Manufacturers Coming Back to The States

Updates

For those following the price of oil, all things being equal, the strength of the dollar is probably the main reason for daily fluctuations in the price of oil. When there are no other obvious explanations for rise or fall in the price of oil, I generally look at the strength or weakness of the dollar to help find an explanation. I have to thank Don for pointing that out to me some years ago. In fact, I think it was the firt "lesson" Don taught me; he has taught me many, many lessons about oil

Since then, I have followed the strength/weakness of the dollar with some interest, although I really don't understand much about it.

I was stationed in Europe in the early 1980's when the dollar was so strong, we were living very, very inexpensively. I remember taking our family of four skiing in the Austrian Alps for a week, which, might now cover the cost of one day of skiing. It was awesome.

Years later, I returned to England, where it was incredibly expensive to live because of the exchange rate. In fact, things were so bad, military folks were playing the exchange rate on daily basis to a) make ends meet; and/or b) make a small profit.

So, it was of some interest to see someone suggest that it was the weak dollar and not energy that was part of the reason some manufacturers were coming back to the states (see first comment below).  In fact, "anonymous" said that the price of energy had "no direct correlation." None. Nil. Zilch. 

It should be noted that CEOs and the Boards of Fortune 500 companies are strategic in their outlook, looking down the road 20 years (if they hope to succeed; of course, some companies like Kodak are looking on a daily basis if they are still surviving).

Bringing manufacturing back to the states is a 20-year decision, not something taken lightly. My tea leaves suggest the dollar will strengthen in the near term vis a vis the Euro (which is about to implode), and energy will be the game changer in the long term (if "we" don't screw it up, which is always possible).

With that in mind, I offer some links to essays on the current and future strength of the dollar:

• Yesterday: "US groups feel the pinch of the strength of the dollar," Financial Times (not a trivial source) -- January 17, 2012
• This month: "Gold price stalled by US dollar strength," International Business Times, January 5, 2012
• Recently: "the strength of the US dollar sends gold lower for the fifth consecutive session."  -- Dec 28, 2011
• Old: "The power of the dollar, or why the dollar won't collapse." -- undated, but appears many years old

That Financial Times is particularly noteworthy; the lede:

US companies are beginning to feel the pinch of steady gains in the dollar as currency losses show up in fourth-quarter earnings and guidance reports, threatening a strong start to 2012 on Wall Street.

 

Most major currencies fell against the haven asset of the dollar in 2011 and the declines have continued this year. That could be bad news for S&P 500 companies as diverse as McDonald’ s and General Electric, which derived the majority of their 2010 revenue from foreign sales.

As the debt crisis in Europe worsened, global investors favoured the perceived safety of the US dollar. The euro slid about 14 per cent after hitting a high in May and last week touched 16-month low below $1.27.

Original Post

I don't have the link but I understand that some companies are bringing some of their manufacturing back to the states, and several reasons have been given. I wonder if cheap energy, political stability, and quality of the American workforce are the reasons?

The third reason is a bias that is difficult to prove: I strongly "believe" in the quality of the American workforce -- but it is a quality that cannot be easily measured or compared.*

The second reason -- political stability -- goes without saying for much of the world, which is not new, but instability may be spreading: this time to Europe due to the implosion of the euro. I doubt GE is looking to Greece, Portugal, Ireland, or Italy as places to build new manufacturing plants.

But who would have thought cheap energy would be part of the triad? But there it is. From USA TodayCarpeDiem.com via :

For companies that make plastics, fertilizer and other chemicals derived from natural gas, falling prices are a windfall. The same goes for makers of products from steel to bricks to beer. All use a lot of natural gas to heat their furnaces. U.S. manufacturers are becoming more competitive globally as a result of the country's cheap natural gas, industry officials say."

Who would have thought it -- that America is seeing cheap energy once again?

If the weather stays mild, the price [of natural gas] could even dip below $2, a level not seen since 2002.

Since 2002 -- ten years ago.

Let's hope "we" don't screw it up.

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*Part of the reason for the quality of the American workforce is due to education. [There is a lot of talk about the need for increased spending for American education but I argue that most of the workforce is over-educated/wrongly-educated, but that's a topic for another day.]  Other reasons for the quality of the workforce have to do with the entrepreneurial spirit; the "I have a dream" culture; inculcated capitalism of our youth; the rule of law; and, $200-smart phones. The five dots can be connected.