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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Feds Rethink Rules on Retirement Savings

This is silly. Everyone in the situation of having to make a withdrawal has know about the requirement for years. My guess is this has been the law for over 20 years. Yes, the stock market is down. Yes, being forced to sell now would be bad. And how does providing “tax relief” to those who already made required withdrawals make any sense? Why not just have the treasury send checks to every American, who had a loss on an investment this year, equal to the amount of their loss? (By the way this is sarcasm - they should not really do that). These people have lost any sense of what investing, planning, responsibly… are.

First, knowing you have required withdrawals from your IRA, you should not hold those assets in stock (I suppose you could have significant cash assets outside your IRA and chose to just use the next option). Second, you can buy the stock outside your IRA at the same minute you sell them in the IRA. What is the big deal: the cost should be about $20 in stock commission for each stock - you save that much each time you fill up your gas tank lately (compared to prices this summer). All that not having to withdraw funds does is let those wealthy enough not to need a small amount of their IRA or 401(k) savings by the time they are 70 1/2 to keep deferring taxes on their investment gains.

What kind of 1984 newspeak is this? I mean this is absolutely ridicules. You have to withdraw the exact amount you knew on January 1st 2008. Nothing about that has changed in almost a year. How can the Wall Street Journal report this without pointing out the completely false claim.
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Citigroup Saw No Red Flags Even as It Made Bolder Bets

It is sad to see the same story repeated over and over. Give people the change for obscene bonuses. They make up claims that they are making lots of money to get bonuses but actually set the company to go bankrupt. They take huge bonuses because of course they are so smart and successful. The company fails and they say the market is to blame (it isn’t that they are really not that smart and of course they deserve the obscene bonuses they took before the collapse - or even after the collapse). They feel no shame for the horrible mess they leave in their wake that they would paid more than a king’s ransom to manage. They will be on to similar schemes in a few years.

If you are a bank you make money by borrowing for less than you lend. If you are a speculator then you try to out bet the other speculators. Nothing wrong with either choice to me. When you want to say you are a bank but you want to make most of your money from speculating their is a problem. Investment banks used to also make huge amounts from fees they would charge (they still do but not enough to offset the huge speculative losses).
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I would say the chance of a depression in the next 5 years is very unlikely. The last 2 years have been full of bad economic news but a depression is still not likely, in my opinion. However, much of the public, seems to think it is likely - Poll: 60% say depression ‘likely’

I must say I don’t think those polled don’t really hold their belief very firmly. If you actually see a depression as likely you have to take drastic steps with your finances. I really doubt many of them are and instead think they are casually saying they think it is likely without really thinking about what that would mean.

I don’t see it as likely and don’t see any need to change significantly what made good personal financial sense 2 years ago. The biggest change I see (over the last couple of months) is the importance of taking smart person finance actions has increased dramatically. The smart moves are pretty much the same but the risks to failing to create an emergency fund, abusing your credit card, losing a job… have increased dramatically.

Related: Uncertain Economic Times - Personal Finance Basics: Health Insurance - Financial Illiteracy Credit Trap

The FDIC limit has been raised to $250,000 which is a good thing. The increased limit is only a temporary measure (through Dec 31, 2009) but hopefully it will be extended before it expires. I don’t see anything magical about $250,000 but something like $200,000 (or more) seems reasonable to me. The coverage level was increased to $100,000 in 1980.

What does federal deposit insurance cover?
FDIC insurance covers funds in deposit accounts, including checking and savings accounts, money market deposit accounts and certificates of deposit (CDs). FDIC insurance does not, however, cover other financial products and services that insured banks may offer, such as stocks, bonds, mutual fund shares, life insurance policies, annuities or municipal securities.

Joint accounts are covered for $250,000 per co-owner. The limit is per person, per institution, so all your accounts at one institution are added together. If you have $200,000 in CDs and $100,000 in savings you would have $50,000 that is not covered.

