THIS IDEA THAT OVERSEAS MANUFACTURING JOBS WILL BE RETURNING TO THE USA = PURE FANTASY

usa
hillary donny t

Headline:
Both Political Candidates Demonstrate Economic Ignorance While Pandering For Votes

As we enter the final lap of the presidential race in the United States, as always, the two candidates will say just about anything to secure your vote. And of course the economy is a major topic of conversation. Loud calls for both higher wages and more jobs dominate the rhetoric.

Naturally, Hillary C. [the ultimate political insider/scumbag] and Donny T. [the idiot billionaire aka “The Trump-Tanic”] claim they can easily solve both of these problems. I can only laugh at their certitude. They are so wrong…and like true political animals…they probably know it.

But promises will get you elected in the U.S. even if you cannot follow through, and execute, on them. Still…just in case they are both as intellectually obtuse as they appear to be…they may want to consider the following.

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First of all the exodus of U.S. jobs to overseas domains is primarily focused in the manufacturing sector. The uncomfortable fact = overseas labor is much cheaper than in the U.S. How come? Because many of these jobs do NOT require a high degree of skill and formal education…not to suggest that these jobs are easy to perform. But these skills can be taught to overseas labor with minimal effort/capital versus the potential returns on investment.

And in the manufacturing economy the labor component = typically the highest cost segment. Unfortunately, for the American manufacturing worker, overseas laborers will perform their same job at a significantly lower wage. Plus, sorry to say, the quality of work is effectively equivalent…but not always.

Anyway…think about it. For an American company, in most cases, it is cheaper to construct a product overseas [i.e. Nike sneakers]…even after a company constructs/rents a manufacturing facility, “tools” the facility, pays labor costs [which in some cases include housing] and then transports the product back to the USA. Not only is the labor cheaper…but MASSIVELY cheaper.

As a friend of mine, with a dubious talent for salty/crude language, once told me years ago “…they are paying fetus’ chained to a sewing machine about $1.00 per/day.  No way we can compete.” Again…sorry to say it…but he is correct [although likely more than $1 per/day with improved conditions in 2016].

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Given these facts how will any of these jobs ever be repatriated?  The ONLY answer = when the level of manufacturing wages in the U.S. = the cost of production in these emerging countries [labor + production + transportation back to the USA].

Sorry to say = IT AIN’T HAPPENING ANYTIME SOON…IF EVER.

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So how do both of the U.S. candidates for president rationalize their arguments to bring back American job…that is…the day after one of these knuckleheads is elected…against this stark/bleak manufacturing reality?

Basically, Donny T. wants to tax overseas production at the U.S. border…which sounds good but is economic suicide as it is both inflationary and protectionist.  He clearly did not receive the memo on economic globalization.

As for Hillary C. I am not aware of any strategy other than her sheer desire to increase manufacturing employment.  But when these jobs do somehow magically return [which they won’t] she proposes an increase in wages which sounds good…but only makes the U.S. increasingly non-competitive with the rest of the world.

Clearly…both candidates policies are intellectually hollow and poorly designed…almost comical in their seriously flawed simplicity.

Of course their ideas won’t work and, if anything, will weaken America’s global economic strength.  Thanks for the effort…I think…but NO THANKS.  Please…Just Go Kiss More Babies.

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However what both of these flawed candidates do seem to understand = this exportation/disruption of non-essential [anything but defense] U.S. manufacturing creates a lot of economic hurt in the U.S.  And this is brutally unfortunate for many of America’s hardest workers…but this trend is not going to change anytime soon.

Just because you live/work in the U.S. does NOT entitle you to an artificially inflated wage vis-a-vis the rest of the world.  Plus…blaming the, lower wage accepting, overseas worker for America’s labor issues is frankly…a very stupid argument.  And the global economy, in the future, will only become more connected and ruthlessly efficient.

