Wednesday, January 17, 2018

The Three Reasons America Faces A Difficult Path Ahead

Three major obstacles that will create a difficult economic future are solidly carved into our path forward. Regardless of record new highs in the stock market and the positive predictions being made by the media, there is no guarantee as to how long this growth trend will go. When easy money is the fare of the day leverage is generally growing at a rapid pace. While leverage tends to drive a market higher when it is on the rise it also has exactly the opposite effect when the market is falling only it often works faster and magnifies the fall. Below are three key challenges that America must confront and deal with or their impact will bode poorly upon our ability to maintain our position in the world.

1.   The Low Job Participation Rate; Today America has a very low civilian labor force job participation rate because many people have left the workforce. The work ethic has taken a hit over the last few decades as many people adopted the attitude that often the reward for going the extra mile was just not there. The longer someone is out of the workforce the more difficult it is to return. Expensive job retraining programs will not solve the issue of creating new jobs in a world where higher mandated wages push employers to replace workers with robots that can perform repetitive tasks.
A Smaller Percentage Of Americans Are Choosing To Work

It should be noted that globalization has elevated the importance of creating jobs and a balanced economy that supports a strong middle class. A huge difference exists between creating a valuable and worthwhile product that benefits society and breaking a window then praising the jobs replacing it yields.  It is difficult to envision a larger share of Americans rushing to find jobs when society has come to accept not working as acceptable.

2.   Exploding National Debt; During recent years the national debt has soared and all indications are that it is about to get bigger as the bill for entitlements increases. The myth that a scenario of growth coupled with a falling deficit will allow us to outgrow many of the problems we face brings with it a false optimism and hope. In all truth, we have allowed those we have sent to Washington to spend money we don't have and continue to ignore the ever-growing debt being created.

Click Here To View The National Debt Clock
Our recently passed tax reform bill and a rash of natural disasters coupled with the call for military and infrastructure spending is setting us up for higher deficits. The fact is our trillion dollar deficits will become commonplace before long.The deficit during the Obama years ran at over twice the nosebleed levels that had been projected. As things stand America continues to rack up a deficit each year of nearly $2,500 for every man woman and child in the country, such deficits were unheard of in the past unless it was during a major war.

Currently, the costs of entitlement programs are slated to rise in coming years. When we couple that with the recently passed tax reform bill that is expected to add to the deficit with the cost of paying over 100 billion dollars for a slew of natural disasters plus increased military and infrastructure spending it is not difficult to see deficits grow larger, Trillion dollar deficits will become commonplace in coming years unless taxes or raised. Sadly, this massive deficit is what is propelling the economy forward, and it is not sustainable.

America Remains A "High-Cost Producer"
3.   Jobs Will Not Come Rushing Back; The truth is the recent tax reform bill that President Trump signed into law may slow jobs from leaving America but is not enough to cause them to return. The cost to produce goods in American remain higher than in many other parts of the world because of things like healthcare and regulations governing things such as liability and pollution.

Many people have mistakenly surrendered to the idea America is too small to lead based on population numbers do not understand that quality beats quantity hands down. Sadly, the spirit of, "I will gladly pay you Tuesday for a hamburger today" is alive and well in many of those advocating free trade and the expansion of globalism. Those advocating free trade would have been wise to remember that countries such as China that export goods at slightly below cost in exchange for manufacturing jobs are not stupid they are predatory and we in America are their prey.

Trade policy has massive long-term ramifications on the strength of a nation's economy. Often people fail to note the difference between free and fair trade. In many ways, the global economy has become an ill-regulated business model tilted to favor big business and giant conglomerates. We should not lose sight of the fact that while free trade is important, fair trade is far more so and should be the main issue. Balanced trade instead of huge deficits or surpluses between various countries would contribute to both global cohesion and the world economy.


The combination of the three obstacles listed above constitutes a grave problem with no easy fix. The bottom-line is that the longer we go before making a real effort to mitigate our problems and change our current policies the larger the negative ramifications will become. Clearly, America is not the only nation to face such problems or imbalances which means mankind and society, in general, will see economic challenges unfold in coming years.

