Posts

March 8, 2019

Global Market Comments
March 8, 2019
Fiat Lux

Featured Trade:

(MARCH 6 BIWEEKLY STRATEGY WEBINAR Q&A),
(SPY), (SDS), (TLT), (TBT), (GE), (IYM),
 (MSFT), (IWM), (AAPL), (ITB), (FCX), (FXE)

January 17, 2019

Global Market Comments
January 17, 2019
Fiat Lux

Featured Trade: 

(WHAT HAPPENED TO THE DOW?)
($INDU), (EK), (S), (BS), (CVX), (DD), (MMM),
 (FBHS), (MGDDY), (FL), (GE), (TSLA), (GM)
(WHY YOUR OTHER INVESTMENT NEWSLETTER IS SO DANGEROUS)

November 30, 2018

Global Market Comments
November 30, 2018
Fiat Lux

Featured Trade:

(NOVEMBER 28 BIWEEKLY STRATEGY WEBINAR Q&A),
(VXX), (VIX), (GE), (ROKU), (AAPL),
 (MSFT), (SQ), (XLK), (SPLS), (EWZ), (EEM)

November 5, 2018

Global Market Comments
November 5, 2018
Fiat Lux

Featured Trade:

(THE MARKET OUTLOOK FOR THE WEEK AHEAD, or THE MAD HEDGE FUND TRADER HITS A NEW ALL TIME HIGH),
(AAPL), (FB), (RHT), (GE), (VXX), (AMZN), (SPY), (IWM), (CRM)

November 2, 2018

Global Market Comments
November 2, 2018
Fiat Lux

Featured Trade:

(OCTOBER 31 BIWEEKLY STRATEGY WEBINAR Q&A),
(EDIT), (TMO), (OVAS), (GE), (GLD), (AMZN), (SQ), (VIX), (VXX), (GS), (MSFT), (PIN), (UUP), (XRT), (AMD), (TLT)

October 3, 2018

Global Market Comments
October 3, 2018
Fiat Lux

Featured Trade:
(TAKING A LOOK AT GENERAL ELECTRIC LEAPS), (GE),
(TEN SURPRISES THAT WOULD DESTROY THIS MARKET),
(USO), (AMZN), (MCD), (WMT), (TGT)

June 25, 2018

Global Market Comments
June 25, 2018
Fiat Lux

Featured Trade:
(THE MARKET OUTLOOK FOR THE WEEK AHEAD, OR IS THIS A 1999 REPLAY?),
(AAPL), (FB), (NFLX), (AMZN), (GE), (WBT),
(JOIN ME ON THE QUEEN MARY 2 FOR MY JULY 11, 2018 SEMINAR AT SEA),
(JUNE 20 BIWEEKLY STRATEGY WEBINAR Q&A),
(SQ), (PANW), (FEYE), (FB), (LRCX), (BABA), (MOMO), (IQ), (BIDU), (AMD), (MSFT), (EDIT), (NTLA), Bitcoin, (FXE), (SPY), (SPX)

May 25, 2018

Global Market Comments
May 25, 2018
Fiat Lux

Featured Trade:
(FRIDAY, AUGUST 3, 2018, AMSTERDAM, THE NETHERLANDS GLOBAL STRATEGY DINNER),
(MAY 23 BIWEEKLY STRATEGY WEBINAR Q&A),
(TLT), (SPY), (TSLA), (EEM), (USO), (NVDA),
(GILD), (GE), (PIN), (GLD), (XOM), (FCX), (VIX)

The American Onshoring Trend is Accelerating

Onshoring, the return of US manufacturing from abroad, is rapidly gathering momentum.

It is increasingly playing a crucial part in the unfolding American industrial renaissance. It could well develop into the most important new trend on the global economic scene during the early 21st century. It is also paving the way for a return of the roaring twenties to our home shores.

Of course, it is hard to quantify this assumption with hard data. US government statistics are a deep lagging indicator and are unable to keep up with a rapidly changing, interconnected, fluid world. No doubt, they will tell us this epoch-making sea change is underway in ten years.

However, it is possible to track what a single company is accomplishing. In 1973, General Electric (GE) ran the largest home appliance manufacturing facility in the world.

