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The Independent Investor: Can American Workers Handle a Manufacturing Renaissance?
By Bill Schmick On: 10:32PM / Saturday December 29, 2012
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The rate of unemployment and the lack of jobs have bedeviled Americans for over four years now. Although under 8 percent, the jobless rate remains stubbornly high and yet, there appears to be plenty of work - if you have the skills to qualify.

"There is a mismatch between the jobs that are available and the people that we are interviewing," explained the chief executive of a huge German engineering firm, looking to hire skilled manufacturing workers.

It is the same story wherever you go. If you can believe the Bureau of Labor Statistics, there was a shortage of 7 million skilled workers in America as of two years ago and that number is increasing. They are forecasting that shortage will balloon to 21 million skilled workers by 2020.

Most scholars will tell you that the lack of education within the American work force is behind these depressing numbers. To make matters worse, the average education of U.S. workers is expected to decline over the next 10 years, which will further widen the gap between supply and demand for skilled help.

Readers who have been reading my columns understand that the rising cost of higher education is now beyond the means of more and more Americans. At the same time, the vast majority of the work force is making less in 2012 dollars than their fathers did. One major reason for this trend is that low-wage work constitutes a growing share of the jobs produced by the U.S. economy.

The Labor Department forecasts that among the top 30 occupations that will add the greatest number of jobs between 2010 and 2020, 24 typically require only a high school degree or less. Only six occupations, among them registered nurses, elementary teachers and accountants, require more.

Yet scholars, politicians and pundits alike keep pointing to increased education as the answer to reducing unemployment. Many workers have dutifully followed that advice only to discover that many would-be employers now consider them overqualified. The jobs available for the most part are in openings for cashiers, home health aides, retail sales persons and the like.

Other jobs, such as long-haul truck drivers or manufacturing jobs demand a certain combination of skills that blend both technical as well as academic training. I believe as more and more college-educated workers realize that they must also incorporate some technical training in their resumes, those jobs will be filled. Many corporations are also realizing that fact and are providing training in those technical skills to new workers.

Most recent estimates indicate that the U.S. manufacturing sector is short roughly 80,000 to 100,000 highly skilled workers. That sounds like a lot but it is actually only one percent of the manufacturing sector's work force, according to the Boston Consulting Group. But it does represent almost 8 percent of the skilled workers in that sector.

When you delve into the figures behind the shortages, one realizes that only seven states show a real gap in skilled manufacturing labor know-how. Therefore, the skills gap is largely a local and not a national shortage. Much of the so-called shortage is of some corporations' own making. It is natural when planning a factory or plant in a new location to seek an area where the lowest cost wages and tax structure prevail. It was one of the reasons that foreign auto manufacturers selected the Deep South to establish their U.S. operations.

What companies fail to recognize is that a major reason for a region or state's low labor costs are the lack of skills and education provided by that work force. You can't deliberately locate your plant in an area that abounds with unskilled labor and then bemoan that same lack of skills.

Don't get me wrong, there is a gap in skilled labor in this country but it is not as large as some would have you believe. Hopefully, as time goes by, more and more manufacturing jobs will return to this country and as they do, those jobs will be filled by Americans. There may be a time lag, such as the one we are experiencing today, but the gaps will be filled and quickly.

Bill Schmick is registered as an investment adviser representative with Berkshire Money Management. Bill’s forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquires to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.


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@theMarket: Republican Grinch Sinks Markets
By Bill Schmick On: 10:18AM / Sunday December 23, 2012
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Evidently disappointed that the world didn't end on Friday, the Republican-controlled House took matters into their own hands. Rejecting any compromise at all, the tea party members of the GOP rejected out of hand their own speaker's "Plan B" and then took off until after Christmas.
 
John Boehner, the Republican House speaker, who tried to convince his party to pass a bill raising taxes on those earning over $1 million failed miserably. He then threw the ball back to President Obama and the Democrats, knowing full well that without the Republican-controlled House no compromise can be achieved. The canceled House vote occurred Thursday night. World markets sank in stunned disbelief.
 
Disregarding the majority of American voters as well as the opinion polls against cutting spending, in my opinion, the Republican Party has chosen to dictate to the people what they think is best for you and me. By refusing to compromise, we now understand exactly who these GOP Congressmen represent.
 