Politicians like Hillary C. and Donny T. can either continue to whine and complain about this cost driven manufacturing job exodus or try to focus on somehow preserving the dwindling number of current American manufacturing jobs [actually, in many cases, it is pure assembly of overseas manufactured parts…yet classified as manufacturing]  or examine the benefits of overseas production.

Benefits? Yes.

The primary benefit of overseas production is that it drives down inflation…that is the price of many goods at the cash register.  We all like that…Right?

The real question that is rarely asked =  Is the average domestic consumer prepared to pay more for a product, of equivalent quality, if it is manufactured in the U.S. versus overseas.  In many cases the answer is YES…but how much more money are we willing to pay?

Will the average consumer pay $300.00 for a pair of basic NIKE running shoes or $1000.00 for an iPhone because it is manufactured in the U.S.?  I doubt it.

Basically, at these inflated prices, American consumers are likely unwilling to subsidize American labor…no matter how many “Proudly Made In The USA” placards/tags are displayed.  BTW…I hope these placards/tags are actually manufactured  in Americ’er?

Another less direct benefit of overseas manufacturing = improved sovereign relations.

Like it or not part of this country’s job is to promote democracy and capitalism throughout the globe although many American tactics employed to support this mantra run counter to the U.S’s cornerstone ideals i.e. re-establishing a sliver of a relationship with Iran.

And what better than an ignition, of an emerging economy,  from the world’s most powerful economy…and along the way the USA  promotes it’s altruistic message/vision?

Plus…democracy is still the best global political structure “going” even though it produces two lousy presidential candidates like Hillary C. and Donny T. Maybe this election cycle is just an aberration?  I certainly hope so.

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So…back to manufacturing employment.  Has the U.S. permanently lost its edge in production and its techniques?  The short answer = Absolutely Not.  When necessary…this country can produce whatever it wants…whenever it wants…better than any other country…and this is not even worthy of a brief debate.

But for now…the U.S. does not wish to produce.  It just does not make current economic sense.  But perhaps in the future…or is the future right now?

You see many of those overseas manufacturing jobs, that were exported, will eventually be replaced by ROBOTS…as many already have…and so many more will be in the not so distant future.

Sort of like The Jetson’s weekend morning show from long ago. As a child it was an animated fantasy but in the year 2016, and forward, it is a BIG AND TRUE REALITY with significant global economic impact…as in a lot less human labor required.

The companies driving/developing these technologies…so many are logically American…and they are very talented at it too…and will only get better.

And have you noticed that it is already here…practically applied in many industries?  You might want to take a look at your weekly garbage trucks. The trash bins are picked up and dumped utilizing robotic arms.  No more 2-3 dudes hanging on to the truck’s rear handrails.  Some still operate that way…like in Manhattan…but not for too much longer.

So robotics are coming and they are not just cost efficient [after the initial capital outlay] and tireless.  They also don’t complain about long hours, call in sick or go on strike for higher wages and more benefits.

It is such an easy sell to global corporate CEO’s and bean counters beholden to their stakeholders.  Human participants, in the global manufacturing process, are such a SHORT.

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So maybe the collective U.S. strategy [I think it was intended but maybe it can simply be assigned to unintended capitalistic consequences] about manufacturing is not as flawed as both Hillary C. and Donny T. claim.  Rather, it could be classified as leading-edge?

Perhaps the politicians just don’t see it? Or maybe their pollster’s have told them that all this whining/complaining will lead to more incremental votes in a crucial voting demographic…resulting in a 4 year residency at the White House?

Because…really…for all their jawboning about issues that effect almost everybody…this election is simply about their personal/ultimate goal to become the most powerful person on this planet.  Nothing more than that…their promises on the campaign trail will quickly be mentally shredded once the final November votes are tallied.