Its Appliance Park in Louisville, Kentucky, employed 23,000 workers packed into six gigantic buildings, each as large as a shopping mall. It was so big, it even earned its own postal zip code (40225).

After that, the offshoring mania kicked in, with the firm motivated by a single factor: hourly wages. You could hire 30 men in China for the cost of one American union worker. The savings were too compelling to pass up, and The Great Hollowing Out of US manufacturing was off to the races.

GE tried to sell the entire operation, but was too late. The 2008 financial crisis decimated the market for Midwest industrial facilities. You could only get the scrap metal value, or three cents on the dollar.

By 2011 employment at Appliance Park had plunged to 1,863 and the region?s new ?Rust Belt? sobriquet was well earned.

Then, almost imperceptibly at first, the trend started to reverse. Decades of 20% a year wage increases took the cost of a skilled Chinese worker from $300 a year to $25,000.

The 2011 Japanese tsunami, followed by huge floods in Thailand, caused massive disruptions to the international parts supply network.

A minor strike by the Longshoreman?s Union at the Port of Oakland in California brought the distribution channel to a grinding halt. Business plans that looked great on an Excel spreadsheet turned out to be not so hot in practice.

It gets worse.

When Chinese workers walked across the street to collect bigger pay packages, they often took blue prints, business plans, and proprietary software with them.

Six months later, a local competitor would show up with a similar, although inferior, product at half the cost. Suddenly, globalization was not all it was cracked up to be.

In the meantime, the American labor force, reading the Chinese characters on the wall, evolved. Unions were disbanded. Antiquated work rules were tossed. The unions that were left agreed to two-tier wage structures that had entry level employees coming in at $13.50 an hour, a fraction of the original rate.

Then management got smarter. By removing the assembly line from the marketplace, companies lost touch with customers. Designers lost contact with the manufacturing process, creating products that could only be built expensively, or not at all.

Quality plummeted. Innovation suffered. By bringing manufacturing home, firms not only solved these problems, they were able to build better products for less money.

China turned out to be farther away than people thought. Having middle management jet lagged up to three months a year proved to be very expensive. It takes six weeks to ship an appliance from the Middle Kingdom to the US if the shipping schedules are perfect.

An American plant can truck product to most US stores within two days. That wasn?t a problem when consumer products saw lives that ran into decades. It is a big deal when rapidly accelerating technological improvements require them to be turned over every three years or less, as they are today.

Better American management techniques are giving US based factories an edge. I saw this up close at the Tesla (TSLA) factory in Fremont, California, where workers have the ability to improve the assembly process daily and are incentivized to do so.

The place was so clean and quiet, it felt more like a hospital than a factory. It turns out that a drive train with only 11 parts doesn?t require much labor to assemble it, and robots do most of that.

By adopting similar techniques, GE, is building the same number of appliances it did during the 1960s peak, about 250,000 a year, with one third of the employees.

Using the new thinking, many companies are finding out that offshoring was a big mistake in the first place and are bringing production home.? Some business analysts estimate that up to a quarter of the companies that offshored lost money doing it.

The fact that GE is onshoring is important. It is considered by many to be the best run industrial company in the United States, and where it leads, many follow.

On the heels of the GE move, Whirlpool has relocated its mixer assembly from China to Ohio, and Otis has brought home elevator making from Mexico.

Did I mention that because of all of this GE stock is a screaming buy?

Even Wham-O has jumped on board, the maker of Frisbees, Slinkies, and Hula Hoops, and a company that is dear to my heart (I dated the founder?s daughter in high school), moving production from the Middle Kingdom back to Southern California.

If I am right, and onshoring speeds up into the next decade, we may get another opportunity to relive the roaring twenties. By then, a shortage of workers will lead to higher wages, greater consumer spending, and rising standards of living.

The price of everything will rocket, including your stocks and your home. GDP growth will surge to 4%-5% a year. Inflation will, at long last, make its long predicted return.

It will be an economy in which Jay Gatsby would feel right at home

US Mfg JobsA Trend Reversal?

