America: “Still the Place to Be”

Addison Wiggin – January 23, 2012

  • Does the iPhone prove that “Made in America” is passe? Contrary evidence abounds…
  • How the U.S. is already leading a manufacturing revival in the developed world… and why it’s about to be turbocharged in only four more months
  • An unlikely impediment to public acceptance of the gold standard: Ron Paul and “the Curse of Knowledge”
  • Lambs to slaughter: More money floods into munis and high-yield bonds. Jim Nelson on the next (much-safer) beneficiary
  • A “very bullish signal” for stocks… China’s next big resource grab… a reader’s call to boycott Hollywood… and more!

   One thing we love about The New York Times and the mass media: They’re always so on top of things. This weekend, the Gray Lady regaled the world with a tale of American manufacturing being, gasp, over the hill and behind the eight ball.

“Apple’s executives,” the rag reported, “believe the vast scale of overseas factories as well as the flexibility, diligence and industrial skills of foreign workers have so outpaced their American counterparts that ‘Made in the USA’ is no longer a viable option for most Apple products.”

   Here’s the back story: Barely a month before the launch of the iPhone in 2007, Steve Jobs called in his top lieutenants — furious that the phone’s screen scratched so easily. It was plastic. He wanted glass.

“After one executive left that meeting,” the Times reports, “he booked a flight to Shenzhen, China. If Mr. Jobs wanted perfect, there was nowhere else to go…”

“Apple’s executives had estimated that about 8,700 industrial engineers were needed to oversee and guide the 200,000 assembly-line workers eventually involved in manufacturing iPhones. The company’s analysts had forecast it would take as long as nine months to find that many qualified engineers in the United States. In China, it took 15 days.”

Stories like this reinforce the “America is finished” angle. Between email and blogs, we were referred to this story twice over the weekend.

   You’d hardly guess, then, that manufacturing employment in the United States has grown at a faster pace in the last two years than anywhere else in the developed world.

In fact, the U.S. has added more manufacturing jobs since the start of 2010 than the rest of the G-7 countries combined.

True, at 11.7 million, the number of U.S. manufacturing jobs is still 2 million fewer than it was before the “official” recession set in four years ago.

But among the companies that have added manufacturing jobs of late…

  • Ford
  • Caterpillar
  • General Electric
  • Otis Elevator.

“This is going to be the place to be, and America is going to be the manufacturing powerhouse,” says Bruce Cochrane. He runs Lincolnton Furniture, which is reopening a factory in North Carolina that closed in 2008.

   Some companies even plan to bring back work that had been outsourced to Mexico and China.

“Productivity growth over the past decade and slow wage rises, combined with the decline in the dollar, have boosted U.S. competitiveness,” according to the Financial Times.

And that’s not the only factor at work. Another one — just as important — is rapidly building new wealth for a host of ordinary Americans…

  • One county in southern Texas has seen its unemployment rate halved in the last two years
  • Youngstown, Ohio — poster child for the Rust Belt — is enjoying a revival
  • One of Louisiana’s poorest parishes is now its wealthiest; a sheriff’s deputy pulled down $320,000 in a week.

That amount of money sounds like a get-rich-quick scheme… a stroke of luck brought about by Wall Street financial engineering.

It’s not. It comes from real, tangible, sustainable wealth… the kind that will make “Made in America” mean something again.

The next catalyst in this process will come no later than this May. Move on the resulting opportunities before the crowd and you stand to claim a substantial stake in this newfound wealth source. To learn more about what happens then… and the difference it can make to you… give this a good look.

   Only 288 days remain until the general election in the U.S.

Newt Gingrich has implausibly taken a lead in the Republican race after winning South Carolina. From his headquarters in South Carolina, equally implausibly, he announced he supports a commission to explore moving the dollar forward to a new and improved gold standard.

Our guess: He knows Ron Paul supporters are, historically, pining for such a move… and so hopes to make that part of his platform moving forward. We’re fairly confident it’s just another political stunt from a man who’s made a career out of them.

“Addison, this is America,” our friend and confidante Ralph Benko points out. “We get to support the champions that Heaven sends us, not the champions that we fantasize about.”

“Gingrich was one of the seven original co-sponsors of Jack Kemp’s Gold Standard Act of 1984.” Then he assures me in the parlance of Washington insiders: “He has authenticity on this issue.”


   As Ron Paul has been writing and campaigning on sound money principles since 1974, we were made aware of another dynamic at play in these primaries.

“Ron Paul suffers from the Curse of Knowledge,” writes The 5’s Dave Gonigam, in response to Paul’s fourth-place finish in South Carolina. “Big-time.”

“He’s had all these ideas rattling around in his head for the last 40-odd years; he is so intimately familiar with them by now that he’s often incapable of expressing them to people for whom they’re still unfamiliar.”

The Curse of Knowledge is a theme that comes up again and again in a book we’ve been reading called Made to Stick — about how certain ideas “stick” in the mind and others don’t.

   We’re reading Made to Stick in preparation work for an editorial retreat we’re hosting in Miami that begins tomorrow. We’ll be discussing what’s on the minds of you and your fellow readers… and how we can better respond to your needs.

It turns out one of the worst barriers to communication and making an idea “stick” is the Curse of Knowledge: The person expressing an idea is so familiar with the intricacies and nuance of it that he’s incapable of communicating it effectively to others.

The Curse of Knowledge may be one reason that, as a voter told NPR, “Understanding Ron Paul’s ideas is like going down the rabbit hole.”

And it helps explain why the good doctor is so frequently the object of what many writers have referred to as “the media blackout” of his campaign — even after strong finishes in Iowa and New Hampshire.

   “The Curse of Knowledge is why Paul drops the term ‘malinvestment’ during a debate,” Mr. Gonigam continues by IM this morning, “without tying it back to, say, a 3,000-square-foot McMansion on the outskirts of Phoenix whose former occupants are now getting by in a one-bedroom apartment.”

“The Curse of Knowledge is why you never hear him say, ‘You can’t have a giant military spread across 130 countries and still expect to have small government at home.’ To him, the proposition is self-evident. It doesn’t occur to him that putting it in those terms might reach a few voters whom he can’t reach now.”

On the written page, he’s demonstrated the capacity to overcome the Curse of Knowledge: That comes through, for instance, in his 1982 volume The Case for Gold. This thoroughly readable plea for a contemporary gold standard assumes no prior knowledge on the reader’s part… which makes it a gem 30 years later.

We still have a few copies available… yours free with this offer.

   Major U.S. stock indexes are meandering today, as they did on Thursday and Friday last week.

“The S&P 500 pushed through the 1,290 resistance level definitively last week,” says technician Jonas Elmerraji, “as buyers absorbed a significant amount of supply of shares that had been restricting upside in the broad market.”

“That’s a very bullish signal for stocks — one that we can’t ignore at this point.”

   The reach for yield that started in 2012 continued into last week, as $1 billion in new money flowed into municipal bond funds… and $1.3 billion into high-yield funds.

“The municipal inflow is startling,” says our income specialist Jim Nelson. “The previous week, municipal bond yields set record lows. Meaning they should be among the least-attractive income investments out there. But they clearly aren’t. And while they are still viewed as safe, 29 states face a $44 billion budget shortfall going into this year.”

“High-yield bonds make more sense here. Corporations are sitting on a ton of cash. And yields are still respectable at many smaller firms.” But the Chapter 11 filing of Eastman Kodak last week was a powerful reminder of the potential risks. “It doesn’t look like the company’s bondholders will get much of their money back.”

“The filing certainly wasn’t a surprise. But it does point out the problems associated with taking on risky debts at the corporate level.”

“With all of these curious investor moves, we come back to one underlying question: When will that kind of income enthusiasm hit large dividend-paying equities? We’re not sure exactly when. But it is coming.”

And Jim’s readers are positioned to take advantage — with a portfolio of unique opportunities ranging from multinational giants yielding more than 4% to the highly lucrative “10-86 plans” he’s championed for some months now. It’s not too late to get in.

   Gold is starting the week the way it ended last week — pushing higher. At last check, the bid’s up to $1,679.

Silver’s demonstrating even more strength, up to $32.63.

   “You need to understand graphite,” declares Byron King. We’ve known him long enough to take such declarations on faith. We won’t ask the same of you.

“You’re probably familiar with graphite as the substance in a ‘No. 2 lead pencil,’” Byron goes on. “But beyond pencils, graphite is essential for many other things, like electrical applications and high-performance mechanical apps.”