Most, if not all of the House of Representatives earn more than enough to be classified as part of the top 2 percent of America's most wealthy citizens. Clearly, there is a high level of self-interest at work in their refusal to compromise. These same Republican tea party members are also beholden to a handful of right-wing billionaires who have financed their campaigns in 2010 and in 2012. The reality is that a small group of radicals have taken this country hostage. What can we do about it, unfortunately, very little, since this same group of dictators was re-elected to the House.
 
Investors who chose to vote for these people and those like them can only blame themselves for what comes next. They may think their party would protect them from a tax hike, but if the Fiscal Cliff isn't resolved before Jan. 1, their taxes will be raised automatically. And at the same time, if we go over the Fiscal Cliff, the markets will decline and the 2 percent (who have the most money invested in the markets) will take a second hit to their wealth. If ever there was a case of Republican voters shooting themselves in the foot, this is it.
 
Color me an optimist, however, because I still believe there is a chance that saner members of the government can prevail, despite the maniacs. There is a chance that what moderates are left in the Republican Party could join forces with the Democrats and still hammer out a compromise. It is a long shot but it could happen.
 
Failing that, we could go over the cliff temporarily and then reinstate the tax cuts for 98 percent of Americans, thereby avoiding another recession. That would also require the same kind of two-party coalitions. I doubt that Speaker Boehner is the man who could engineer that kind of deal on the Republican side. He is up for re-election as the House Speaker on Jan. 3 and at this point the outcome is highly uncertain. I say good riddance to ineptitude.
 
Over the last two years, less legislation was passed in the House and Senate than just about any time in this country's history. Consider that the negotiations to avoid this Fiscal Cliff could have started anytime in the last 12 months but both sides chose to wait until after the elections on Nov. 6. To date, our legislators have spent the last 50-plus days focusing on only this one issue. That is almost 15 percent of the year.
 
There are a multitude of issues facing this country. We cannot afford to spend 15 percent of each year on each issue. After the elections, I had some hope that both parties could meet, agree to disagree and yet compromise for the good of the country. It appears that I was wrong. The same obstructionists responsible for the past two years' dismal record are once again going to dictate to all the people for the next two years. Lucky us!
 
Bill Schmick is registered as an investment adviser representative with Berkshire Money Management. Bill’s forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquires to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.


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The Independent Investor: The Business of Guns
By Bill Schmick On: 07:05PM / Friday December 21, 2012
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The firearm industry has a lot going for it. It is responsible for a piece of this country's economic recovery including job growth as well as providing a hefty contribution to the tax base. It also sold the weapons that recently cut down 26 people, including 20 children, in a Connecticut elementary school. 
 
Gun manufacturers employ roughly 200,000 Americans in well-paid jobs. They contribute about $31 billion to the economy and $4.5 billion in federal and state taxes. There were 50,812 retail gun shops in America and gun sales were at a historical record high as of last month. Without them, this country's 13 million hunters (present company included) would be reduced to throwing rocks at this season's white tail deer herds.
 
In addition, we have the mega-trillion dollar global aerospace and defense industry. When we think of that sector, we usually talk about aircraft carriers, the next generation of fighter planes and things like tanks, armored personnel carriers and such. Yet, there is a thriving business in manufacturing assault rifles and military hand guns that continue to turn up in civilian society.
 
I live in the Berkshires. It is a rural community, similar to other areas in Maine, New Hampshire, New York, Connecticut and Vermont where most of my readers live. I am a deer hunter (although I haven't hunted since I got Titus, my 4-year-old Lab). I still own two high-powered hunting rifles and a turkey shotgun. Every weekend in Hillsdale, over the last month, I would dun my old orange hunting jacket when I walk Titus because I know hunters are in the woods. I am not afraid because hunters are a responsible, safety-conscious lot. It is a way of life and I appreciate the sport.
 
An acquaintance of mine, on the other hand, is a retired IT programmer, who lives in Delaware. He is not a hunter and yet he owns dozens of rifles and handguns. Most weekends you will find him on a special rifle range, along with several off-duty state troopers, pulverizing old trucks and cars for fun. They fire every type of assault rifle imaginable. It is his hobby. They are a big business for gun shops and shows but there are far fewer gun enthusiasts like my brother than there are hunters in America.
 
