Ritchie Bros. Auctioneers HOLD

RBA : NYSE : US$20.00
RBA : TSX
HOLD 
Target: US$20.00

 

Company description
Ritchie Bros. Auctioneers is the world’s largest industrial equipment auctioneer. The company conducts auctions in more than 110 locations across the globe, including 44 auction sites in North America, Europe, the Middle East, Asia, and Australia. Auctions are 100% unreserved and consist of used and unused equipment that serves a wide variety of industries, such as agriculture, construction, forestry, mining, petroleum, and transportation.
All amounts in US$ unless otherwise noted.

Investment recommendation


We continue to rate RBA shares HOLD and reiterate our US$20.00 target price. We see a compelling long-term investment case given that RBA’s major capex spend is behind it and organic growth efforts to fill out resulting capacity could potentially result in material dividend upside. Valuation, however, keeps us neutral.
Investment highlights
Peter Blake, RBA’s CEO : The US is where management sees the most room for improvement. While a number of issues are impacting US GAP growth, an untenured (less productive) US sales force is perhaps the biggest. Other geographies are more or less operating to plan. Management is increasingly looking to the rental companies as prospective sources of new GAP. Adding a former rental company executive to the Board in June was a nod in this direction.
Separately, RBA released Q3/13 GAP of $790 million (-7% y/y), below our $860 million estimate. On a LTM basis, GAP is down 6%, reflecting the sales force productivity and macro issues mentioned above. We cut our Q3/13 EPS estimate to $0.10 from $0.14 as we incorporate the lower than expected GAP and build in severance as part of some restructuring.
Model changes & valuation
We take our 2013E EPS lower by 8% to $0.68, 2014E lower by 19% to $0.81, and introduce 2015E of $1.00. RBA trades at 25x 2014E, above the comps group trading at 19x. Increasing GAP and ROIC could potentially get us more constructive on RBA shares

 

AMP Portfolio Overview : Higher Stock Prices Are Set In Place

The Apprentice Millionaire Portfolio ( available from amazon.com) sets three criteria in selecting investments :

In order

1) forecast for the economy THEN

2) select the sectors to benefit from that forecast And Finally

3) in your own and the Jack A. Bass Managed Accounts, select the stocks that will do best in the selected sectors.

So, first ascertain :

Where are the most important economies ( U.S. and China ) headed in the next 12 to 36 months ?

China’s economy showed fresh signs of resilience in August, with key trade data pointing to a sustained strengthening in global demand for goods from the country.

Exports continued to gather steam, rising 7.2% in August from a year earlier, according to data released Sunday by the General Administration of Customs. This was up from a 5.1% rise in July and a contraction of 3.1% in June. Imports rose 7.0% from a year earlier in August, down from 10.9% in July.

The overall picture was of a Chinese economy benefiting from progressive strengthening of demand in the U.S. and other key export markets. China is also continuing to stock up on raw materials for its industrial sector. “China’s back,” said Stephen Green of Standard Chartered Bank. “It won’t be a strong recovery but it’s increasingly clear we’ve bottomed.”

AND the reason is U.S. growth leading to increased demand for products from China.

One sector that benefits is shipping because that increase will be moved by ships.


AFP/Getty ImagesEnlarge Image

China’s trade surplus strengthens in August on strong exports driven by U.S. demand.

August’s trade numbers are the latest in a series of positive data releases, after overseas sales and factory output in July showed signs of improvement.

There are still some questions surrounding the sustainability of the current upswing.

Rising wages and a stronger currency dent the competitiveness of China’s exports. Beijing’s recent moves to slow lending growth — after years of credit-fueled economic expansion — could curtail investment and imports.

Still, two months of stronger data has increased optimism that the government will be able to hit its full-year target for gross domestic product growth, which stands at 7.5%. It also reduces the chances that leaders will introduce a major new stimulus policy.

Economists have responded to the signs of strengthening by edging up their growth forecasts. J.P. Morgan now expects 7.6% year-on-year growth in the third quarter, up

their growth forecasts. J.P. Morgan now expects 7.6% year-on-year growth in the third quarter, up from a previous forecast of 7.4%, which points to an acceleration from 7.5% growth in the second quarter.

China’s trade surplus widened, with the difference between exports and imports growing to $28.5 billion in August, up from $17.8 billion in July, marking its highest level since January.

