One of our readers, Mr. Alfonso Landa, alerted us to a most interesting if
depressing fact: Productive America is moving from a high value-added
manufacturer of automobiles to the low value-added miner of raw materials.
Mr. Landa pointed to a trend that he has been watching for some years. It is of
the falling market capitalization values of U.S. manufacturers compared with
those of American gold diggers. The crossover occurred last week.
The market capitalization of Ford is some $13.4 billion, and General Motors' is
$16.9 billion, for a total of $30.3 billion.
The capitalization of the American gold digging company, Newmont Mining is $20
billion. That of Gold Corp. is $12.2 billion, for a total of $32.2 billion.
[America's largest gold company, with a capitalization of some $26 billion has
been excluded as much of its cash flow comes from hedging rather than merely
mining for gold.]
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Put another way, the cash flows of America's two main, high value-added
automobile manufactures is $2 billion less that that of America's two largest,
low value-added gold diggers!
Financial Intelligence Report has been advising our readers to accumulate gold
for some time. We had little idea how much they had bought!
[Editor's Note: Warren Buffett is betting billions the dollar will crash in
2007. Go
Here Now
.]
The sad side of Mr. Landa's seminal observation is this: Manufacturing was once
the backbone of the mighty American economy, but has now been replaced.
American industry attracted capital investment on a vast scale by generating
high cash flows from high value added work, like manufacturing high margin
motorcars. It was left largely to the so-called underdeveloped world to
undertake most of the low value-added activities such as digging for basic raw
materials.
It therefore comes as a shock to realize that investors are prepared to pay more
for the cash flows of two gold mining companies than for the two remaining
American automobile manufactures.
What is worse is that this phenomenon points to an alarming macro trend.
In recent years, America has sold off its manufacturing assets to countries like
China and now pays big bucks to buy Chinese consumer products. China has already
earned some $1 trillion in foreign currency reserves, of which $700 billion are
in U.S. dollars.
[Editor's Note: Can Ben Bernanke avoid the coming currency crisis?
Go here
now
.]
The U.S. has already lost much of its electronics and steel industries. How long
will it be before someone like India's Tata or China's Brilliance buys the
remaining productive assets of Ford or GM?
Automobile manufacturing used to be perhaps the single most important
value-added, "multiplier" industry in the great American economy. Now, it is in
danger of being exported.
America is still strong in aerospace, computers and movies, but for how long?
As high-end, value-added manufacturing moves away form our shores to nations
that are prepared to work for a fraction of our lowest wages, our wealth will
shrink. Then, for how long will we be able to afford the health and social
benefits to which we have grown accustomed?
The Democrats have made clear that they intend to enact sanctions upon foreign
countries that, in their opinion, export to America on unfair grounds. Indeed,
U.S. Treasury Secretary Henry Paulson is now visiting China to "encourage" some
concessions from the Chinese, before the Democrats take over in the New Year.
We believe that the exporting of American jobs will increasingly occupy the
center stage of American politics and will play an important part in the crucial
Presidential elections of 2008.
Editor's Notes:
