Tweet

 

Email

Email to a friend:

To:

Separate multiple addresses with commas.

From:

Name: Please send me a copy Message:

Verification code

Enter the code from aboveRequired

Send

How the U.S. Lost Out on iPhone Work - This is an informative article by Charles Duhigg and Keith Bradsher for the NYT and IHT. Here is a brief section:

It is hard to estimate how much more it would cost to build iPhones in the United States. However, various academics and manufacturing analysts estimate that because labor is such a small part of technology manufacturing, paying American wages would add up to $65 to each iPhone's expense. Since Apple's profits are often hundreds of dollars per phone, building domestically, in theory, would still give the company a healthy reward.

But such calculations are, in many respects, meaningless because building the iPhone in the United States would demand much more than hiring Americans - it would require transforming the national and global economies. Apple executives believe there simply aren't enough American workers with the skills the company needs or factories with sufficient speed and flexibility. Other companies that work with Apple, like Corning, also say they must go abroad.

Manufacturing glass for the iPhone revived a Corning factory in Kentucky, and today, much of the glass in iPhones is still made there. After the iPhone became a success, Corning received a flood of orders from other companies hoping to imitate Apple's designs. Its strengthened glass sales have grown to more than $700 million a year, and it has hired or continued employing about 1,000 Americans to support the emerging market.

But as that market has expanded, the bulk of Corning's strengthened glass manufacturing has occurred at plants in Japan and Taiwan.

"Our customers are in Taiwan, Korea, Japan and China," said James B. Flaws, Corning's vice chairman and chief financial officer. "We could make the glass here, and then ship it by boat, but that takes 35 days. Or, we could ship it by air, but that's 10 times as expensive. So we build our glass factories next door to assembly factories, and those are overseas."

Corning was founded in America 161 years ago and its headquarters are still in upstate New York. Theoretically, the company could manufacture all its glass domestically. But it would "require a total overhaul in how the industry is structured," Mr. Flaws said. "The consumer electronics business has become an Asian business. As an American, I worry about that, but there's nothing I can do to stop it. Asia has become what the U.S. was for the last 40 years."

My view - This article encompasses both the economic logic and harsh reality of globalisation.

This item continues in the Subscriber's Area.

Email of the day (1) - On last Friday's lead item:

"You commented on the email referring to technical advances improving agricultural returns and hence saving the poor from starvation:

"My view - Not everyone will like the conclusions in this intelligent article, because they clash with our romanticised fantasies of what life on our planet should be like... that is... if we could downsize to the global population of the 18th century while retaining our more comfortable technology. However, this does not seem very fair on the people we would have to lose".

I do not understand the relevance of being unfair to people who never have been born. How can that be so?

I think David Attenborough is right. An ever increasing population is a threat to mankind, whatever technical advances are made.

My comment - It was a mildly 'tongue-in-cheek' comment because how do we roll back the population significantly without war, mass euthanasia or stringent population controls?

Re the splendid David Attenborough, I think mankind has always been under threat - from other carnivores, an unstable planet and especially from our own species. Nevertheless, do you not agree that evidence from developed economies shows that the most satisfactory methods of population control are the emancipation and education of women, contraception and economic prosperity?

Email of the day (2) - More on Friday's lead article:

Re: Piece about Robert Bryce's article I think one ought hold his/her opinion about modern farming methods until reading "The Carnivore's Dilemma". Among many revelations about our food chain it describes the methods of Polyface Farm in Virginia which not only exceeds commercial faming output/acre but does it with superior conservation and food quality. Organic farming is debunked as just another version of commercial farming with cache. Certainly modern commercial farming is very cost efficient and has advanced mankind very far, but there is much intelligence in the renewable capability of nature. This is a landmark book. Warning: the description of raising corn-fed cattle will keep you from eating beef for quite a while.

My comment - Might you be referring to "The Omnivore's Dilemma", by Michael Pollan? I have not read the book, although I recall one of my daughters mentioning it. While I am a carnivore, I try to ensure that meat purchased for our family comes from animals which have been raised humanely on free-range farms rather than confined to factory units.

Email of the day (3) - On economic concerns:

"I wanted to comment on a couple of items in last week's FullerMoney. First, I wanted to say that Tim Price is a brilliant writer and his latest was one of his best. His conclusion is somewhat frightening, in that he is basically saying that a severe recession or depression is inevitable. It's a "you can pay me now or pay me later" scenario. This is supported by numerous sound money advocates. However, there is no way that a Warren Harding "government stay out" policy will come to be, at least through this year's U.S. elections. Especially with some decent economic numbers coming out in the last few weeks. By the way, Harding's hands off approach was successful in the early 1920s, as the market cleared and a significant recession was short lived.