Saturday, January 13, 2018

News and Talk Shows Obsessed With Trump Bashing

While my time to view news and Sunday morning talk shows is limited it is difficult to ignore that shows that discuss the Washington beltway and current events continue to bash President Trump and pile it on. Much of the hoopla last week centered around a newly released book by Michael Wolff, titled, “Fire and Fury.”  The very polarizing book is really more of the same thing we have heard Trump detractors spouting. It paints a picture of a dysfunctional White House and an administration led by a buffoon with a short attention span.  Trump's reaction to cutting comments made in the book instantly raised the book to "best seller status" by the media.  Even as the so-called media experts are quick to mention that while the book does not live up to journalistic standards such as checking facts and that it is full of unsubstantiated allegations they teased those with inquisitive minds to purchase a copy and because of this all copies were said to have quickly sold out.

....to President of the United States (on my first try). I think that would qualify as not smart, but genius....and a very stable genius at that!

Saturday, January 6, 2018

Much Talk About Market Sweet Spot But Nothing Different

Currently, we are hearing a great deal about how the market is in a sweet spot while nothing is really all that different on the ground. When it comes down to the economy and how it impacts the average American in middle America little has changed during the last year but what we are seeing is an extension by many investors into very speculative investments. In reality not only are we and nations around the world continuing to run huge deficits central banks are still printing money and keeping interest rates artificially low.

Costly Fires In California - Now A Polar Vortex
Ironically this is occurring at a time when America has been under a costly assault by mother nature. First, it was hurricanes, then fires in California, and now much of the country is suffering record-breaking cold temperatures caused by a freezing polar vortex. All these natural disasters are different, however, what they have in common is the fact they are very costly. The point is just in how breaking a window and replacing it with a new one creates economic growth, such action does not really result in great benefit to the country in general. All growth is not equal and growth does not always result in increased economic strength.

Of course, it is not strange that the argument cheap money only masks a weak economy has gained no traction. The low-interest rate environment put in place by the Federal Reserve, European Central Bank and Bank of Japan and money pouring out of China has driven cash into real estate, commodities and speculative whimsies such as bitcoin and other cryptocurrencies. A Market Watch article last week only added to the enthusiasm by informing us that well-respected investor Jeremy Grantham, who is credited with calling the 2000 and 2008 downturns warned investors on Wednesday to be prepared for the possibility of a near-term “melt-up.”

Debt Has Soared Compared To GDP
The negative part contained in Grantham's note that many seemed to discount were his feeling that "this would likely set the stage for a burst bubble and a stock-market meltdown in the future." Nobody can deny that the positive trading mood that drove global stock markets higher in 2017 and early 2018 continues. Our current "trumped-up" upbeat sentiment is buoyed by several factors such as the recently passed tax package in the U.S., rising commodity prices, robust corporate earnings. Solid economic data and low bond yields have also been cited as contributing factors. Central banks have even joined in making true price discovery impossible. The fact is it is difficult to predict how far a market will overextend before crashing in ruins and during the mania warnings of excess are ignored and naysayers ridiculed. That seems to be a constant indicator of such economic blow-offs.

We are constantly being told workers are not seeing big increases in wages while consumers are spending more, saving less, and taking on more debt. Logically this would lead to the conclusion consumers are reaching the point where they are taped out and with huge heating bills as well as rising gas prices at some point a retrenchment in discretionary spending should occur. This conflicts with the idea all is well and the constant upgrading of stock prices to "strong-buy" that has become the daily fare for analyst across the land. A great example of the strength or rather the insanity that is occurring is reflected in the price of Tesla's stock that dropped a mere one percent on confirmation of their inability to produce their newest car the Model 3.

Returning to the MarketWatch story, Grantham states, “I recognize on one hand that this is one of the highest-priced markets in U.S. history. On the other hand, as a historian of the great equity bubbles, I also recognize that we are currently showing signs of entering the blow-off or melt-up phase of this very long bull market,” The well-respected investor did this in a 13-page note where he emphasized this reflected his very personal view. Grantham, a value investor, co-founder and chief investment strategist of Boston-based asset manager GMO compared the present market setup with the run-up to past bubbles, including the 2000 tech boom and the precursor to the 1929 crash.

