The economy (in the USA and worldwide) continues to struggle and the prospects for 2009 do not look good. My guess is that the economy in 2009 will be poor. If we are lucky, we will be improving in the fall of 2009, but that may not happen. But what does that mean for how to invest now?

I would guess that the stock market (in the USA) will be lower 12 months from now. But I am far from certain, of that guess. I have been buying some stocks over the last few months. I just increased my contributions to my 401(k) by about 50% (funded by a portion of my raise). I changed the distribution of my future contributions in my 401(k) (I left the existing investments as they were).

My contributions are now going to 100% stock investments (if I were close to retirement I would not do this). I had been investing 25% in real estate. I also moved into a bit more international stocks from just USA stocks. I would be perfectly fine continuing to the 25% in real estate, my reason for switching was more that I wanted to buy more stocks (not that I want to avoid the real estate). The real estate funds have declined less than 3% this year. I wouldn’t be surprised for it to fall more next year but my real reason for shifting contributions to stocks is I really like the long term prospects at the current level of the stock market (both globally and in the USA). The short term I am much less optimistic about - obviously.

I will also fully fund my Roth IRA for 2009, in January. I plan to buy a bit more Amazon (AMZN) and Templeton Emerging Market Fund (EMF). And will likely buy a bit of Danaher (DHR) or PetroChina (PTR) with the remaining cash.

Related: 401(k)s are a Great Way to Save for Retirement - Lazy Portfolio Results - Starting Retirement Account Allocations for Someone Under 40

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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For me, giving back to others is part of my personal financial plan. As I have said most people that are actually able to read this are financially much better off than billions of other people today. At least they have the potential to be if they don’t chose to live beyond their means. Here are some of the ways I give back to others.

Kiva is a wonderful organization and particularly well suited to discuss because they do a great job of using the internet to make the experience rewarding for people looking to help - as I have mentioned before: Using Capitalism to Make a Better World. One of my goals for this blog is to increase the number of readers participating in Kiva - see current Curious Cat Kivans. I have also created a lending team on Kiva. Kiva added a feature that allows people to connect online. When you make a loan you may link you loan to a group.

I actually give more to Trickle Up (even though I write about Kiva much more). I have been giving to them for a long time. They appeal to my same desire to help people help themselves. I believe in the power of capitalism and people to provide long term increases in standards of living. I love the idea of providing support that grows over time. I like investing and reaping the rewards myself later (with investment I make for myself). But I also like to do that with my gifts. I would like to be able to provide opportunities to many people and have many of them take advantage of that to build a better life for themselves, their families and their children.

The photo shows Frew Wube, Haimanot and Melkan (brother and two sisters), an entrepreneur that received a grant from Trickle up. Trickle Up provides grants to entrepreneur, similar to micro loans, except the entrepreneur does not have to pay back the grant. They are able to use the full funds to invest in their business and use all the income they are able to generate to increase their standard of living and re-invest in the business.

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In a recent article in Business Week Michael E. Porter makes some excellent points - Why America Needs an Economic Strategy:

I have discussed similar idea in this blog and the Curious Cat Science and Engineering Blog: The Future is Engineering - Engineering the Future Economy - Science Gap - Not Understanding Capitalism

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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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

With the drastic increases in food prices recently a home garden an attractive way to save some money. I have planted a garden for several years. Frankly the main reasons I did so had nothing to do with money. I find it cool to plant a seed or small plant and then just water it occasionally and then be able to eat. Plus it is great to just go grab some fresh food and eat it. It tastes great and is healthy.

The increasing price of food it makes it more attractive. I plant a few tomato plants and some pepper and cucumber plants. And then some pea and beans from seed (and I did celery this year - though I didn’t realize I was suppose to start them inside 10 weeks early so we will see what happens). I think my total cost was under $30. I would guess all the water I use will be under $5. From that I will get 10+ weeks many tomatoes and green peppers, sweet peppers, hot peppers. The cucumbers and and peas don’t seem to produce as long (if I remember right from last year). I am trying to plant some peas from seeds every couple of weeks and see if that works to give me peas for a longer period this year.

I also have a bunch of berries. I have wineberries that just grew themselves (which started as 1 plant 3 years ago and now covers maybe 20 square feet) which are the best thing of all from my garden, frankly (I have never been able to buy any berries nearly as good). And I bought a small blackberry plant 2 years ago which has grown to be quite productive. Last year I had birds eating so many berries I hardly got any. The previous 2 years I could get more than I could eat for several weeks and enough to eat for maybe 4 more weeks total. Any advice on how to keep birds away?

Even while there are some financial benefits I really think the good healthy food and fun is more important.

Related: Backyard Wildlife: Raptor - Food Price Inflation is Quite High - Backyard Wildlife: Fox - Backyard Wildlife: Turtle

This post is included in the Carnival of Personal Finance #157: Third Anniversary Edition

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