FDIC is an excellent example of good government in action. The Federal Deposit Insurance Corporation (FDIC) was created in 1933 and serves to stabilize banking by eliminating the need to get ahead of any panic about whether the bank you have funds in is in trouble (which then leads to people creating a run on the bank…)

From an FDIC September 25 2008 news release: the current FDIC balance is $45 billion (that is after a decrease of $7.6 billion in the second quarter). The FDIC is 100% paid for by fees on banks. The FDIC can raise the fees charged banks if the insurance fund needs to get increased funds.
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The updated data from the United Nations on manufacturing output by country clearly shows the USA remains by far the largest manufacturer in the world. UN Data, in billions of current US dollars:

The USA’s share of the manufacturing output of the countries that manufactured over $200 billion in 2007 (the 12 countries on the top of the chart above) in 1990 was 28%, 1995 28%, 2000 33%, 2005 30%, 2006 28%, 2007 27%. China’s share has grown from 4% in 1990, 1995 7%, 2000 11%, 2005 13%, 2006 15%, 2007 16%.

Total manufacturing output in the USA was up 76% in 2007 from the 1990 level. Japan, the second largest manufacturer in 1990, and third today, has increased output 15% (the lowest of the top 12, France is next lowest at 32%) while China is up an amazing 673% (Korea is next at an increase of 271%).
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Watching your new worth decline isn’t fun. But when investing over the long term you will have some good periods and some bad periods. Diversification can help smooth out the extremes but the markets are often driven by emotion. And those emotions (greed, fear…) cause extreme price swings. I am getting ready to invest more in the market. I don’t know how much further we will go down, or if we are at the bottom now (unlikely). But there are investments I am happy to own at these prices. The main reason I don’t buy more is the limitation of my capital. And I would rather buy in slowly so if prices decline I can get more for my money.

Not surprisingly the stocks I am looking at are those in the 12 stocks for 10 years portfolio. I am looking at buying more Templeton Dragon Fund, Toyota and Google for myself now. I am happy to be able to buy more of these stocks for the long term. It is not fun to see my net asset value decrease but that does provide some opportunities for buying stocks at lower prices. They may turn out to be bargains, or maybe they will drop much further. That only time will tell, but I am happy to add to those positions at these prices.

On the overall market I am waiting and watching. But I am leaning now toward moving more of my long term investing into stocks - I am already over-weighted there compared to the conventional wisdom but that is my style. I am willing to take more risk with a long long term investment portfolio. As the time frame shrinks (and the assets grow) I believe in reducing the risk profile for the overall portfolio (though I still believe conventional wisdom over-emphasizes price volatility risk (compared to inflation risk, for example). This market does have real potential for creating serious long term problems, which is why I need to think more (and get more information) about the long term implications.

Related: Investment Risks - books on investing - Does a Declining Stock Market Worry You? - Uncertain Economic Times

Chatting with Obama by Bill O’Reilly

I really wish people understood capitalism. Capitalism requires regulation. It was known to all the economist in Adam Smith’s time that the government must regulate or powerful forces that would not allow the free market to function as it should - which destroys the potential of capitalism. This is not some minor point, it is absolutely essential to the theory of how capitalism provides value to society.

The ignorance that equates allowing manipulation of the market by powerful forces undermining capitalism (which is supported by those that claim to support capitalism - “regulation distorting free markets”) with disrupting the free market annoys me. I know I should accept that ignorance is just rampant but sometimes I can’t get over it. I truly support capitalism and seeing it abused by so many ignorant pundits and politicians is distressing.

And when those with influence constantly reinforce ideas based on ignorance then many, that can’t think for themselves, accept idiotic ideas like “free markets” should allow oligopolies to consolidate reducing the benefits of capitalism, that polluters should be allowed to push negative externalities onto the public, that allowing trust fund babies to receive massive inheritances is good (capitalism is meant to reward those that contribute, not reward those who were related to someone useful) and that the inheritance tax is bad (it is the BEST tax that exists, arguably along with taxes on negative externalities) and on and on.