Grantham emphasizes that bubble calls shouldn’t necessarily rely on price alone. Instead, he puts emphasis on price acceleration, which captures “the importance of a true psychological event of momentum increasing to a frenzy.” Grantham refers to an academic paper published last year that concluded that the strongest indicator of a bubble in the U.S. and almost all global markets was price acceleration. Grantham points out that “just recently, say the last six months, we have been showing a modest acceleration, the base camp, perhaps, for a final possible assault on the peak. He wrote. “A range of nine to 18 months from today and a price rise to around 3,400 to 3,700 on the S&P 500 would show the same 60% gain over 21 months as the least of the other classic bubble events.”  

Other bubble factors cited by Grantham include increasing concentration on certain stock market “winners,” the outperformance of quality and low-beta stocks in a rapidly rising market, “extreme overvaluation” and the role of the Federal Reserve. This all seems more of a reminder of well-entrenched market sayings such as the "trend is your friend" and "don't stand in front of a freight train" based on charts, wave patterns and his gut feelings that we have disconnected from true market value and when we do these trends seem to take on a life of their own. Of course, that does not mean Grantham is not right and even as icons such as Macys and Sears announce closing more stores the markets may ignore such things.

Below is a summary of what Grantham sees might happen.

  • ■ “A melt-up or end-phase of a bubble within the next six months to two years is likely, i.e., over 50%.
  • ■”If there is a melt-up, then the odds of a subsequent bubble break or meltdown are very, very high, i.e., over 90%.
  • ■ “If there is a market decline following a melt-up, it is quite likely to be a decline of some 50%.
  • ■ “If such a decline takes place, I believe the market is very likely (over 2:1) to bounce back up way over the pre-1998 level of 15x, but likely a bit below the average trend of the last 20 years, as the trend slowly works its way back toward the old normal on my ‘Not with a Bang but a Whimper’ flight path.”
So what should investors do? Grantham reiterated his call to own “as much emerging market equity risk as your career or business risk can tolerate” and some EAFE, an acronym for Europe, Australasia and the Far East. The problem with this strategy is that when markets correct these markets will also be heavily impacted and possibly even more than those in America. Like so many other investors who have been wrong for so very long, I continue to feel something is very very wrong with what is unfolding. Over the years we have experienced several bubbles each bigger than the last and it might have raised the bar higher for calling something a bubble. It is important to remember how we got here in the first place. As this is being written a feeling of déjà vu has washed over me, yes in some ways it feels just like 2007, but different!

Monday, January 1, 2018

Planning A Sustainable Future For Mankind Is Critical

On occasion, it is good to take a few moments to reflect on where we are, and where we are going. Over the last few months the threat of nuclear war has increased and more frightening is the acceptance of such an event as a way of solving growing problems. Our days, however, all filled with many other issues that will eventually determine not only our fate but the fate of mankind as well. Only to the most self-centered individuals with no children, family or friends can the issue of creating a sustainable future not be an issue of importance. In many ways, it should be considered "job one" in our rapidly changing world, yet it is almost always put on the back burner and ignored because of both political and economic ramifications.

Sustainability Is Critical To Our Future
Sustainability means planning our future in a way that we do not set ourselves up to crash and burn at some future date. Long-term planning has not been something politicians excel at or are even good at. Our system is geared at getting politicians re-elected and fulfilling the most pressing needs of today.  Things like profit, greed, and quenching
our unrelinquishing desire for growth is placed in front of longer term issues and needs. Mapping out a logical and sustainable long-term plan requires delving into some rather hefty philosophical questions like what brings real happiness. We would have to think about what kind of society and world future generations might want to live in. We would have to recognize the role of the human animal in the overall scheme of things.

As the population has soared during the last two hundred years man has spread out and constructed infrastructure across the planet to support this growth using more natural resources than at any time in history. Already more is needed and the repairs required to maintain what we have built will be staggering. It appears we lack the courage to even discuss these issues in any real way. Do not expect to be guided by politicians, the super wealthy or most business leaders. Few people are willing to come out and say the recently adopted modern model of life based on lifestyles developed in America and western society are unsustainable. The few that mutter these words are often scorned. This could all be considered part of a giant conspiracy of silence but is more likely a head in the sand act of denial, but denial that will lead to our demise.

