Notes From the Rabbit Hole

“Protection will lead to great prosperity”

A slightly modified version of the opening segment of this week’s Notes From the Rabbit Hole, NFTRH 431…

After being mostly off the grid on Friday, I listened to the Trump inauguration speech on Saturday morning. While I have lots of thoughts and opinions, I want to focus on an item where I am qualified; namely my former area of expertise as someone who was in essence told by the media over and over again “you don’t exist”, while the consumerist, financialized and globalized economy flourished. By “you” I of course mean me, an owner of a small American manufacturing business. My area of focus from the speech…

“We’ve made other countries rich while the wealth, strength and confidence of our country has dissipated over the horizon. One by one, the factories shuttered and left our shores with not even a thought about the millions and millions of American workers that were left behind. The wealth of the middle class has been ripped from their homes and then redistributed all across the world. But that is the past and now we are looking only to the future.

We assembled here today are issuing a new decree to be heard in every city, in every foreign capital and in every hall of power. From this day forward a new vision will govern our land. From this day forward it’s going to be ‘America first… America first… America first’!

Every decision on trade, on taxes on foreign affairs will be made to benefit American workers and American families. We must protect our borders from the ravages of other countries making our products, stealing our companies and destroying our jobs.

Protection will lead to great prosperity and strength… ”

There was reason for concern about unfair trade back in the 1990’s as a predatory Wall Street feasted, and the financialized, consumer economy (overseen by the real economic blight known as the Federal Reserve) benefited at the expense of many of those workers back then. But in my own experience, these pressures forced us to automate and become exponentially more efficient. Quality came up, costs went down and most importantly profitability and employee compensation went up. From 2004…

Deflation: A Manufacturer’s View

The best manufacturing companies and their employees did not go away; they thrive to this day. Sure, there are less of them now, but automation is progress. The days of one human standing at one machine cranking its handles are long gone. Here at NFTRH we like to deal in a little thing called reality; and that my friends is the reality. These “factories” that Trump hearkens back to are long gone. If we bring more factories back to these shores they will be increasingly manned by ever-more humanoid robots, not the guy who lost his assembly or machinist job 20 years ago.  Even foreign factories that are supposedly stealing American jobs are being converted, systematically, to more automated processes (including Robots).

He mentions the middle class and the redistribution of its wealth, and this strikes a chord with me because it is what I have harped on it since I began writing publicly in 2004. The Federal Reserve is the financializer of the economy and the re-distributor of its wealth, not the progress known as automation. So Trump is either intentionally or unintentionally aiming the public’s ire in the wrong direction.  There will always be a need for skilled humans, but the applications have changed for good.

Automation has been a continuum that I have witnessed first-hand since the 1970’s and it is always moving forward. Automation is replacing human automatons. I don’t use that term in any sort of derogatory way toward the skilled labor of the past that literally built “this great country”, to again quote Trump.  If you click the graphic, you’ll see what one company, a former machine tool supplier of mine, is doing with Robotics; everything from assembly to painting and coating to packaging to materials handling.

I have cranked my share of handles and taken my share of machining coolant and machine-oil showers. As an aside, just how many handles did young Trump crank in his privileged and utterly financialized life?

Trump is here to defend the working man? Trump is here to bring our factories back? Trump was bankrolled by his daddy and he on his own merits proved to be a great businessman, leveraging and compounding his way to billions. All of this was aided by Federal Reserve policies that over the decades have been designed to benefit financiers, bankers and all manner of financial products salespersons.

The mechanism used is called inflation. This inflation has benefited asset owners (condo towers among them) and disenfranchised workers (even as they rightly transitioned along with the natural progression from a handle-cranking to an automated economy). In the above-linked article written in 2004 (while I was still working my then-main gig) I noted how the deflationary pressures in the macro economy actually aided the manufacturing sector in becoming much more progressive and frankly, a better environment to work in.

Trump says “protection will lead to great prosperity”. But where does he stand on the Federal Reserve, which has printed Trump’s way to prosperity (along with many others)? The Fed has eroded the ability of the average person to keep up with systematic inflation while enhancing the ever-growing financial aspects of the economy. That is what inflation is folks, a re-distributor of wealth from the productive economy to the investment classes.

I have been very consistent in that view through all political backdrops. Bush, Obama and now, the great protectionist, Trump. He is protecting us from scapegoats and he is protecting us from our own collective failure to realize where the actual problem is. He has seized upon the pain of a middle class under great pressure and given it cartoon-like descriptions that the average person can identify with.

This is very dangerous stuff because there are very real people who believe it. There is much more to write on the subject, and in the coming months we will cover it, because now we have a president who claims to have the answers for the average American; but he is wrong-headed in his interpretations of the problems where industrial jobs are concerned. How could he not be, considering his history of experience?

This is right in my wheel house professionally, because the new administration claims it will fix the place that I came from, which is the real (as opposed to financialized) economy, to the benefit of its workers. I am one of what I have to believe is a tiny minority of financial writers/analysts who has actually cranked those handles, let alone walked a shop floor. I call bullshit, and from this non-abstracted vantage point we will continue to elaborate and expand on the reasons why, as we move forward and new inputs come in.

Who knows, maybe the administration will mature and back away from the cartoon stuff. Maybe they will actually bring in educated elements to help guide a better retooling of America. But in listening to the man speak now, I get a chill because the longer he continues campaigning (i.e. telling those who voted for him what they want to hear) the more I start to think he actually believes this stuff.

The bottom line for the moment however, is that in listening to the man speak, sure, his voice grates on me, I think his hair is funny and I don’t like the way he puts a little tail on the word “America” when he speaks it… but most of all I don’t like that he is pointing people in the wrong direction.

I’ll be analyzing the economy and markets going forward with my financial hat on as opposed to my since-discarded manufacturing hat. But I will remember everything I learned as a machinist (not nearly to the skill level of the best of those great craftsmen of yore, as automation had already become computerized by the time I came along) and as a manufacturing business person.

At the very least, this will help us keep it real as reality vs. perceptions potentially becomes unreal going forward, absent an about face on some of the administration’s stated goals.

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