Position to Win

Position To Win

The Darwinian battle for survival has a lot to do with EXCEEDING the Jones, rather than just keeping up with them. Traditionally what has been a pillar of the American Dream is the belief that one's children will have a better life; better education, access to opportunities, health, etc. Indeed, it was John Quincy Adams who remarked that "I am a soldier so my son can be an engineer and his a poet." How does that translate in today's society?

Reality dictates that to achieve this goal of a progressively better life for ourselves, our children, and their children one major accomplishment MUST be achieved: growth. By definition, the Earth has limited natural resources, and as humans our time is probably the most valuable resource. Along those lines, maximizing time (surviving) is paramount to achieving growth. And there is a very specific definition of growth I like to use fellow financial farmers: making sure your portfolio is growing consistently in EXCESS of true inflation...which I estimate is easily in the double digits.

Double digits? How could this be? The Federal Reserve is HOPING that their metrics indicate "inflation" rises to 2%. Please take a look at the chart above illustrating historic real wage growth and notice something really, really nasty occurred around the year 2000. That's essentially when the internet really began to take off, and was quickly followed by major world events including a massive recession and multiple global wars. The global economy's PRODUCTION has more than recovered in the nearly two decades since, but the real wages haven't....and neither have the jobs.

Real wages have remained stagnate and U.S. manufacturing jobs are at 1941 levels. Explosive growth in productivity hasn't benefited the typical line worker at all. The number of jobs has collapsed and compensation long associated with those jobs has vaporized...it has been replace largely with the rise of a massive service sector dubbed The Gig Economy. The problems with The Gig Economy are legion; no pension, limited healthcare options, and low wages. Where is all that "productivity" i.e. prosperity going? To the owners of said businesses, who are typically either private equity concerns or publicly traded companies both of which have founders with stratospheric wealth.

So how you do position to win? First, throw out the 2% inflation dictum championed by the Federal Reserve. Second, put a personal growth plan together that targets a sustainable, LARGE growth rate in excess of your true inflation (cost of housing, healthcare, education, etc.) Third, implement said plan. There are multiple industries with stratospheric growth...I know where they live, and so will you after some research. Give me a call if you need help finding them. Look at those industries and professions intensely from both an employment perspective and ownership mentality. The future remains very bright for those pursuing ownership interests that are laser-focused on generating cash flow...and there's nothing to say you can't love what you do and benefit the world while you do it. If you want to position yourself to win big-time, formalizing a growth plan and executing it are essential...Invest Like A Farmer.

Middle Class Squeeze

It is often said a picture is worth a thousand words, so financial farmers I encourage you to click and expand the above picture depicting the "Middle Class Squeeze."

If you feel like you've been working harder than ever just to pay for basic life needs like rent, medical care, child care, or higher education well...you have. Over the past twenty years real family income has fallen nearly 10% while costs of essential services have skyrocketed. 

Much of the plunge in real income is due to the complete and utter destruction of the traditional manufacturing base. Productivity remains at an all-time high, but the jobs have disappeared. It is analogous to a cluster of neutron bombs going off in multiple cities across the United States, particularly in areas succinctly defined as NOT coastal America.

Technology is great...until it gobbles up all the manufacturing jobs and essentially hobbles an entire class of people. Probably the greatest article I've ever read about this ongoing phenomenon is entitled "Why Software is Eating the World" originally published in the Wall Street Journal on August 20th, 2011. If you do one thing today (besides read my blog of course!) please take a moment to read that article. It is brilliant.

Wealth creation, and concentration, has largely come at the expense of higher-paying middle class jobs. What I term the "technorati" (or in stock market parlance FAANG...Facebook, Amazon, Apple, Netflix, and Google) have swelled in market capitalization to ENORMOUS levels. But it's not just FAANG...the list can easily include any number of their peers: Adobe, Microsoft, etc. Even "new" startups like Uber and Airbnb largely leverage existing infrastructure (cars and homes) to derive profits as a software company. They manufacture nothing, except benjis.

Obviously shareholders, and in particularly founders, have made tremendous profits. But at what cost? It is going to be nearly impossible to to rebuild the middle class base in my opinion. If anything, there will be further wealth stratification into binary classes; the "Alphas" and the "Betas." Upward mobility has basically stalled for an entire generation, save for those smart and lucky enough to latch on like Velcro to the runaway tech horse.

A potential solution is tricky in a democratic republic that values, indeed prizes capitalism, and loves a Horatio Alger story in every successful person. The reality, however, is starkly different. Dynastic wealth is alive and well...and growing across the political spectrums...and that is the true enemy of meritocracy in the world.

The middle class has the votes and needs to elect pragmatic politicians willing to broach traditionally taboo subjects like true inflation (the Federal Reserve calculates inflation in tons of soybeans rather than legit metrics like housing, education, healthcare), tax avoidance (via "non-profit" foundations which collectively have avoided billions in taxation), and monopolies which clearly violate the Sherman Antitrust Act. Unless the middle class acts, the shenanigans will continue; wealth will concentrate amongst the top Alphas leaving a proverbial ocean of Betas to fuel them.

Planes, Tranes, and Automobiles

2015 has seen the return of durable goods…really durable goods like planes, trains, and automobiles as respective leaders in the Dow's performance. A coincidence? I think not. After the perilous days of 2007, 2008, and 2009 when demand for durables basically collapsed, we saw the fall of the American manufacturing sector.  On the heels of the financial meltdown, a number of iconic GLOBAL manufacturers went bankrupt leaving investors and workers alike out in the cold.

Why the turnaround today? 5 years in the making the shift into overdrive is the result of a cash tsunami from sovereign entities that propped up the massive durable good sectors; manufacturing is time, labor, and capital intensive. These manufacturers became leaner and competitively meaner.

With the Fed reluctant to raise rates anytime soon due to an almost complete lack of gauged inflation, tepid GDP, and basically zero real wage gain I suspect "the fix is in" for planes, trains, and automobiles. Their labor rates, although variable, are typically negotiated for years at a time. Commodity costs have collapsed. Easy money from the Fed, tightening in the labor market, and a recovery in the real estate market all point to continued gains in durables.