Jeremy Grantham’s investment firm GMO manages about $110 billion in assets. He also backs the Grantham Institute of Climate Change at London’s Imperial College. He says population growth is a huge “threat to the long-term viability of our species when we reach a population level of 10 billion” because it is “impossible to feed the 10 billion people.” Billionaire Bill Gates says we should cap global population at 8.3 billion at the same time his vaccine and other programs are extending life expectancy. Columbia University’s Earth Institute Director Jeff Sachs says even 5 billion is unsustainable. To stop adding more people our population is tough enough. But how do we eliminate two billion from today’s seven billion total? Voluntary?

We should remember that for most of his 60,000 years on earth man has been a minor consumer of the earth’s stores of energy. With the discovery of fire, man began to increase his demands and draw on the short-term energy stores that had been accumulated over scores of years or even centuries by woody plants.  Only in the last hundred years with the invention of the internal combustion engine and a huge increase in population has man begun to tap the planet's long-term energy supplies of oil and natural gas at an alarming rate. In merely a blink of an eye, we have shaped a world where our lifestyles revolve around and are dependent on oil and the consumption of energy from fossil fuels.

War Has Turned Mosul Into Rubble
As the world continues to develop the importance of design and quality are factors that cannot be stressed enough. An issue we are failing to address is that as the world's population soars we cannot afford the wasteful luxury of constructing buildings that grow obsolete or must be replaced every few decades, buildings should last for centuries. We also cannot afford to bomb and lay waste to whole cities killing and destroying what so many have worked so hard to create. How we use our new skills and the choices we make will determine if mankind blankets the world with Las Vegas style resorts on every corner, fills the skies with glass towers, or constructs homes and shelters suitable for our fellow man.

It concerns me that in developing countries such as China and India that have huge populations of have-nots we are seeing developers follow the same flawed pattern of growth that was pioneered in America. The creation of huge wealth in China has manifested itself in conspicuous consumption as people rush to show they are successful. Poor planning has not promoted a lifestyle of efficiency and social interaction but has encouraged the private automobile with its massive support system of highways and the construction of more high-rise towers. The ability of the planet to sustain our recent lifestyle that is too new to have stood the test of time is very questionable.

“One of the disturbing facts of history is that so many civilizations collapse,” warns Jared Diamond, environmental anthropologist and author of the classic “Collapse: How Societies Choose to Fail or Succeed.” Many “civilizations share a sharp curve of decline. Remember this is totally entwined with the economy and everyday life. Indeed, a society’s demise may begin only a decade or two after it reaches its peak population, wealth, and power.” Can it be stopped? Before it’s too late? Don’t bet on it. Watching how those in Washington and other capitals avoid dealing with the many real problems we face is not encouraging.


 Footnote; The above article is not an endorsement of some kind of "carbon tax" as much as it is a call for better planning and less waste. This post dovetails with many of my recent writings, for more I might suggest reading the article below. Other related articles may be found in my blog archive, thanks for reading, your comments are encouraged.
           http://brucewilds.blogspot.com/2016/12/10-worst-problems-facing-world-going.html
          

Monday, December 25, 2017

Hard-landing Scenario Should Not Be Underestimated

In the middle of 2015, an article that appeared on this site touted the idea that a hard landing scenario was not out of the question and the possibility of such an occurrence should not be underestimated. It was based on the idea that QE and low-interest rates had run their course and played themselves out. Since that time central banks and countries around the world have added more fuel to the fire which has postponed the day of reckoning. This has made all of us thinking the market was about to turn south looking rather silly and underlines the fact that trying to time events is both confusing and complex, this is especially true when it comes to the financial part of our lives. Those who watch closely will notice that even small changes in the laws and rules can have a big impact on how things unfold. A lot of strange almost bizarre theories are floating around concerning our economic future. This means that on occasion it is wise to step back, take a deep breath, then try to sort out what is really happening in the economy.
Will You Be Able To Walk Away?
While history is a great reference point it does not define the future. The current economy is a conundrum, the global economy is like a Rube Goldberg machine, contraptions built in a ridiculously complicated way to perform task that should be reasonably simple. The problem is that nothing is simple when it comes to economics, this means it is best not to have a great deal of faith in our economic system which is severely flawed. Central banks can stack the deck but when it gets too high and begins to fall they may not be able to control the direction or who it will crush. Many of the investments people make are predicated on the idea that if the economy fails we will have a soft-landing, or if it does crash the result will not be fatal.

