Investing Curiouscatblog

Tag: Popular

  • USA Manufacturing Output Continues to Increase (over the long term)

    When looking at the long term data, USA manufacturing output continues to increase. For decades people have been repeating the claim that the manufacturing base is eroding. It has not been true. I realize the economy is on weak ground today, I am not talking about that, I am looking at the long term trends.

    The USA manufactures more than anyone else – by far. The percentage of total global manufacturing is the same today it was two decades ago (and further back as well). For decades people have been saying the USA has lost the manufacturing base – it just is not true. No matter how many times they say it does not make it true. It is true since 2000 the USA increase in manufacturing output (note not a decrease) has not kept pace with global grown in manufacturing output (global output in that period is up 47% and the USA is up 19% – Japan is down 10% for that period).

    I would guess 20 years from today the USA will have a lower percentage of worldwide manufacturing. But I don’t see any reason believe the USA will see a decline in total manufacturing output. I just think the rest of the world is likely to grow manufacturing output more rapidly.

    Looking at a year or even 2 or 3 years of manufacturing output data leaves a great deal of room to see trends where really just random variation exists. Even for longer periods trends are hard to project into the future.

    Conventional wisdom is correct about China growing manufacturing output tremendously. China has grown from 4% of the output of the largest manufacturing companies in 1990 to manufacturing 16% of the total output in China today. That 12% had to come from other’s shares. And given all you hear from the general press, financial press, politicians, commentators… you would think the USA must have much less than China today, so may 10% and maybe they had 20% in 1990. When actually in 1990 the USA had 28% and in 2007 they had 27%.

    Manufacturing jobs are not moving oversees. Manufacturing jobs are decreasing everywhere.
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  • Save Some of Each Raise

    Failing to save is a huge problem in the USA. Spending money you don’t have (taking on personal debt) and not even having emergency savings and retirement savings lead to failed financial futures. Even though those in the USA today are among the richest people ever to live many still seem to have trouble saving. Here is a simple tip to improve that result for yourself.

    Anytime you get a raise split the raise between savings, paying off debt (if you have any non-mortgage debt), and increasing the amount you have to spend. I think too many people think financial success is much more complicated than it is. Doing simple things like this (and some of the other things, mentioned in this blog) will help most people do much better than they have been doing.

    There are lots of ways to spend money. And many people find ways to spend all or more than all (credit card debt, personal loans…) they have which are sure ways to a failed financial future. So anytime you get a raise (a promotion, new job…) take a portion of that extra money and put it toward your financial future. The proportion can very but I would aim for at least 50% if you have any non-mortgage debt, don’t have a 6 month emergency fund, or are behind in saving for retirement, a house…

    Exactly how you calculate if you are behind, I will address in a future post (or you can look around for more information). By taking this fairly simple action you will be setting yourself up for a successful financial future instead of finding yourself falling behind, as so many do. And then when things go badly, as they most likely will sometime during your life, you will have built up a financial position to draw on. Instead of, as so many do now, find that you were living beyond your means when things were going well – which it doesn’t take a genius to see will lead to serious problems when things take a turn for the worse.

    So lets say you take a new job and get a raise of $4,000 a year. Instead of spending $4,000 more just put $2,000 away (pay off debt, add to your retirement savings, add to savings for a house, add to your emergency fund…). Then you get a promotion of another $3,000, increase your spending by $1,500 and save the rest. It is such a simple idea and just doing this you can find yourself in the top few percent of those making smart financial decisions. And if you get to the point that you are ahead in all your financial areas then you can take more of each raise you get (but most of the time you will have learned how valuable the extra saving are and figured out the extra toys really are not worth it). But if you want to, once you have created a successful financial life, you can choose to buy more toys.

    Related: Retirement Savings Survey Results – Earn more, spend more, want more

  • How Not to Convert Equity

    CNNMoney is not exactly intellectual discussion of economic and investing issues but normally it offers fairly good material for the large number of people. Especially those who really don’t want to read Warren Buffett or Brad Setser. Still the following quote in their article, Cashing in on hot real estate is just wrong:

    They also have one extremely valuable asset: a house in the now trendy Silverlake neighborhood of Los Angeles that’s worth $1 million, nearly four times what they paid in 1995. The equity, Handel says, is “lovely,” but it’s not doing them much good right now.
    …
    San Diego-based certified financial planners Christopher Van Slyke and Terry Green recommend an unconventional plan: taking out a new $500,000 ARM.

    Handel and Laport can pay off their existing mortgage before the rate rises and retire their other debts. They can put the remaining $200,000 into stock and bond funds.

    To be sure, borrowing against a house to put the proceeds into the market rarely makes sense. But in Handel and Laport’s case it does because so much of their net worth is tied up in their home, and the super-hot L.A. real estate market looks primed for a fall…

    They can convert equity that might melt away.

    They can what? In no way does increasing their leverage convert equity that might melt away. Any amount of “melting away” will still happen after this increase in leverage – no conversion has happened. They still have a full ownership interest in the real estate. If the value of their house fell $300,000 before or after this supposed “conversion” they would “lose” (on paper) the same amount: $300,000. The investment risk for the house has not changed (for the whole portfolio you could argue it has but that gets complicated and subject to debate).
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