By Biiwii
As you may know, certain things get stuck in my craw from time to time because I came from industry, not from the abstract world of stock markets, finance and Keynesian economics. In short, I made stuff and sold stuff. The pressure was always there to get better, more efficient, more employee friendly, more modern. We did well in those regards, starting in the early 80’s.
Along comes a post by Martin Armstrong, the detailed merits of whom I will not debate because I don’t study him closely enough. Suffice it to say that I do not care for the cult-like following that seems to hold he and his computer, Socrates aloft in much the same way I did not care for the cult-like following (of “Comrades in Golden Arms”) that held aloft James Sinclair, by way of whom many people came to know Mr. Armstrong.
Indeed, too many smart people seem to put great weight on Martin Armstrong for the non-guru likes of me to criticize him in general. But I will go by what I read when the material is on a subject that I know about. US Manufacturing is a subject that I know about intimately; politics and associated biases are not. Yesterday, from Armstrong in response to another poor ISM release…
Is the Recession Starting?
“The ISM purchasing managers’ index for the manufacturing sector in December 2015 in the USA has plummeted to its lowest level since June of 2009. This warns that the U.S. economy is entering a recession that is in line with the forecast of the ECM and the rise in the dollar.”
Fair enough, last summer we noted some alarming news (from a former associate of mine) pertaining to Japanese Machine Tool builder Mori Seiki; they were blowin’ ’em out and that bode ill for the US machine tool industry, and by extension, the manufacturing sector. So okay, it’s a half a year later and the ISM, which had been decelerating in its growth for months, has finally dumped into negative territory. But the earliest warning came months ago. Today, it is hype and headlines. As for the USD, I agree there too and I don’t recall too many people being bullish back in the summer of 2014 when we (NFTRH) very methodically gauged and managed its bull-igniting breakout way back at the 80 to 82 level.
“However, keep in mind that this is simultaneously coming with the changing technology trend. By that, we mean that low-level jobs are being replaced rapidly by automated computers, in part, because of Obamacare and its Draconian tax burden upon business exceeding 25 employees. Therefore, unemployment will rise due to this expansion in technology and raising the minimum wage will accelerate that trend further.”
This is the stuff that I just had to build a post around. Marty is putting out pure hype here. Hype that is decades too late to the party. Want proof? In 2004, while still a manufacturing guy, I discussed the improvements that we had been compelled to make due to what I had perceived as a deflationary pressure within the manufacturing sector. It was not traditional deflation as schooled by economists or we market commentators. It was more the pressures put upon a sector that was battling inflation-induced cost increases on one end and globally driven selling-price decreases on the other. That pressure forced upon us and many other survivors was a little thing we call progress.
That was in 2004. In 1983 we acquired our first multi (11) pallet machine capable of running all day, all night and all weekend with extremely limited human operator input. Of course, to do this we needed CAD/CAM, wired (and eventually wireless) downloading of machining data and very capable (and well paid) people to make it work. There were many less people, however. From that article…
A few facts:
- The prices my company charges its customers are generally lower than in the 1980’s.
- The company is much more profitable than it was in that period.
- The work environment is more pleasant, cleaner and less stressful than it was then.
- We produce the same output with 1/3 the people as 20 years ago, and we do it with near zero defects and pride of workmanship.
- We are a proud American company that pays good salaries and wages.
- None of the above would have been possible if we had not dedicated to automation, quality and a competitive spirit.
I feel as though Armstrong is playing loose with the facts here with political bias getting in the way. I feel he is using the abstractions within the global financial media’s factory of words to manufacture reasons why “unemployment will rise due to this expansion in technology”. The boogie men du jour today are Obamacare and the minimum wage. Back in my time it was outsourcing to low cost countries like Mexico and China. Come on Marty, that may work within financial narratives, but not with anyone who has been in the manufacturing sector for a few years… or decades. I call b/s.
“In business, inventories are also shrinking as companies move to “just in time” methods by using technological advancements to minimize carried inventory. This trend is only further accelerated by the banks moving toward transactional banking where they are no longer interested in relationship banking. This also reduces the availability of loans for small business as banks do not want the risk.”
“Just in time”? Did he really write that? Is this the same JiT that really hit stride in the 1980’s as US businesses got serious about emulating the efficiencies that had been promoted by Japan, Inc.? I am surprised he did not mention ‘Lean Manufacturing’ (heavily relied upon through the Semiconductor Equipment supply chain among other industries) which was an evolution of JiT. He also talks about banking relationships and small businesses and then closes as follows.
“The convergence of these trends will feel the recession ahead. Eventually, this will materialize in rising unemployment, a deepening crisis in student loans, and the fiscal mismanagement of governments demanding more and more taxes which will become a toxic cocktail of doom.
The ultimate rise in stocks in the years ahead (after a correction sling-shot move) will unfold simply as capital tries to secure its future by getting out of government bonds and banks.”
All I can tell you is that these manufacturing-related trends have been in play for decades. I don’t know why Armstrong is trying to make it sound as if it is something new… or even of the modern era. It isn’t. It is called productivity and efficiency and these forces have been in play since the beginning of industry, really. It’s progress; it’s what humans do.
I do not dispute the malfeasance within the financial sphere and indeed have done my share of bitching and moaning about it. But when I hear a revered figure going on about things he has little clue about and layering in political bias to boot, well you can just count me out as one of those following Armstrong.
As for the coming rise in stocks? Could be, after a “correction sling-shot move”. But he makes no mention of valuation metrics within this “toxic cocktail of doom”. Is it just that people are going to buy stocks to the heavens for fear and loathing of government? That’s the “phase transition”? Do I have that right? The market has desperately needed a clean out and that appears to be in its early stages. Afterward, I’ll be as willing as the next guy to go for a rally or even a new bull cycle. The S&P has after all, simply massive support at 1550, as well as lesser support at higher levels.
I realize a gold bear cottage industry has sprouted at Armstrong’s feet, but it seems to me that a loss of faith in government (and the Fed) would pull old Yeller right out of its bear market. The gold bear has gone hand in hand with the post-2011 renewal in confidence, after all. So I am looking at this counter-cyclical sector ever more closely after having to call it a bear market (which it still is) for years now.
If you want to take this post as just another wannabe slamming Armstrong (as he seems so sensitive about), go ahead. It’s a free market. But these are my thoughts on this subject. I am trying to be gentlemanly while at the same time writing the truth as I see it, especially in the areas that I know he is either ignorant or taking liberties for effect.
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