Monsanto Signals Continued Willingness To Deal

index

Headline:
This Portion of Today’s Earnings Release Will Continue To Fan The Speculative Flames

Monsanto CEO Hugh Grant:
“While there is no formal update on the Bayer proposal, I have been personally in discussions with Bayer’s management over the last several weeks, along with others regarding alternative strategic options,” added Grant. “We continue to recognize the potential value these types of combinations can create as they accelerate innovation and increase choice for farmers across a broader set of crops, geographies and production practices, while improving the sustainability of agriculture around the world. That is why we remain open and will continue to actively engage in constructive dialogue to pursue value enhancing strategic options.”

HINT: The Key Phrase In The Highlighted Portion = “…Along With Others…”

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And Bayer’s interest in acquiring MON gets incrementally more expensive as the Euro weakens versus the $US.

BTW…earnings were weak and the outlook was reaffirmed at the lower end of guidance…but well telegraphed for some time.

The Only Move For The Fed = Talking Down The Dollar

dollar down

Headline:
Their Final Bullet

The Fed has no more maneuvers other than to jawbone the dollar lower. Because for a variety of reasons a strong dollar, in the current market environment, is akin to tighter monetary policy. And right now, in the wake of Brexit, tighter monetary policy = clearly not an option. Plus, a stronger dollar [by virtue of of “the peg”] strengthens the Chinese Yuan + Saudi Riyal…something neither country will tolerate.

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And the dollar’s whip-saw in ’16 has The Fed’s fingerprints all over it.

The Sequence = Flawed Forward Guidance of 4 Rate Hikes [$ Ramp]…Followed By A Slowing US Economy [$ Softens]…And now The Brexit/Global Economic Fears [$ Rally = Flight to Quality]. Of course = The Fed will try to manage the $US lower…with both an absolute intent and, naturally, uncertain outcome..

Their serial monetary policy impotence will certainly never be self-acknowledged.

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It may not be immediate but it will likely occur soon enough as negative rates are not a realistic option in the United States…as they have already proven to be ineffective in both Japan [surging yen] + Europe [still weakening economy]…and QE4 is not necessary as rates are plunging without The Fed’s meaningful assistance [notwithstanding balance sheet asset maintenance].

The only real question = who will be the messenger? I suppose the obvious answer would be the Fed member with the most credibility…but that assumes that there is still ANY credibility remaining at The Fed [which there is NOT].

Actually…the delivery of the message is much more important than the specific messenger. But, leave no doubt, the message will ultimately be delivered. Because as articulated long ago [Oct ’14] on this blog…

The Race To The Bottom

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AND UNFORTUNATELY…THIS RACE = STILL ON.

Musk’s Fiefdom Will Not Survive The Scrutiny

tslaspacexscty

HEADLINE:
Corporate In-Breeding and Board Cronyism At
Tesla/TSLA + Space X + Solar City/SCTY = SO BLATANT

MEMO:
1. Elon Musk = Executive Leader/Primary Owner of 3 Disparate Co’s
2. Revenue Strategy/3 Co’s = Directly Linked To Govt. Subsidies
3. Boards of Directors’ 3 Co’s = Overlap/Conflicted [see added link]
http://www.bloomberg.com/news/articles/2016-06-24/solarcity-tesla-ties-spurring-questions-on-board-s-independence
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4. SCTY = Financing Struggles = Serial Cash Burner
5. Space X Acquires > SCTY Debt = Self Dealing
6. Musk Acquires SCTY Equity = Self Dealing+
7. TSLA/Musk Sell Equity = Serial Cash Burner
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8. TSLA > SCTY: Benefits SCTY + Space X + Musk = Self Dealing++
9. Market Assumption = Pre-Buyout = SCTY = Bankruptcy Ct.
10. Transaction = SCTY “Bail-Out” + TSLA Dilution = Market Conflict
11. Market Challenge = TSLA Financial Rationale > SCTY
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CONCLUSION:
Musk & 3 Co’s Boards of Directors = No Regard For Governance
= Venture Capital Fiduciary Model Mocks/Bullies Public Shareholders

