Offshoring Begot Offshoring: China’s Rise and “The Circle of Rust”- by NEIL SISKIND

By NEIL S. SISKIND

American businesses’ desperate need for Chinese consumers was self-inflicted. By offshoring rust belt jobs to China, we created the “circle of rust”, where, as a result of the offshoring, companies needed to offshore “even more”. Here’s the way “the circle of rust” worked, and how offshoring begot offshoring.

  1. American companies offshored work to China to lower costs and increase profits
  2. The more companies that did this, the more companies that had to do the same in order to compete on price
  3. Lower costs led to lower inflation- due, primarily, to stagnant wages
  4. Stagnant wages led to less pricing power for companies
  5. Less pricing power led to the need for even lower costs, in lieu of better margins, to increase profits
  6. Less pricing power led to the need for greater revenues, in lieu of better margins, to increase profits
  7. Companies, today, often, achieve more revenues by obtaining more customers, rather than by expanding their margins- and those customers are overseas- especially in China- which makes US companies and Us policy more deferential, or more accepting, or totally blinded, to China’s unfair and illegal behaviors
  8. Low inflation from low wages leads to low interest rates, which allows companies to achieve more scale through borrowing cheap capital and attracting private equity and forego the idea of better margins as a path to growth- and makes China an indispensable plan for any company’s future.

Offshoring begot offshoring. The Rust Belt and manufacturing base of America got rustier and rustier. And the more it rusted, the less employee/consumer incomes rose, and the less margin that could be achieved through raising prices on consumers- as is normally justified by rising cost pressures- especially wages. Instead, prices had to go “lower” as wages stayed flat. Wages could not rise because companies could not raise prices on consumers with flat wages (and, actually, lower real wages when looking at education and health care costs). The more offshoring needed to lower costs to grow profits- the rustier our manufacturing sector became. China grew stronger, as they used the jobs we offshored from our “Rust Belt” to grow their own middle class and finance things like their “Road and Belt”.

A vicious circle of offshoring begetting offshoring has been the prime cause of America’s decline and China’s rise.

The Growing Savings Rate To Come- By NEIL S. SISKIND

If you’re over 40, your grandparents may have been born in the 1920’s and 1930’s, which means that that their spending and saving habits were born of the Great Depression. They may have been frugal, and thrifty- and they, or your parents, may have been quick to point to their behavior being, conscious or subconsciously, resulting from the Great Depression, and how things bad things can suddenly turn the wrong way for the nation.

If the vaccine, or any of them, are effective, we will see a growth spurt in this country- in this world- like we’ve never seen. Mostly based on travel, food, experiences- life!

But then … how can any reasonable person- and reasonable parent- not begin a new pattern of saving- one greater than ever executed or anticipated- knowing full-well, from first-hand experience, that a virus and a pandemic can, very easily, be right around the corner.

For those of us who are in our 50’s- what if another pandemic strikes when we’re in our 70’s?

Just from China, alone, this country has suffered 4 pandemics in the past 70 years: 1963 Asian Flu; the 1968-1969 Hong Kong Flu; 2002 SARS, and, most recently, COVID-19.

We now know, from first hand experience, that a germ, a pathogen, a flight from Asia- and it can all be shut-down in a heartbeat.

How can the saving’s rate not rise from here for any thinking person?

The combination of an aging society, lower growth, and a pandemic influenced consumer can create a far higher savings rate than previously expected, which could mean a flat yield curve- and a desperate and herd-driven hunt for yield- and low yielding safe haven investments (Treasuries and investment grade credit)- that lasts forever.

2020: The V-Shaped Year


The “Vs” that shaped 2020:

Vampire bat
Virus
Virology
Virulence
Vulnerable populations
Ventilation
Ventilators
Vitamin D
Virtual meetings/Video conferencing
Vacation-home rentals
Video games
Video streaming
Vino (and more Vino)
Vehicles (RVs and EVs)
Vacancies in office buildings
Vacant retail storefronts as e-commerce grew
Viral Video of George Floyd’s murder
Victims who got Vociferous
Vandalism during protests
Violence during riots
Vacating the cities
Volatility in stocks
Venture capital-backed IPOs
Value stocks Versus growth stocks debate
V-shaped economic recovery
Vice-Presidential pick
Vilification of each political party by the other
Voting for President
Votes by mail
Voter fraud
Veto, and Veto threat
Variant of the Virus
Vaccines and Vaccinations

Voilà!