The idea the economy will simply be able to adjust and grow its way out of many problems we have tried so hard to ignore and not just muddle along but to thrive deifies what history has taught us. It is based on a view of history that often overlooks the many who have "lost it all" in prior periods of economic chaos. As we focus on the fact the system always moves forward we tend to forget how it has a way of sacrificing many investors for the "better good", this is fine if you are not one of those being sacrificed. This means we should not be blind as to other less optimistic scenarios concerning our economic future. A key assumption of the current "escape velocity" mantra is that we have all the time in the world to deal with our problems, it discounts the notion that forward progress may at any time be fouled by events often beyond our control. This feeling all is well is strengthened by the government's optimistic projections and numbers that fail to recognize how another recession could skew future tax revenue and cause spending to soar.

Computer Screen Of Inaccessible Sites!
To the left is an image posted on a website on the morning of Monday, June 29th, this was at a time concern over a default by Greece ran high. In many ways, it might be considered a warning or a cautionary tale that investors should heed.It shows dozens of servers as being "inaccessible" and is an indication of how fast things can lock-down when things turn ugly. Take this as a warning and solid reminder that we must not allow ourselves to become complacent and think we have plenty of time to take action. In our modern world of instant communication, it is becoming increasingly common that options can vanish in a blink of an eye. If we wait too long we may find all doors closed and there is no place to hide.

At the time anyone watching closely as the deadline approached for Greece renegotiating its debt with the Euro-zone noted that many people reading about money coming out of the Greek banks were wondering why any money was still even left in these accounts. He went on to say "It is simply another Greek tragedy that so many of the local depositors were merely waiting until just after the last minute to withdraw their funds before joining those already busy hoarding fuel and food." The financial default of Greece could be the thing that fuels the fire that finally brings down the house. If it does not, the light from the flames will surely illuminate and expose the fact that similar flaws and massive debts exist in many other countries across the world.

The more and more I study derivatives it now appears the main goal of QE may have been to hold up the underlying value of assets that feed into and support the massive derivative market more than help the economy. QE has up to now stopped an implosion of derivatives and the resulting contagion and shock that would have spread throughout the financial system. The irony is how little of this money has reached Main Street in a constructive way while the damage to savers has been massive. While the Fed has essentially abolished the most basic rules of macroeconomics do not be surprised if the natural laws of economics show their dominance over FED policy. It appears complex and strong crosscurrents may be about to converge and knock the implicit assumption of the escape velocity off its axis. 


The theory that we have plenty of time and that another recession does not loom anytime in the future is rooted and based on the momentum model of economic growth.  It rests on the idea we will experience a trend of ever-growing year over year increased production. The problem we face today is much of this recovery has been constructed on the unstable base of false demand coupled with new debt and government spending. The easy money policies and artificially low-interest rates of the last decade have simply moved demand forward and created a slew of economic activity that is unsustainable in what would be considered a normal economic environment. This tends to distort prices and lead to overbuilding that often abruptly comes to a painful end.

Much Of The Current Job Growth has Been In Services 
Just how far off course we have moved becomes clear when we look at how much of our economic growth has been in the service trades. These jobs often cater to the top 10% of consumers and the people also account for 40% of total spending and 85% of financial assets. The fact is service jobs can rapidly vanish. This highlights that the jobs reports should be viewed as a lagging indicator, but in the present US business world that is dominated by stock market obsession, it has been elevated much as it was in the run-up to 2008. Many people are "over-inventorying" labor by believing that the stock averages are forecasting higher sales and demand around the corner. We should also consider the high ratio of business inventories to final sales which is partly due to low-interest rates which make it easy to stock more goods with little carrying cost. When the markets finally break, we may again witness a hard landing driven by the dual liquidation of excess labor and stockpiled goods.  

Friday, December 15, 2017

Apple And Amazon Share An Ugly Truth - They Exploit Us

Apple and Amazon share an ugly truth and that is their strong ties to America's government has in many ways allowed them to create a persona or facade that far outshines reality. This allows each company in its own way to exploit us while masking the huge amount of income they pluck from our government on all levels. Years ago I penned an article titled, "The Poison Apple" where I questioned how Apple remains the darling of so many Americans while stories continue to surface on how those they have contracted to make their products abuse their workers? This coupled with the widespread criticism for its environmental practices and tax avoidance schemes would have caused major damage to the corporate image of most companies resulting in large protest outside their offices and massive boycotts of their products. We should remember, Apple is a company that Fortune magazine has called the most admired company in the United States and in the world, this is a company that the Economist called a "phenomena" and questioned if "it was a bubble" even years before its stock price soared.