Job Growth
ge tsla
Leonard DiCaprioThe Roaring Twenties Are Headed Our Way

General Electric?s Imagination Really is at Work

Are you looking for an investment that does well during modest economic growth, a flat to slightly falling dollar, continued low interest rates, and a stock market that periodically hits the panic button?

Then General Electric (GE) is the stock for you.

I have just spent my day surfing the web for tidbits about GE and found quite a lot that I liked.

Want to get a great deal on a new diesel electric locomotive with teaser financing? That?s why customers flock to GE.

What I found was one of the largest corporate restructuring stories in history.

You can summarize it as ?Out with glitz, leverage, and volatility, and in with the plodding, the stable, and the reliable.? In stock market terms this means out with low price/earnings multiples and in with high ones.

For a start, GE is run by Jeffrey Immelt, considered by many to be one of the most superb large cap managers in the world. He has been cutting costs and ditching business lines not considered essential to its core heavy industrial origins.

Immelt has indicated that he expects that by 2018, General Electric will be earning 90% of its profits from "selling equipment for airplanes, railroads, oil extraction and electricity generation," all safe stuff.

By the way, these are great plays on a recovering Chinese economy as well. No coincidence there.

The most immediate trigger to pile into this stock was its planned sale of GE Finance, which is why wags used to call GE ?The hedge fund that sold light bulbs.?

GE was dragged into this business during the 1990s by predecessor, Jack Welsh, using the logic that ?Everyone else was doing it.? Welsh never inhaled a breath of humility in his life, and chronically suffered from confusing brilliance with a bull market.

In the end, his strategy almost took the company under, requiring a bailout from Warren Buffett during the dark days of 2009, in the form of a 10% convertible preferred stock issue.

If only I could get such terms!

In the most recent quarter, GE had to write off $4.33 billion for the sale of damaged securities left over from this ill conceived venture.

A $30 billion portfolio of such dross was recently sold to Wells Fargo (WFC). GE has also indicated that it will soon spin off consumer finance business Synchrony Financial (SYF).

This is yet another step in the company's plan to divest $200 billion of GE Capital assets as GE returns to its industrial roots.

And how can you not like that 3.10% dividend in this zero return world? This is with a price earnings multiple of 25 for current year earnings, and 19 times next year earnings.

GE?s aviation business is climbing to higher altitudes. Its backlog has ballooned some 36% over the past two years, to $150 billion.

It has been spurred on by a new engine that uses 15% less fuel, enabling their hyper competitive airline customers to cut one of their largest costs.

This will pave the way for GE to grow its installed base of engines from 36,000 to an impressive 46,000 by 2020. Did you know the Chinese have to buy 1,000 airliners over the next decade?
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After an 18-month battle with the French government, GE managed to close its purchase of Alstom for $13.8 billion, a major European energy company. It had to promise to create 1,000 new jobs in France to do so.

The deal brings GE's capabilities that it had previously lacked in renewable energy and heat recovery steam generators. The latter are key components of combined cycle gas-plus-steam plants, which GE forecasts will account for 70% of all future gas-fired plant orders.

Acquiring this capability roughly doubles the General Electric share of the revenues it could capture from orders for such plants.

With it comes considerable expertise in plant design and construction, allowing GE to move from being a supplier to a lead contractor on such projects.

Alstom also delivers a significant presence in China and India, as well as sophisticated products in transmission technology.

(GE)?s sale of its appliance unit to Sweden?s Electrolux (ELUXY), which came with the Alstom deal, is pending antitrust review.

To top all this, activist investor Norman Peltz?s Trian Fund has taken a 1% stake in (GE) (or $2.5 billion worth) with the intention of shaking it up so a few more coins will fall out for shareholders.

That is quite an ambitious bet. Peltz wants the company to ramp up an already ambitious share repurchase program. And you get in at a great price today.
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All in all, GE seems to be the right kind of stock to buy in the market we have at the moment. It also fits neatly into my scenario of new money moving into value, at the expense of growth (click here for ?Switching from Growth to Value?.

All we need to get in is a decent pullback from its recent parabolic move.

For more background on General Electric, click here for ?The American Onshoring Trend is Accelerating?.

geGE Emblem

Jeff ImmeltJeff?s Got Some New Tricks Up His Sleeve