In my opinion, the guns this retired IT guy collects are quite different from those I have in my gun cases. The difference: his weapons were manufactured by some nation's defense industry for the express purpose of killing human beings. Mine were designed and manufactured to hunt wild animals, specifically deer. I was relieved back in 1994 when the sale of the assault rifle was banned in America, but the ban expired during the Bush era. It was never reinstated and since then sales have exploded.
 
The political clout of the National Rifle Association (NRA) in league with the Republican Party is largely responsible for this present state of affairs. The NRA spent $9 million trying to defeat President Obama and other Democrats during this last campaign to no avail. But after last week's horrible tragedy in Sandy Hook, even the NRA sounds like it is willing to re-think its blanket support of all guns for anyone.
 
My own opinion is that the hunters of America hold the key to getting these kids- killing firearms off the streets. We hunters, of all people, know the difference between the guns that are necessary for sport and those used for some neo-Nazi target practice in the back woods. 
 
If you are a hunter and are reading this, do yourself and your sport a big favor and let your voices be heard. Assault weapons have no business in our sport or on the streets of America.
 
Bill Schmick is registered as an investment adviser representative with Berkshire Money Management. Bill’s forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquires to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.


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@theMarket: Pushing on a String
By Bill Schmick On: 04:41PM / Friday December 14, 2012
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There was a time when an announcement of further easing from the Federal Reserve would have sent the markets soaring. This week the Fed promised more monetary stimulation and the markets finished flat to down.

Even more puzzling was gold's reaction to the announcement. The Fed is planning to purchase $85 billion a month in mortgage-backed securities, effectively pumping even more money into the economy. That money, unlike its previous bond-buying program, which bought long Treasury bonds and sold short ones, will involve printing new money. That is normally considered inflationary and yet gold prices barely budged. The next morning gold promptly fell $20 an ounce.

In a historic move, the Fed also tied interest rates to the jobless rate, promising that until unemployment came down to a 6.5 percent rate, it would keep interest rates at a near-zero level. The market's response was a big "so what." Investors do not believe that these latest Fed actions will do anything to reduce the number of Americans out of work or increase the growth rate of the economy.

The economy has been functioning under a historically low interest rate environment for some time. These low rates have been effective in avoiding another recession and keeping unemployment from rising further. But maintaining the status quo is not enough. In order to add jobs, the economy has to grow faster and that's not happening.

Ben Bernanke, the chairman of the Federal Reserve, has often said the central bank can do only so much. In order to accomplish a high-growth, low-unemployment economy, he maintains fiscal stimulus is absolutely necessary in tandem with lower rates. I agree.

But the Fiscal Cliff is not about cutting taxes and higher spending. It's about avoiding tax increases and cutting spending. Those actions seem to be at odds with what the central bankers are saying. The Republicans continue to insist that spending is the problem and that President Obama and the Democrats want tax cuts but little in spending cuts.

Republican Speaker of the House John Boehner, on Thursday, continued to insist "that the right direction is cutting spending and reducing debt."

How dense can one be? Has Boehner and the tea party bothered to look at how well that recipe hast worked in Europe over the last two years? It has been a disaster. It was also a disaster in Latin America throughout the 1980s. It flies in the face of what our central bankers are saying as well.

Boehner argued that if you include President Obama's new proposals to increase spending in areas that could stimulate the economy, then there would be practically no spending cuts at all in his Fiscal Cliff deal. Well, hurrah for the president.

I had hoped that if President Obama was re-elected, we could avoid the worst. The Bush tax cuts would be extended and the GOP's insistence during the election campaign (and up to and including yesterday) that we needed deep spending cuts would be moderated. So far the jury is out on my bet.

You may disagree, but I firmly believe that more, not less fiscal spending is absolutely imperative to jump starting the economy in tandem with the central bank's monetary policies at the present time. I will worry about the deficit after the economy is growing at a healthy rate and unemployment drops. At that point, I believe the explosion in tax revenues from a growing, full-employment economy will take care of the deficit, the debt and the Republican's propensity to angst. Until then, don't sweat the deficit, stay long and bet on avoiding the Fiscal Cliff.

