BALTIMORE – People can believe whatever they want.
But sooner or later, real life intervenes. We just like to see the looks on their faces when it does.
By that measure, 2017 may be our best year ever. Rarely have so many people believed so many impossible things.
Automaker General Motors (GM) used to have an assembly plant in East Baltimore.
Then one Friday in May 2005, at 4:30 in the afternoon, the last Chevrolet Astro van rolled off the assembly line at the Broening Highway General Motors Plant. Some eyes misted up. Some were angry. Some laughed.
The van hadn’t been updated in 20 years. It was widely seen as a safety hazard and voted “worst in its class” by the experts.
Peter Morici, a professor of business at the University of Maryland, summed up GM’s problem to a reporter for The Baltimore Sun:
If you sell an inferior product and you expect a premium price, you’re going to go out of business.
In its heyday, the plant operated two shifts and employed 7,000 workers. Dundalk, the nearest neighborhood, boomed – with bar traffic ebbing and flowing as one shift took up work and another left off.
But by 2004, the shop was spinning its wheels. GM owed so much to the past – in the form of pension and medical benefits to retired employees – it had little money or attention available for the future.
The company paid out more than $5 billion that year for retirees’ aching backs, high blood pressure, and other ailments.
A year later, the plant sputtered to a halt and went silent. The thousand-plus GM workers still on the job in Maryland grumbled. But no one, as far as we know, suggested punishing the company with a penalty tax on Michigan-made vans sold in the state.
For some reason – never explained – Marylanders may bristle at cheap imports from Mexico or China. But they seem to take imports from Michigan or California in stride.
But what’s this?
GM now produces the Chevrolet Cruze, a cheap domestic automobile favored by the people left behind by globalization and financialization.
It is assembled in Mexico. President-elect Donald Trump indignantly tweets that GM:
…is sending Mexican made model of Chevy Cruze to U.S. car dealers-tax free across border. Make in U.S.A. or pay big border tax!
Both of those options presume a higher sticker price for the Cruze. Neither the president-elect nor his trade guru, economics Ph.D. Peter Navarro, have revealed how forcing Trump supporters to pay more for a basic set of wheels would help them.
Of course, no one knows how or when such a choice would be imposed. But one thing is sure: Someone is going to be disappointed.
It’s not what he doesn’t know that gets a man into trouble, as someone once pointed out; it’s what he thinks he knows that ain’t so. And, usually, he thinks he knows that someone other than himself is doing something he oughtn’t.
Mr. Trump, and apparently much of the U.S. electorate, thinks GM oughtn’t be assembling its autos in Mexico.
Because it causes U.S. jobs to migrate south of the border.
But why is a job north of the Rio Grande better than a job south of it?
That, too, has never been adequately explained. Only one person can have a job. If it is not you, what do you care if it goes to someone in Detroit or someone in Guadalajara?
Presumably, people in both cities are equally charming and equally worthy of employment.
In addition to trying to preserve the past in the U.S., Mr. Trump says he is keen to negotiate better trade deals.
We understand free trade. But the exact nature of a “better” trade deal has never been explained, either. As near as we can tell, it is like a “better” calendar, with 100 days so it is easier to keep track of… a “better” election process, in which your candidate always wins.
China exploits its working people to undercut U.S. manufacturers, say the critics. Its factories don’t have to abide by U.S. safety, environmental, or labor rules.
Pretty underhanded, isn’t it? Dastardly. Real capitalist pigs, those Chinese, right?
“Yes,” says the man about to get himself into trouble. “The Chinese are bad people… doing a bad thing. We have to retaliate.” In today’s Wall Street Journal, for example, Trump’s trade negotiator, Robert Lighthizer, says he wants to “level the playing field for American workers.”
But perhaps he should get out one of those new laser levels.
Who breathes polluted air? Who works 12-hour shifts in unheated factories? Who makes $1 an hour without complaining so that someone on the other side of the planet can get an “everyday low price” on some gewgaw at Walmart?
Currently, Americans get useful gadgets and gizmos made in China and shipped here at Chinese expense. In return, U.S. shoppers give the Chinese pieces of green paper (or the electronic version thereof).
The sellers, who already have plenty of our currency, are at a loss as to what to do with more of it.
Typically, they sell their dollars for Treasury securities. In other words, they trade one IOU for another from the same issuer.
Since 1990, the accumulated U.S. trade deficit with China has topped $4 trillion and is now running at about $1 billion every 24 hours.
Americans have gotten autos, computers, TVs, and the other paraphernalia of modern life here in the U.S. In return, the Chinese have gotten precisely nothing. The IOUs have never been redeemed. And never will be.
One of the amusements of the year ahead will be to see how Team Trump improves THAT deal!
But wait. This fake money system – not free trade – is the real problem. It may be a great “deal” for U.S. consumers. But it is a disaster for the U.S. Main Street economy.
More to come…
BY Chris Mayer, Chief Investment Strategist, Bonner Private Portfolio
Editor’s Note: Chris Mayer is the only analyst Bill trusts with his own money.
Last April, he committed $5 million of his family trust to following Chris’ stock picks.