Caterpillar

(CAT : NYSE : US$83.06), Net Change: 1.00, % Change: 1.21%, Volume: 6,583,381


$2 billion? All in US$2 bills?

Caterpillar announced plans to purchase $1 billion of its own common shares under an
accelerated stock repurchase transaction. In April, the company announced a similar $1 billion transaction, which was
completed in June. Repurchasing an additional $1 billion of CAT stock in Q3/13 will bring CAT’s total 2013 stock repurchases
to $2 billion. In February 2007, the Board of Directors authorized the repurchase of $7.5 billion of CAT stock, and in December
2011, the authorization was extended through December 2015. Through the end of Q2/13, $4.8 billion of the $7.5 billion
authorization was spent. Pursuant to the accelerated stock repurchase agreement, CAT has agreed to repurchase $1 billion of its common stock from Societe Generale, with an immediate delivery of approximately 11 million shares based on current market prices.

The final number of shares to be repurchased and the aggregate cost to CAT will be based on CAT’s volume-weighted
average stock price during the term of the transaction, which is expected to be completed in September 2013.

Last week, CAT announced its Q2/13 results and reduced its outlook as dealers draw down inventories. CAT reported Q2/13 revenue of $14.6 billion (-16% y/y) compared with the consensus estimate of $14.9 billion, while EPS was $1.45 (-43% y/y) below the consensus estimate of $1.70. CAT reduced 2013 guidance on a more significant reduction in dealer machine inventory than originally expected, not due to a change in market expectations. For 2013, CAT now expects revenue of between $56 and $58 billion and EPS of $6.50 compared to $57 to $61 billion in revenue previously and EPS of $7.00. CAT’s retail sales of machines in North America declined 10% y/y.

This is the seventh consecutive month that it was in negative territory since April 2010.

AMP Hedge Fund : Great Day

Symbol   Last          Chg

PNE          1.08+0.08

DSX          10.32+0.18

FRO         2.26+0.12

DRYS     2.01+0.08

CKG        3.51+0.11

BTO        2.58+0.03

ORIG     17.46+0.005

AAPL      433.32+3.01

DGC             9.62+0.12

CPLP          9.88+0.2199

DCIX         4.53+0.03

Minimum Investment  $50,000

Return to date  30 %

 

Canadian Pacific Railway Limited

A Canadian Pacific Railway freight eastbound o...

A Canadian Pacific Railway freight eastbound over the Stoney Creek Bridge, British Columbia. (Photo credit: Wikipedia)

CP : TSX : C$127.21
CP : NYSE: US$120.43
HOLD
Target: C$134.00

COMPANY DESCRIPTION:
Canadian Pacific Railway, recognized internationally for its scheduled railway operations, is a transcontinental carrier operating in Canada and the US. Its 14,000-mile rail network serves the principal centers of Canada, from Montreal to Vancouver, and the US Northwest and Midwest regions. CPR feeds directly into America’s heartland from both coasts, and alliances with other carriers extend its market reach throughout the US and into Mexico.
All amounts in C$ unless otherwise noted.

30% increase in normalized EPS projected
We expect the strong operating ratio (OR) improvement train to continue to roll along in Q2/13, propelled by cost cutting benefits. We project roughly 30% normalized EPS growth (i.e., excluding the $0.25-0.30 EPS strike hit in Q2/12), driven by a 71.8% OR (much better than the 77.8% in Q2/10, the last normal Q2). OR gains should continue to come from headcount reductions, yard closures and other cost improvement efforts.
Forecast tweaked lower on volume performance, but still very strong
We cut our forecast volume modestly due to weak volumes in Q2/13. We continue to expect good volume growth, but widespread Q2/13 volume weakness in many categories plus potentially slower emerging market commodity demand makes us a bit more cautious on CP volumes.
We continue to model very strong short- and long-term EPS growth for CP, powered by the company’s drive to improve its OR to the mid-60% range. We continue to model a 65% OR in 2015, consistent with recent comments by CEO, Hunter Harrison.
We cut our target C$3.00 to C$134.00 due to our lower forecast. Our valuation multiple is unchanged.
Maintaining HOLD as we think much of the growth is in the stock
We like the CP EPS growth story and reflect the very strong growth potential through our continued use of a premium valuation multiple of 10.0x EV/NTM EBITDAR (10.0x Q1/14E EV to Q2/14E – Q1/15E EBITDAR).
Our one-year valuation multiple is 1.0x above our normal valuation multiple to reflect the strong share price appreciation potential over the next 2-3 years. Our multiple is referenced against our estimate of a normal period target (our 3-year target) discounted back at our estimate of CP’s weighted average cost of capital (9.3%).
However, we continue to rate CP a HOLD because we don’t see compelling share price appreciation potential in the next year from current levels.