A More truthful Apple Logo
A week ago I had decided to again post about "tax dodging" Apple because the corporate tax rate is a topic currently very much in the news. The crux of that post was focused on the Paradise Papers that revealed the murky dealings by the world's largest corporation, helping it pay a mere 3.7% in corporate taxes in 2017. This is a fraction of the worldwide average and well below the 20% slated in our new tax bill. In the leaked documents, it detailed how Apple attempted to find different avenues at securing its worldwide profits, which accounted for roughly 55% of its total income in 2017. In August of 2016, Apple was ordered by the European Commission to pay €13 billion in taxes, which Tim Cook called 'total political crap' at the time.

It is as if people are totally blind to the less tasty side of Apple that appeared in a 2006 report written on working conditions at factories in China where the contract manufacturers Foxconn and Inventec produced the iPod. The article stated that one complex of factories that assembles the iPod and other items had over 200,000 workers, that lived and worked in the factory. Employees regularly worked more than 60 hours per week making around $100 per month and were required to pay for rent and food from the company.  This generally amounted to a little over half of the workers' earnings. Add to the history of worker exploitation the fact that since Apple manufactures in China it creates few jobs in American. Is the typical Apple user so self-centered that they just don't care, or do they lust for the product so much that they bury and ignore their social conscience?  These consumers are even willing to pay higher prices to lock themselves into a closed system tightly controlled by Apple.

For a moment let us put aside Apple and explore some of Amazon's corporate tactics as well as some of the recent stories and the evergrowing political tilt of the Washington Post which is owned by Amazon's CEO Jeff Bezos. Lurking in the back of my mind is that it was the Washington Post and not a newspaper located in Alabama that broke the Roy Moore story which has turned many women against the Republican party. Because of Amazon's strong ties with the government and what is often referred to as the "deep state," we should be concerned about whether certain forces are making a concerted effort to shape public opinion. It must be noted many of these parties appear to be at war with our current President. This brings up the question of just how much of the Roy Moore story that has had huge ramifications across society is a coincidence or if a strong hidden agenda is at play.

Bezos Has Moved Into Shaping Public Opinion
Jeff Bezos, the founder of Amazon has indeed had a good 2017 and in the last few weeks, he has claimed the title of the worlds richest man. Among the goals of this online retail mogul is replacing workers with robots which his company will both build and market plus controlling one of the most influential news media giants in America, the Washington Post. This high-flier is also the head of Blue Origin, a company with big plans to pioneer the frontier of space. Last but far from least as Amazon's CEO Bezos ties this all together with Amazon Web Service or AWS. This is a cloud service which also collects data and has strong ties to the government. This means they know when you are sleeping, they know when you're awake, they know when you are bad or good. This all constitutes a great deal of power in the hands of one man.

As to the common link these companies share, both receive and feed at the tit of our government and receive a great deal of American tax dollars. We should never forget that in America the government and schools use taxpayer money to buy countless numbers of Apple products produced in China adding to Apple's credibility and helping to carry tax evading Apple to the next level. While this is happening the United States Postal Service bends over backward to deliver Amazon products at a loss and the American government pays out billions to AWS for its services in collecting and storing data on American citizens. This money adds to Amazon's war chest and feeds its ability to continue exploiting the brick and mortar stores that line the streets of our communities. These are the real businesses that provide jobs to millions of Americans. All in all, it is a bit ironic that so many people are infatuated with these two companies that seem hell-bent on taking far more from us than they are willing to return. To us not so enamored with these two companies the fact is, we just don't get it.

Sunday, December 10, 2017

China A State Driven Business Model Geared To Expand

It could be said that people are naive if they do not recognize the distinct advantage a state-driven economy has over free enterprise, at least initially. A bit predatory in nature, such a system can quickly exploit the weaknesses of its competitors, however, a major flaw is that over time a state-controlled system pays dearly in that they are not responsive to consumers real needs or trends. Such systems also fail to react accordingly to market change thus squandering their resources. The crux of this article is that it is important we recognize China is a state-run economy based on a business model that is geared to expand by crushing the competition. Subsidizing those companies working within its system in a multitude of ways helps it achieve this goal.

