term. Commodities which Jim views favorably include metals - used for industrial production and agricultural products - needed to feed Earth’s 7 billion people. Desirable hard assets include timber and farm land. He joked that if you want to sell cars “Become the Lamborghini dealer in Kansas or Idaho.”

Currencies: Western currencies are getting de-based by the central bankers. Jim favors holding the Yuan Renminbi for those interested in preserving global purchasing power.

Regulatory: An enhanced regulatory environment courtesy of Bernie Madoff & MF Global has reduced the risk of similar misappropriations and, MF Global CEO Jon Corzine will (or should) go to jail.

The Fed: In Jim’s view, Alan Greenspan & Ben Bernanke have done “nothing right” and the US is on its third Federal Reserve Bank and may one day see a fourth.

US Politics: Jim recently went on record, predicting that Obama will win re-election.

If you would be interested in discussing how we can take advantage of these opportunities or how these outlooks may impact your portfolio, give me a shout (205) 583-3237 or mguilsher@nbcsecurities.com.


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.

The 'App' Economy

The last time the Nasdaq 100 (NDX) traded at the levels we see today was 11 years ago when both Worldcom and Global Crossing carried nearly three times the weighting of Apple Computer (AAPL) within that index! As you may remember, neither Worldcom nor Global Crossing survived…

Back in 2001 Apple carried a 0.5% weighting in the Nasdaq 100, the weighting has gradually grown and is currently at 15%. Additionally, since the last time NDX traded at its current level of 2,500, there have been 125 component changes within this index. This is to say that the entire index has "turned over" in that 11 year period ... and then some.

Speaking of APPL, a revolution is taking place in the way we access and utilize technology. Users of most mobile devices access the ‘net, check email and play games through mobile applications or 'apps'. What's interesting about this phenomenon is that although it appears that these apps are just virtual, faceless programs; actual jobs are being created by this industry. Recently, I read an interesting article titled: AppEconomy is 'job leader' into the future by Mike Mandel. The article speaks to the significance of this industry and even its importance in leading the economy out of the 'recession'. A recent study by TechNet found that the:
“App Economy now is responsible for roughly 466,000 jobs in the United States, up from zero in 2007 when the iPhone was introduced. This total includes jobs at ‘pure’ app firms such as Zynga, a San Francisco-based maker of Facebook game apps that went public in December 2011. App Economy employment also includes app-related jobs at large companies such as Electronic Arts, Amazon, and AT&T, as well as app ‘infrastructure’ jobs at core firms such as Google, Apple, and Facebook. In additional, the App Economy total includes employment spillovers to the rest of the economy.”

Lastly, a word of caution regarding an up & coming tech company: Current tech giants Google & Apple have trailing price/earnings multiples of around 16. Assuming Facebook IPOs at $40, it will sport a multiple of 93 times trailing earnings. Google trades at a forward P/E of 14 and Apple at 10 times, Facebook at $40 would trade at 25 times forward earnings. As someone once said, “the best business can be a poor investment, if you pay the wrong price”.

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.