"My other comment deals with the individual who said they would not add any new money into this market environment. I realize we are all a bit burned out about the Euromess. But it still is dead center and a tremendous headwind for the global economy. I see no ideas or action that will be able to fix the problem without significant structural damage being done. Yet, our memory span seems to be about 24 hours. I find the level of bullishness amazing in an environment that has so many headwinds ((How China handles the property bubble may be the real wildcard--sound familiar?) and a market that is overvalued. On the old risk-reward line, I see very limited upside potential and plenty of downside.

"Many argue that at 13X forward earnings, the market is not overvalued, but at a very tempting valuation. My opinion is that we are in the process of mean reversion on many levels, including a true restoration of value in the markets. Forward earnings can be a dangerous way to look at valuation. They are based on estimates that can suddenly turn down dramatically.

"There is one rarely used valuation metric that truly gives me pause. That is the ratio of Market Cap (NYSE) to GDP. The historical ratio is 60%. In 2000 it had gone over 150% and we know what happened. By 2003, it was still 130% and we know what happened in 2008, after it climbed to over 150% again. Currently it is still very overvalued at 120%. I know there are counter arguments such as a proliferation of IPOs and globalization which has increased non U.S. sales, earnings and market cap for many U.S. Multinationals. But that is still double the historical norm, and reversion to the mean almost always eventually occurs.

"Personally, as long as the technical action is supportive, I am not selling and even have added positions from time to time. But I keep some favorite quotes on my desk. One is a recent opening from GMO's quarterly letter.

"What a terrible mistake it always is to expect stock markets to reflect economic reality in the short term......The market has this always disturbing habit of ignoring the obvious and ignoring it some more, until, in the blink of an eye, it doesn't."

"Thank you, David and Eoin, for another year of excellent newsletters and audios. I would love to catch up with Eoin somehow when he is in Southern California. Perhaps, I will contact him regarding that.

My comment - Thanks for your thoughts.

I am reminded of a favourite quote:

"Prediction is very difficult, especially about the future."
Mark Twain

Everyone has an opinion and many that we read or hear on financial programmes are either fear based ('the depression is nigh') or faith based ('gold will soar above your wildest dreams of avarice').

In looking for answers to the market's riddles, the best that Eoin and I can do is to follow the flow of money. We do this with price charts, as you know, and I am pleased to see that you are also guided by the technical action.

Email of the day (4) - More on a fund holding:

This item is in the Subscriber's Area.



Additional commentary by Eoin Treacy

Prices collapse, now awaiting PRB coal-to-gas switching response Thanks to a subscriber for this report from Goldman Sachs which may be of interest to subscribers. It is posted in the Subscriber's Area but here is a section:

We expect that NYMEX natural gas prices below the following thresholds will induce considerable responses in the supply-demand balance:

At $12.50/ton PRB coal, we estimate that 1.8 Bcf/d of incremental demand potential from combined cycle gas turbines (CCGTs) becomes competitive against PRB coal-fired power plants at NYMEX natural gas prices below $2.75/mmBtu, with another 1.7 Bcf/d of incremental gas demand becoming competitive below $2.55/mmBtu. While much of the coal sales for 2012 are already contracted at levels at or above our forecast, should prompt PRB coal prices remain near their current level of $10.60/ton, these thresholds could drop to $2.55/mmBtu and $2.35/mmBtu, respectively.

If PRB coal-to-gas switching fails to materialize in sufficient scale, or quickly enough, natural gas prices are moving toward where we would expect to see some curtailment of natural gas production. More specifically, our GS Equity Research colleagues see average operating costs for natural gas producers running in the $2.30-2.40/mmBtu range, including elements such as SG&A which may be viewed as fixed costs by some producers, with pure cash costs running closer to $2.00/mmBtu.

My view Unseasonably warm weather coupled with a supply glut have put severe downward pressure on NYMEX natural gas prices. As a result sentiment has deteriorated to a bearish extreme. However, it is important to remember that the natural gas market does not exist in a vacuum. Such depressed pricing encourages demand. The lower prices decline the more compelling substitution becomes.

This setion continues in the Subscriber's Area.

Email of the day (1) on the Indian auto sector:

I've been doing a lot of fundamental research on Hero Motor Corp (HMCL IN), am extremely bullish on the fundamentals, and would be very interested in your reading of the chart. Thanks.