U.S. Economy and Its Cycles in 18 Brief Points

Cover of "The Great Reflation: How Invest...

Cover via Amazon

By Mitchell Clark, B.Comm. for Profit Confidential

In a fascinating work on long-run economic cycles, J. Anthony Boeckh’s book The Great Reflation offers up some poignant research on the U.S. economy and its cycles.

The Great Reflation is a non-political, historical breakdown of inflation, monetary and fiscal policies, interest rates, and long-wave economic theory. It was completed in 2010 and made several predictions on the U.S. economy that have turned out to be correct so far.

Boeckh, former publisher of the Bank Credit Analyst, delves into past financial manias, asset inflation bubbles, asset allocation for the aftermath, the U.S. dollar decline, commodities, and the monetary future of the stock market and the U.S. economy.

Here is a summation of Boeckh’s observations:

1. The global financial system will always remain flawed and subject to price inflation and bubbles, so long as it is based on fiat paper money.

2. Before 1914, most Western countries had a monetary regime that legally restricted central bankmoney creation based on its holdings of gold.

3. Average interest rates fell throughout the 100 years leading up to 1914.

4. In the absence of a financial system based on discipline and restraint, all anchorless fiat money systems (especially the U.S. economy) are destined to suffer inflation and instability.

5. Investors will be playing cat-and-mouse with the Federal Reserve for years to come—a problem caused by excessive private and public debt.

6. Deleveraging of the private sector bodes well for the transition process to the next long-wave cycle (2015+).

7. If the U.S. economy can’t help reduce the debt-to-gross domestic product (GDP) ratio in a timely manner, investors will face a public-sector debt supercycle larger than the post-1982 private-sector supercycle.

8. In the short term, deficits and extreme monetary expansion help the private sector repair balance sheets, but they cannot raise the standard of living for the average person.

9. The real total return of the S&P 500, deflated for inflation, is remarkably consistent over a long period of time.

10. Tactical asset allocation is the key to wealth creation and capital preservation.

11. In a world of economic fragility, investors want stability in the U.S. dollar, but the long-term outlook is bearish.

12. Gold is a crowded trade, but it’s useful as an insurance/inflation hedge in portfolios. Gold is an emotional purchase. Financial/investment demand for gold differs greatly from consumption.

13. Long-term returns from commodities as an asset class are unreliable and they trade in manias.

14. Historically, rising fiscal burdens hasten the demise of empires. The U.S. economy can chart a positive new path, but only with the removal of the political stalemate of vested interests.

15. There will likely not be any effective reform of the global monetary system anytime soon. Greater price inflation is coming.

16. The stock market has proven it does well following long-wave troughs after major financial crises.

17. The long run in this investment world no longer exists. Wealth preservation and portfolio safety are critical.

18. The music has started playing again, but there aren’t enough chairs for when it stops.

The Great Reflation is a very thoughtful historical look at the long-run economic cycles experienced by the U.S. economy. (See “Equity Flux, The Stock Market’s Latest Problem.”)

The U.S. economy has been consistently swept away by asset bubbles and financial crises, and Boeckh clearly demonstrates how monetary policy so powerfully influences cycles with changes in interest rates and price inflation.

Looking at the data and tables presented, the inflation-adjusted long-term uptrend in the stock market (since 1929, including dividends) averages just under seven percent annually. This is littered with long periods of extreme undervaluation and overvaluation.

Boeckh’s best advice is to employ “tactical stock market reallocation” to continually adjust your exposure to equities as monetary policy perpetually changes the inflation/deflation cycles experienced by the U.S. economy.

 

The Japan Economic Disease

English: Portrait of Milton Friedman

English: Portrait of Milton Friedman (Photo credit: Wikipedia)

The Japanese are rapidly coming to their own Endgame, the end of their ability to borrow money at interest rates that are economically rational. If interest rates on Japanese bonds rise to a mere 2.2%, 80% of tax revenues will go just to pay the interest on their debt. At a 245% debt-to-GDP ratio, they are in desperate straits, and they know it. And desperate times call for desperate measures.