“When you process graphite in certain ways, it’s electrically conductive, super-strong and extremely tough. Graphite doesn’t burn until very high temperatures — around 3,000 degrees Celsius, which is far above the melting point of steel.”

“Most of the world’s natural graphite comes from China (surprised?), where there are over 20,000 mines… China’s end-game is to consolidate national production strategy and centralize control over graphite. This will surely raise graphite prices and keep them high.”

“That is, the China graphite scenario is similar to what we’ve seen in the rare earths space over the past five years or so. The Chinese don’t want to be the world’s quarry. They want to add value to the product and sell it for the highest price they can obtain.”

“The world’s graphite supply will tighten up over time, and pricing will strengthen. So that makes for new opportunities in non-Chinese graphite plays — from mines to end product makers.”

Byron has graphite recommendations in both his entry-level newsletter Outstanding Investments and his premium advisory Energy & Scarcity Investor.

   “The West Texas Panhandle and South Plains has part of the Ogallala Aquifer under it,” writes a reader weighing in on the Keystone XL pipeline.

“For many years, it’s had hundreds of pipelines for oil and gas and has no problems with contamination from pipeline leaks. I am nearly 70 years old and pipelines were here before I was born.”

“The people that think mass contamination will happen from one pipeline are really so stupid that I am amazed they can get up every morning and take care of themselves. They need close supervision and care.”

   “The real discussion on the pipeline — from conservatives to liberals to environmentalists — should be how can we build the best, the safest, the most fail-proof pipeline in the history of man?”

“Clearly, the can-do attitude in this country has disappeared. Also, sadly, if we cannot construct a pipeline on/under land in our own country (with strict environmental standards), then we are no longer a ‘superpower.’”

The 5: As we indicate above, the situation isn’t nearly that grim: The Keystone decision notwithstanding, many American firms are reviving manufacturing at home and have been doing so for two years now.

The real kick-starter in this process gets going only four months from now. To learn more about the trigger for a new explosion of growth, check this out.

   “Your report about the Megaupload site being taken down at the behest of Hollywood and the recording industry,” a reader writes, “would seem to indicate a clear response, although I am unsure how to get such a movement started.”

“Anyone who is interested in keeping the Internet whole and out of the government’s hands should refuse to go to or buy any movies or buy any music in any way. Just two weeks would probably do it. These industries would see in short order where their money really comes from and who really drives their businesses.”

“With the huge response to the SOPA legislation online, it seems like there would be some way to utilize these methods (i.e., e-mail, texting, Facebook, Twitter, etc.) consistently into the future. Don’t just send messages to the politicians, but send messages to the companies lobbying for the legislation.”

“We are still the consumers of their products, and as such, I believe we have more control over these companies than they are willing to admit. What if Hollywood produced an opening weekend take from some big new movie that was about $3,000, instead of millions of dollars? I believe we would have their attention then.”

   “OK, let’s play fair,” says a reader responding to Friday’s musings “about SOPA, government intrusion and cameras in the streets.”

“How about cameras in police stations, government buildings, council chambers? If governments want to spy on citizens, it is only fair that we be able to do the same.”

“Only this might give them pause. For each right that citizens are asked to relinquish, our representatives must also give up a right to privacy.”

The 5: Maybe. But do you really think that, for instance, the Federal Reserve would act more wisely if cameras were rolling?


Addison Wiggin
The 5 Min. Forecast

P.S. “In the last 12 months alone, we’ve been inundated by reports of what actually goes on at the Fed,” writes Laissez-Faire Books executive editor Jeffrey Tucker.

“Far from being an open forum for discussion, Greenspan and Bernanke preside with all power to determine results, practically daring any of their subordinates to disagree with the consensus they arrive at beforehand… There is no openness, no truthfulness. If the chairman makes a joke, you must laugh.”

Look for Mr. Tucker’s full essay tomorrow in Whiskey & Gunpowder… when The Fed’s next meeting gets under way.

We’re looking far more forward to another event a few days later… when Mr. Tucker will go toe-to-toe with economist Dean Baker from the Center for Economic and Policy Research.

At issue: “Is the Federal Reserve a legitimate or illegitimate institution? What is the case for it and against it?”

This event will take place Friday, Feb. 3, at 8:00 p.m. at the Montserrat House in Washington, D.C. — the belly of the beast.

Attendance is free… but you do need to sign up in advance. Look for details in your inbox later today.


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