For years China has been a place were corruption has flourished, partly fueled because any appearance of growth has been rewarded. Also, the rules protect the politically connected.  Donald Trump recognized this and rallied those Americans that have been harmed and most affected by globalization and the "China effect" to put him in office. Trump's so-called base is made up of supporters many of which have lost their jobs or seen wages stagnate over the years. This sometimes referred to as the hollowing out of America is something that has occurred across a broad swath of the country as greedy companies have exploited the concept of "free trade" by having the products they sell in America manufactured in China using cheap Chinese labor.

Now Airborn The C919 Will Be A Major Player
Three articles that appeared on this site over the last year support my argument that China is not our friend and that we had better be on our toes. The first explored how China was ramping up its fledgling aviation industry and how when it hits its stride we can expect cutthroat competition. The article warns that as China's aviation industry takes flight over the next decade America may be saying say goodbye to a big chunk of its exports in this field. The Chinese manufacturer claims the twin-engine, narrow-body design of the C919 is superior to its competition the Boeing 737, the best-selling jetliner in the world, and its competitor, the Airbus A320. COMAC (Commercial Aircraft Corp. of China) also says it can bring the C919 in at a price lower than the $50 million range that Boeing and Airbus charge for each of their planes.

On Chinese President Xi Jinping's first state visit to the USA, he made a couple deals said to help foster relations between the two countries. One was to order 300 Boeing aircraft for $38 billion, this was tied to Boeing building the first "aircraft completion plant" in China, it was to be Boeing's first non-U.S. plant. Considering China's knack, or shall we say, history, of taking advantage of sucking production ideas from manufacturers this move was a watershed event to many industry watchers. As noted above China is now in a far better position to realize its dreams to develop this industry because part suppliers such as GE, Pratt & Whitney, and other firms are eager to supply the engines and other key components. The politics of globalization a few years ago have paved the way forward and makes China's effort to produce planes far more likely to succeed. With China's experience of building cities from scratch, why build just one factory when you can build twenty? This means we should not expect this industry to grow organically but it is logical it will be engineered by an aggressive government with a mission.

Chinese-Bullet-Trains On Display
The second deals with the company formed in a recent merger of China’s two largest train makers this means the production of railway locomotives, bullet trains, passenger trains and metro vehicles.   It points out that no effort is being made to deny that the impetus for the merger of China CNR Corp and CSR Corp in 2015 was the quest for a deeper push into overseas markets. Proof of its ability to compete is that it has been able to win by a wide margin nine-figure contracts, such as the supply of metro cars to Boston and LA. It should also be noted that CRRC recently formed a consortium with Bombardier that allows it to compete for the renewal of the New York subways where it appears they are currently in the lead to win the contract that should amount to around $1.5 billion dollars.

The third article warns that when you closely examine America's trade deficit with Mexico it becomes even more disturbing.  When following the money the United States huge trade deficits you begin to understand the money eventually ends up in China.  When you start thinking about all the money and jobs we shift into Mexico each year you would think by now Mexico would be rolling in cash, however, a bit of research quickly confirms that the money Mexico receives by way of trading with America quickly passes through its lands and flows to Asia. It could be argued that when all is said and done we are still transferring our wealth to the far east only by the scenic route and each year the numbers are huge. The US trade deficit widened to a shocking 48.7 billion dollars in October of 2017.

It does not take a great deal of foresight to realize that America is on verge of giving up its role as an economic leader if it continues on its current path. Those who surrender to the idea America is too small to lead based on population numbers do not understand that quality beats quantity hands down. Sadly the spirit of, "I will gladly pay you Tuesday for a hamburger today" is alive and well in many of those advocating free trade and the expansion of globalism. Whether driven by greed or suffering from being short-sighted, buyers of the many products we import each year should resist giving up their futures so that we can buy the latest fancy flat screen television or set of patio furniture made in China for far less than one made in America. Countries that export goods at slightly below cost in exchange for manufacturing jobs are not stupid they are predatory and we in America are their prey.