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Tag Archives: economy

America…….look at yourself!

Let’s look at some foundational and basic facts about the USA

  • Only 40% of the population has a basic degree or higher.
  • Less than 30% of the population is skilled labor
  • 18% of the population is above 65 and growing rapidly
  • Manufacturing is barely 10% of the total GDP and less than 10% of the workforce is employed in manufacturing.
  • Exports of goods are US$2Trillion or less than 8% of GDP
  • While exports of services are US$1Trillion or 3% of GDP which leads the world significantly
  • China is the second largest holder of US treasuries in the tune of US$800 billion.
  • The USA is the country with the largest household consumption expenditure of US$18.8Bn, followed by the EU of US$9.8Bn and China at US$6.7Bn.
  • 40% of Americans are OBESE!

What does all the above tell us?

The USA is the largest economy in the world for now, followed closely by China.  The USA is a matured, developed and ‘greying’ economy, whereas China is still growing strongly.

As a matured and developed country, the USA was smart in the past 50 years to move up the value-chain and engaged in high value-added manufacturing and relocating all low value, low end manufacturing offshore in developing countries.

Unfortunately, in the past 30 decades, the Americans did not keep pace with the economic maturity of the country.  There are far too many Americans who are illiterate, low skilled or now skill, how do you survive in a matured and developed country?

The education system is broken, and worse Trump is dismantling the Department of Education.

If you look at the Rust Belt or the Mid West, where towns and cities was once bustling with numerous manufacturing industries, are all now ‘ghost’ towns and cities, left behind by the progressive economic train.  Recently, I saw a few youtube videos where reporters were interviewing Americans in the Rust Belt and the Mid West.  One gentleman in his 30s, said his grandfather was a forklift driver, his father was a forklift driver and he himself was a forklift driver till the factory was closed and moved offshore.  Can you imagine, after three generations, nothing has changed???!!!  I mean shouldn’t this young man be educated or highly skilled and be relevant to the current US economy?!  No, he just wanted to continue to be a forklift driver!

With such a high percentage of illiterate, low skilled or unskilled Americans in the USA, this labor force is irrelevant to the USA of today and with minimum wage of US$13/- per hour, how can any low end, low value manufacturing survive?! Coupled with the fact that 1 in every 2.5 Americans are obese…….how are you going to hire these people to work in the factory???!!!

The structural and fundamental problems faced by the USA today are all self-inflicted, so Trumpy and gang stop blaming China and the rest of the world for your own mess.

Focus on rebuilding deteriorating infrastructure all over the country, boost education, ensure that young Americans either have a degree or a skill so that they can be relevant to the country and to themselves.

Capitalize on what you have an upper hand, that is, high end high value-added manufacturing in semiconductor, electronics and chips.  Schools and the government should work together to put programs and policies in place to continue feeding and nurturing innovation and inventions.

Enough of blaming others, if anything stand in front of the mirror, look at yourself and blame yourself……………WAKE UP AMERICA!

Update on Gold

dji and gold

The above is a chart that superimposes both the gold price graph and the Dow Jones Index.

Generally, there is a negative correlation between gold and the equity markets.

During the boom years of 2006 and 2007, look at how poorly performing gold was, and we see it again during the latter part of 2011 and this year.  Every time there is good economic data on the recovery of the economies and growth story, the price of gold will drop.

However, it is a reality today that gold is an asset class that is part of the asset allocation in an investor’s wealth portfolio.  It is no longer looked upon as a traditional hedging instrument.  It has come of his own in the past 12 years.  Today, there is a deep enough and broad enough market, that is, sufficient retail, corporate, institutional and government are and have invested in gold.

Today, it could be argued that gold is a pseudo currency, it has liquidity, it has an underlying value and it can be used in trade.  When the world is flush with liquidity and interest rates are low, confidence wanes in currencies as investors feel that the underlying value of the currency is weak, given that the global economies are weak, except for the emerging markets and Asia.

I believe the worse is over the the United States and for Euroland, there are still some bumps ahead, however, both economies have exhibited resilience and tenacity, they have turned the corner.  Now, just because they have turned the corner does not mean that the road to economic growth will not have hiccups, it will and we should expect it.

We believe the medium term 3 year outlook for gold would be that it will find a base at about $1,000/-.

Right now, institutional investors, that is, the fund managers are all selling gold or calling for a sell in gold.  The gold market is extremely bias short futures which will continue to add downward pressure to the price of gold.

What is the recommendation?

If you have gold holdings or gold ETFs, do consider rebalancing your asset allocation back to more equities.  The outlook for equities is positive and yet dangerous.

Right now, equity markets are driven and supported by liquidity and not by fundamental growth in the economy nor healthy earnings from corporates.

If the transition to a healthier economy and strong corporate earnings happen when QE is pulled back and interest rates rises, than equity markets will continue to rise.  If this transition is not handled properly, then, we may see some significant correction in the equity markets.