MSFT Acquisition Of LNKD = MASSIVE OVER-PAY

nadella photo

Headline:
Nerd Hoffman Outwits Nerd Nadella

1. MSFT > LNKD = Strategically Sound
2. Price Paid = $26.2B = 7% of MSFT EV
3. Cash Deal Financed By Debt = No Problem
4. Absolute Price Paid: Less: $1.8B LNKD Net Cash = $24.4B
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5. MSFT EBITDA Mgns = 37.47%
6. LNKD EBITDA Mgns = 11.10%
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7. MSFT EV/’16 EBITDA @ 50 = 9.49x
8. LNKD EV/’16/’17 EBITDA @ $190 = 60x/42.65x
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From Press Release: Microsoft expects the acquisition to have minimal dilution of ~1 percent to non-GAAP earnings per share for the remainder of fiscal year 2017 post-closing and for fiscal year 2018 based on the expected close date, and become accretive to Microsoft’s non-GAAP earnings per share in Microsoft’s fiscal year 2019 or less than two years post-closing. Yeah…Sure.

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Once again MSFT has agreed to overpay for a questionable asset…LNKD [aka “onlineresume.com”]. The folks at Skype and Nokia must be laughing mightily. The decision makers at MSFT may change but the dubious strategy of overpaying for a declining asset remains the same. That the goodwill write-off will occur is not a question…it is simply a matter of time…replicating the script with Skype and Nokia.

There is no doubt that LNKD = much higher quality asset than both Skype and Nokia…but that is not the point. The primary point = a behemoth like MSFT can acquire just about any asset, at an overly inflated value, without being significantly dilutive…as long as the asset remains a relatively small portion of its EV balanced by valuation paid/cost cuts at the acquired company. Still, the LNKD acquisition = pushing the limits as the above math demonstrates.

Furthermore, the redundancies at LNKD ought to be huge. Severe personnel cuts are definitely required to compensate for the stratospheric valuation paid. Naturally, Reid Hoffman will gladly provide all job losers with the proverbial “outplacement services”…to his personal financial benefit. And who better than LNKD to assist with resume reconstituting and updating? BTW…is that part of the synergy calculations?

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Speaking of Hoffman…that was some deal he negotiated. MSFT’s over-pay = LNKD’s pay-day. At least somebody conveniently leaked that this was a competitive bidding process…as CRM was also speculated to be bidding. Maybe…Maybe Not. But it sounds real good when you are paying too much.

Especially when the revenue line at LNKD, the ONLY metric other than stock options that The Nerds truly care about, is clearly slowing…though still not too bad for this economy…but a reversal of trend = unlikely.

And those articulated synergies with the Office Suite? I’ll only believe it when I see it…which will be difficult to decipher in MSFT’s consolidated financial statements. Because as George Roberts [of KKR] once informed a group at CAL’s Haas Business School…and I paraphrase…“projecting revenue trends, synergies etc beyond 6 weeks into the future is a very difficult thing to do…let alone years…you can try your best to project but you really do not know with a high degree of certainty.So we tried our best but we were rarely accurate.”

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So existing MSFT shareholders are crapped on once again due to an over-priced acquisition. Ironically, for MSFT, their lack of investing discipline is not even their most acutely suspect skill…as their history of intellectual property THEFT trumps any obtuse math skills…but at least they are really good at it. Talk to the folks at both Apple Computer and Netscape…I believe they’ll collectively agree.

And the irony continues as MSFT now plays the victim and whines that the Chinese ruthlessly poach their intellectual property [which is quite true]…What’s That Saying? What Goes Around…Comes….

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Anyway…perhaps if MSFT executives paid a little closer attention to emerging trends in technology, rather than legacy trends in technology, the company would no longer have to “pay up” to “catch up.”

Or maybe even, considering their vast resources, internally developing a Unicorn-like product on their own? Recall that even DOS was acquired…not internally developed…from a brilliant Seattle hardware store proprietor many years ago.

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