To get to where they want to go, to grow their way out of their deflationary problem, the Japanese need both inflation and real growth. Real growth can come from massively increased exports, and inflation can even come from an increase in export prices. Both results can be obtained by weakening the yen. As I have shown, they need to devalue the yen by 15-20% a year for many years in order to break through to the other side.

That should be easy, at least in theory. Inflation, Milton Friedman famously said, is “always and everywhere a monetary phenomenon.” If you want to create inflation and devalue your currency, just print more money. A second shift in the print shop is in order, and if that doesn’t produce the desired results a third shift can be arranged, and then you can run full tilt on weekends. And soon maybe it will be time to build another print shop.

But that is the theory. In practice it may be harder for Japan to grow and generate inflation than it might be for other major nations. Today we’ll focus on Japanese demographics. . The forces of deflation will not go gently into that good night.

 

The Demographics of Doom

Creating inflation is the goal, but Prime Minister Abe and Bank of Japan Governor Kuroda face a very difficult task. Unlike in Zimbabwe, Argentina, and a host of other countries with defunct fiat currencies, in Japan it is not simply a matter of racking up untenable amounts of debt and then printing tons of money. If it were that simple, inflation would be rampant in Japan, for the Japanese have borrowed more than any country in modern history (relative to their size). And while their efforts to create inflation have been futile, it is not for lack of trying: the Japanese have been actively pursuing quantitative easing for many years. Carl Weinberg of High Frequency Economicswriting in the Globe and Mail, gives us a very succinct summary of the Japanese dilemma:

The National Institute of Population and Social Security Research projects that Japan’s working-age population will decline over the next 17 years, to 67.7 million people by 2030 from 81.7 million in 2010. We select 2030 as the endpoint of today’s discussion because almost all the people who will be in the working-age population by 2030, 17 years from now, have been born already. Immigration and emigration are trivial. The 17-per-cent decline in the working-age population is a certainty, not a forecast. It averages out to a decline of 0.9 per cent a year. In addition, these official projections show a rise in the population aged over 64 to 36.9 million in 2030 from 29.5 million in 2010. If the labour-force participation rate stays constant, we estimate the number of people seeking work in the economy will fall to 56.5 million by 2030 from 65.5 million today and 66 million in 2010.

What happens when a nation’s population declines and the proportion of working-age people decreases? In the first, simplest, level of analysis, the production potential of the economy declines: Fewer workers can produce fewer goods. This does not mean GDP must decline; productivity gains could offset a decline in the labour force. Also, an increase in the labour-force participation rate could mute the effect of a declining working-age population. However, even if the labour force participation rate were to rise to 100 per cent by 2030 from 81 per cent today (which it cannot, because some people have to care for the old and the young, and some are disabled or lack adequate skills or education), there would be fewer workers available in 2030 than there are today.

With fewer people working, the burden of servicing the public-sector debt will be higher for each individual worker. We project that the debt-to-GDP ratio and the debt-per-worker ratio will grow unabated over the next 17 years and beyond. Also, the rise of the ratio of retired workers to 32 per cent of the population from 23 per cent means that people who are still working in 2030 will have to give up a rising share of their income to support retirees. The disposable income of the declining number of workers will fall faster than the decline of production and employment. Overall demand of workers will decrease – with their disposable income – faster than output for the next 17 years at least. Demand will also fall as new retirees spend less than in their earning years.

Based on demographic factors alone, the decline of aggregate demand between now and 2030 will exceed the decline of output, creating persistent and widening excess capacity in the economy. Prices must fall in an economy where slack is steadily increasing. In addition, advancing technology will likely increase output per worker in the future. With overall demand and output falling, productivity gains will lower labour costs and add to downward pressure on prices. Disinflation and deflation are the companions of demographic decline.

Andrew Cates, an economist for UBS, based in Singapore, published a penetrating study on the relationship between inflation and demographics this week. He notes that countries with older populations tend to have lower inflation. That is not what the textbooks suggest, but it’s what the data reveals:

Since ageing demographics will now start to feature more prominently in the outlook for many major developed and developing countries this is clearly of some significance for how inflation might evolve from here. By extension it could be of greater significance for monetary policy settings and the broader outlook for global growth and financial markets as well.