Berkshire Hathaway (BRK) has been one of the best-performing stocks of the past half-century.
A $1,000 investment in 1965 would be worth $15.3 million today. That’s a return of 21% annually.
Berkshire, as you probably know, owns a diversified collection of businesses acquired over its 50-year existence.
Two key factors helped make Berkshire great: It had permanent capital, and it could invest in anything.
Of course, having a brilliant investor like Warren Buffett at the helm helps, too.
While there is only one Warren Buffett, there are plenty of talented investors at the helm of similar vehicles. Below, I’ll talk about one of them.
Before I get to that, let’s look at those two key factors:
Permanent capital. Investors are a skittish lot. They tend to pull money out of funds after the market has fallen. If you’re running a fund, it means you have cash going out the door when the opportunity set is richest.
If you have permanent capital, as Berkshire does, then, when investors sell the stock, the amount of cash Buffett has to invest doesn’t change.
The ability to invest in anything. Buffett can and does buy anything. He owns railroads, insurance, jewelers, and a long list of other investments. He doesn’t have to invest unless he thinks it’s a good bet.
So, there are a number of companies somewhat similar to Berkshire that you’ve probably heard of: Markel, Fairfax Financial Holdings, Loews Corporation, Icahn Enterprises, and Leucadia National are some of the most frequently mentioned.
Sometimes, people will mention Greenlight Re (Reinsurance), Third Point Re, and Pershing Square Holdings. These allow you to ride the coattails of three celebrated investors: David Einhorn, Dan Loeb, and Bill Ackman, respectively. But they are not quite as similar to Berkshire as the ones above.
There is another smaller one you may not have heard of: HC2 Holdings (HCHC). This is an investment vehicle run by Phil Falcone, who owns 11% of the stock.
Falcone is a talented investor who ran a publicly traded vehicle called Harbinger, which more than doubled under his four-year reign. But you may know him best for his past legal troubles with the SEC and communications company LightSquared (now rebranded as Ligado Networks).
With that behind him, Falcone has been on a redemption tour. HC2 owns a variety of businesses: Schuff (a steel fabricator) and Global Marine (undersea cables) as well as investments in insurance and biotech.
Most recently, Falcone made a bid to acquire The Andersons, a publicly traded agricultural firm. This is quite a find by Falcone and shows his ability to find attractive deals. The Andersons is undermanaged, with key assets – such as grain elevators and fertilizers – worth significantly more than Falcone’s offer. (We’ll see if he gets it done.)
Altogether, it’s not hard to value HC2 at $8 to $10 per share – a nice jump over the $6 share price today.
For the past three years, I’ve been developing a blueprint for finding early-stage companies that share the key traits of Berkshire: permanent capital, the ability to invest anywhere, and a talented investor at the helm.
Tomorrow, I’ll be hosting a free investment masterclass to show you how it works – and how it can vastly improve your investment returns. For details, click here…
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Trump’s picks for his trade team mean that, for the foreseeable future, U.S. trade policy will be overwhelmingly enforcement oriented – and trade liberalization will be relegated to the doghouse.
2016: The Year in Charts
For a lot of folks, 2016 was a year of big changes. Britain voted to leave the European Union. U.S. voters elected real-estate mogul Donald Trump. Here are the charts and themes that tell the story of the year that was.
I appreciate your dry humor and the way you tell it like it is – at least from your perspective. Also, I enjoy the way you poke fun at everyone, yourself and me included! If you take suggestions from readers for essay topics, here is one that may be useful to your thoughts.
I do not know who it was, but a philosopher once said, “A man is owned by his possessions.” Another way of looking at that sentiment is that we usually (and willingly) put on the very chains that imprison or enslave us. That seems to be one of the themes coming through in the reissued Diary emails over the last few days.
Hope your Christmas was very merry, and that the New Year brings you, your family, and your companies even happier and more prosperous times.
P.S. I am very disappointed that Mr. Trump did not consider you for the Fed. Perhaps he will discover your talents by the time Ms. Yellen’s term expires.
– Don G.
How to get money if you don’t have it – your subject. Find a way to be useful to other people that they will pay you for – big or small, barter or cash.
What are your skills? What skills can you acquire right where you are and right now? Get up, do it. Make welded furniture that’s well-designed in your garage. Wash windows, clean and/or paint walls. Hang wallpaper. Put carpet in – maybe if you show a store you can do it, they will give you referrals.
Got ideas? Write a WordPress blog if you (or a friend) can write well. Create something people want – anything. Sew stuffed toys. Got a backyard? Chickens fit in almost anywhere and eggs are good for you – just don’t feed them GMO feed corn. Get known for doing handyman chores: digging a garden, weeding, washing dogs (maybe at people’s homes).
Go to a professional employment counselor: A competent one will determine your skills and your interests, put them together, and maybe even get you hired. Meet people, go out. Volunteer at something that will develop a skill and also meet people that way. If you do for people in the right way, they do for you.
– Emily S.
Living better for less? In place of a fireplace or wood stove, look at a rocket heater. Uses way less wood and not too difficult to build.
– Albert S.