My comment Thank you for this question and I look forward to welcoming you to The Chart Seminar in New York in April. The previous incarnation of the share, Hero Honda Motors, appeared in a list of Asian high yield shares in Comment of the Day on August 19th 2010 and again on September 1st 2010, following an inquiry by a subscriber. Both these pieces are now available in the free public archive.

This section continues in the Subscriber's Area.

MLP Monthly Thanks to a subscriber for this report from Wells Fargo which may be of interest to subscribers. It is posted in the Subscriber's Area but here is a section:

The opportunity to create alpha in one's MLP portfolio was clearly present in 2011. While the MLP sector overall generated an attractive total return of 14.5% in 2011 (as measured by the Wells Fargo Securities MLP Index), MLPs involved in NGL and crude oil markets, and MLPs with above-average growth prospects significantly outperformed the MLP index. Conversely, MLPs in subsectors with weaker fundamentals including natural gas pipeline and storage, and retail propane underperformed. Finally, midstream companies (MLPs and C-corps) with general partner (GP) ownership interests posted strong results, driven by mergers and acquisitions (M&A) and a growing recognition of the value of GP incentive distribution rights (IDR). The best-performing subsectors in the Wells Fargo Securities MLP Index were gathering, processing, and natural gas liquids (NGL), refined products, and crude oil, which posted total returns of 26.0%, 19.4%, and 19.0%, respectively. The worst-performing subsectors in the index were propane, marine transportation, and natural gas pipelines, which posted total returns of negative 18.7%, negative 6.2% and positive 1.8%, respectively.

My view Master Limited Partnerships enjoy favourable tax treatment in the USA and as such offer an attractive high yield investment opportunity. The Alerian MLP has a P/E of 24.26 and yields 5.63%. It experienced its largest decline since 2008 between May and August. However, the Index has since held a progression of higher reaction lows and posted a new high this month. A sustained move below 365 would be required to question medium-term scope for additional upside. This section continues in the Subscriber's Area.

Email of the day (2 - 4) on additions to the Chart Library:

"The chart library has the Implied Correlation Index (KCJ) for 2012. I believe this has stopped trading because the index is calculated from LEAPS that expire in January. Could we get the Implied Correlation Index for 2013? If this is a true Bull Market then both Volatility and Implied Correlation should fall."

And

"Could you please add these 2 shares listed on the Toronto Venture Exchange to the chart library: Chesapeake Gold (CKG) and Meadow Bay Gold (MAY)? Many thanks "

And

"Could you please add Market Vectors Indonesia ETF to the Chart Library? Thanks."

My comment Thank you for these suggestions which have been added to the Chart Library.

Speaking engagements in the USA - I have accepted an invitation to speak to the Los Angeles chapter of the MTA on April 11th. The venue has yet to be confirmed but will be in the Long Beach area. Non-members are welcome to attend. The topic will be "To Hoard or to Horde: risks and opportunities from participating with the crowd."

I have also accepted an invitation to speak to the San Diego chapter of the MTA in the first week of April. A date and time has yet to be fixed but it will take place in the Del Mar area.

I still have some space available on my itinerary. If you would like me to speak to your local chapter or organisation in California or New York please contact your respective chairperson and ask them to contact me.

The Chart Seminar 2012 - Following a sell-out tour to Singapore and Australia last year, The Chart Seminar will be held in San Francisco, New York and London this year. Please be aware that the early booking rate for non- subscribers at the US seminars expires on January 31st.

We are currently taking bookings for our San Francisco and New York dates in April as well as London seminars in May and November. Anyone interested in securing a place at any of our events should contact Sarah Barnes at sbarnes@fullermoney.com.

The date and venues for my seminars so far in 2012 are:

San Francisco - April 16th &17th 2012 Nikko Hotel

New York - April 23rd & 24th 2012 at The Manhattan Club (above Rosie O'Grady's) at 800 7th Avenue

London - May 25th & 25th 2012 at the Radisson Edwardian Hampshire

London - November 22nd & 23rd 2012 at the Radisson Edwardian Hampshire

The full rate is £950 + VAT. (Please note US delegates, as non EU residents are not liable for VAT). The early booking rate of £875 for non-subscribers expires on January 30th for the US seminars. Paid-up Fullermoney subscribers are offered a discounted rate of £850. Anyone booking more than one place can also avail of the £850 rate for the second and subsequent delegates.