Bill Schmick is registered as an investment adviser representative with Berkshire Money Management. Bill’s forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquires to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.

 



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The Independent Investor: Cheap Doesn't Cut It Anymore
By Bill Schmick On: 03:38PM / Thursday December 13, 2012
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In this brave new world of ours, it is no longer enough to simply offer the lowest cost product. Product innovation is now critical to a company's success. U.S. companies are discovering it is becoming harder to innovate when their manufacturing plants are half a world away.

Just look at the competition in hand-held devices, medical technology, and a plethora of other high-tech products, the highest sales go to the innovators with the most dependable products. But innovation doesn't stop there. Increasingly, even basic manufacturing products from wing nuts to autos are experiencing a transformation. Corporate teams of designers, engineers and workers on the assembly line find themselves collaborating like never before to produce a smaller, sleeker and more energy-efficient mouse trap, just like they did in the days of Henry Ford.

In order to do that, many companies are realizing that they need their manufacturing processes and factories closer to home. That realization is fueling an "insourcing" of jobs and manufacturing back to America. That's good news for the future of this country and its workforce.

Readers may recall my column, "Made in America Returns" back in June of this year. In that article, I attributed the renaissance in American manufacturing to lower energy and transportation costs here at home as well as the narrowing of labor costs between American workers and those unskilled workers of China and other emerging economies.

But that is not the entire story. A recent article in The Atlantic by Charles Fishman, titled "The Insourcing Boom," caught my eye. He chronicled the recent experiences of General Electric in transforming its defunct Appliance Park, Ky., manufacturing headquarters into today's cutting-edge producer of basic products like water heaters, refrigerators and dishwashers.

As a resident of Pittsfield, anything "GE" is of interest to me and my clients. Back in the day, Pittsfield was the headquarters of this red, white and blue manufacturing juggernaut. That is until Jack Welch, its former CEO, got it into his mind to ship most of our manufacturing jobs off to China and other cheap labor centers 30-some years ago. The same thing happened to Appliance Park. Both towns were devastated. Pittsfield is only now beginning to recover.

Appliance Park, on the other hand, is actually undergoing a revival of its original purpose, manufacturing American-made appliances, thanks to some recent discoveries by present GE management and its current CEO Jeffrey Immelt. After failing to sell the facility in 2008, management resolved to "make it work" at the huge six-factory complex. It soon realized that they could make highly efficient, higher-quality appliances here at home at a lower cost than could be produced elsewhere.

The key, as more and more companies are beginning to understand, to creating truly innovative products, regardless of their nature, at a reasonable price, is having all the pieces of the product creation puzzle in the same place. Over the past few decades that principle was lost and forgotten as U.S. companies rushed overseas to take advantage of cheap labor. In today's marketplace, however, cost is taking a back seat over quality and innovation; something more and more consumers are demanding and willing to pay for.

Input from those in the manufacturing process is becoming integral to engineering and designing a better, more competitive product. You can’t do that when your widget is being made on a Chinese or Indian factory floor in a different time zone, by workers who can't speak English. Although this trend should benefit our own workers, the question to ask is:

Is our workforce prepared for that challenge and opportunity?  In my next column we will address the issue of skilled workers, or the lack thereof, in America.

Bill Schmick is registered as an investment adviser representative with Berkshire Money Management. Bill’s forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquires to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.

 



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Bill Schmick is registered as an investment advisor representative and portfolio manager with Berkshire Money Management (BMM), managing over $200 million for investors in the Berkshires. Bill’s forecasts and opinions are purely his own and do not necessarily represent the views of BMM. None of his commentary is or should be considered investment advice. Anyone seeking individualized investment advice should contact a qualified investment adviser. None of the information presented in this article is intended to be and should not be construed as an endorsement of BMM or a solicitation to become a client of BMM. The reader should not assume that any strategies, or specific investments discussed are employed, bought, sold or held by BMM. Direct your inquiries to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com Visit www.afewdollarsmore.com for more of Bill’s insights.

 

 

 



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