The idiotic idea that government regulation of markets is interference is equivalent to saying police interfere with freedom by enforcing laws against violent crime. Yes the watchmen must be watched. You can have bad policing and bad regulation; but the idea that policing the free market, in itself is wrong, is so ignorant we have to stop accepting such claims as if they were anything but ravings of radicals or ignorant people (or people that are both).

By the way I am using ignorant with the sense of “lacking knowledge or comprehension of the thing specified.” Sometimes the word is used to claim the other person’s opinion is wrong, which is not an accurate way to use the word. It is my opinion that those espousing crazy ideas like, free markets are those without regulation, don’t understand capitalism is based upon the idea of perfect competition. If they do, but have decided that fundamental aspect (along with negative externalities, rewards based on who your parents are instead of what you produce…) of capitalism is wrong, but they have a new theory that somehow updates capitalism I am waiting to hear about it. I am basing my guess of their ignorance on their statement seeming to be completely disconnected with capitalist theory.
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Kiva has added a fellows blog - which is a great idea. The fellows are funded by Kiva (fellows are unpaid) to go to spend time in the countries Kiva facilitates loans for working with the local partners. This post is about Rita Bashnet (in photo) an entrepreneur from Nepal:

Great story, and exactly my hope for using capitalism to improve the standard of living for people around the globe. I notice today, for the first time, some of those seeking loans are about to have their listings expire unfunded. Kiva gives listings 30 days to be funded. I have no problem if some loans are not funded (I want to help entrepreneurs by providing funding to build a business - some loans are for things like adding a room onto their house, which is fine but not what I want to support with interest free loans from me). But, this is a big change from when I couldn’t find anyone to loan to (they had so many people looking to lend that they didn’t have enough loans to fund). If you haven’t loaned money through Kiva (or you haven’t added to your loan portfolio recently), please consider it now. If you do, send me your Kiva lender link and I will add it to Curious Cat Kivans. My biggest wish for this blog is to get more readers listed on that page.

Related: Using Capitalism to Make a Better World - Funding Entrepreneurs in Nicaragua, Ghana, Viet Nam, Togo and Tanzania - 2006 Nobel Peace Prize to Economist - Frontline Explores Kiva in Uganda - Trickle Up

Short selling is when you sell something before you buy it (you try to sell high and then buy low later, instead of buying low and then selling high later). In order to sell short, you are required to borrow the shares that you then sell. So if I own 1,000 shares of Google (I wish), I could lend them to someone to sell. Nothing happens to my position, it is just that those shares are now allocated to that short sale. If I sell them then the short seller has to go borrow them elsewhere or buy the stock to close their position. In general the borrowing is either from brokers that hold shares for individuals or from large institution (mutual funds, insurance companies…).

However from everything that I read it appears the SEC hasn’t bothered to actually enforce this law much. There was a bunch of excitement recently when the SEC announced it would bother to enforce the law to protect a few large banks, many of whom are said to practice naked short selling but didn’t like it when that was done to their stock. As you can see, this does make the SEC look pretty bad, when they chose to enforce a law, not in all circumstances, but only to protect a few of those who actually take advantage of the SEC’s failure to enforce the law to make money.

CEOs Launch Web Site To Protect Short Sellers

Some people find the whole concept of short selling bad since it is based on making money on stock price declines. I don’t feel that way and believe it can help the market. But it requires regulators that actually do their jobs and enforce laws. A favorite tacit of those who seek to keep open special ways for themselves to benefit from abusing the system is to try and make things seem complex. The recent SEC order saying they would enforce the intent of the law to protect a few powerful banks from the behavior many (or most) practice themselves for years shows that it isn’t that complicated.

Adding the decision not to enforce the requirement to borrow shares to their recent decision to eliminate the requirement that short sales take place on down ticks in price (a measure put in after the 1929 stock market crash to not have short sellers accelerate market declines and insight panic seems like a really bad combination).

Related: Shorting Using Inverse Funds - Monopolies and Oligopolies do not a Free Market Make - Fed Continues Wall Street Welfare - SEC data on “failures to deliver”

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