Let’s first look at the evidence. In the chart below we show average inflation levels over the last 5 years plotted against the 5-year change in the dependency ratio. The latter is the ratio of the very old and the very young to the population of working age. A shift down in that ratio implies that the population in a given country is getting younger (and vice versa). The chart therefore shows that those countries that have been getting older in recent years have typically faced very low inflation rates and, in the case of Japan, deflation. In the meantime those countries that have been getting younger in recent years, such as India, Turkey, Indonesia and Brazil, have faced relatively high inflation rates.

Abe has proposed an economic reform package comprising “three arrows”: aggressive monetary easing, labor and other structural reforms (which will be politically very difficult to achieve) intended to induce private-sector growth-promoting investment, and a flexible fiscal policy (whatever that means – I guess, since it’s “flexible,” it means whatever he decides it means).  He gave a speech this week on those reforms, and the market promptly threw up. The “reforms” he touted were more of the same old same old. At dinner on Wednesday night, Art Cashin modified the opening line from the old Longfellow poem: “I shot an arrow into the air… and it landed in my foot.”

Not that I think Abe had much choice. He has a critical election next month. Touting a policy that allows employers a freer hand in firing workers is not likely to win over many voters, but he must get serious about reform if he is to have any hope of limiting the disaster he faces.

Banzai! Banzai! Banzai!

The Japanese are charging the deflationary battle lines, crying “Banzai!” This attack is all or nothing. I think the Japanese are offering us investors their flank. This week’s action in the markets showed us that this battle will not be one-sided. It will often get ugly. But I want to keep reiterating what I have been saying for a long time: shorting the Japanese government is the trade of the decade. That is the largest position in my personal portfolio, and it is going to get larger, as I intend to fully swap the mortgage I just took out this week into yen. As I said to Tom Keene this morning, it is my intention (more accurately styled as hope) to let Abe-san and Kuroda-san pay for a large chunk of my new apartment through their policy of destroying the yen. I have to admit to feeling good when the yen backs up like it has this week, since that gives me a chance to get my trade on at a better entry.

Mosaic Capital Corporation

M : TSX-V : C$7.31
BUY 
Target: C$9.75 

COMPANY DESCRIPTION:
Mosaic Capital acquires majority stakes in small industrial companies in mature market niches. The company currently controls six industrial and one commercial real estate investment company, all located in Western Canada.

Investment recommendation


We think Mosaic is an attractive investment opportunity for investors looking for an industrial acquisition story. The company has demonstrated an ability to acquire strong cash-generation firms at attractive prices. We believe the cash flows from the existing portfolio of companies supports the current share price, and Mosaic’s considerable “dry powder” capital provides the potential for $4.50/share additional growth. The story has the potential to grow considerably beyond that point as additional capital is deployed.
We are launching coverage with a BUY rating, given the strong 35.0% one-year potential rate of return to our C$9.75 one-year target (including a 1.6% dividend yield).
Investment highlights
We believe there are four good reasons to consider investing in Mosaic:
1. Solid track record – Mosaic roughly tripled its EBITDA from 2011 to 2012 while driving return on capital from 5.7% to 12.9%. Over the same period, the company returned more than $13 million to shareholders and has a trailing payout ratio of 63%.
2. Strong portfolio of niche businesses – Mosaic’s portfolio consists of small defensible niche businesses. The low capital requirements combined with strong, stable margins deliver solid (and we think growing) free cash flow.
3. Significant dry powder – We estimate Mosaic has $35 million of available capital to deploy towards future acquisitions. We estimate that the
deployment of this capital could add $4.50/share of value.
4. Aligned management – With 53% of the common stock held by management and insiders, we think the company’s interests are strongly aligned with investors.
Valuation
Our target is based on low-single-digit organic growth and a premium 6.5x Q1/15E EV to Q2/15E – Q1/16E EBITDA multiple for potential acquired EBITDA.
We believe the bulk of the valuation upside potential lies in the deployment of Mosaic’s already-raised capital on accretive acquisitions.

The Deficit Is Shrinking! (and Nobody Cares) – Bloomberg Businessweek

Logo of the United States White House, especia...

Logo of the United States White House, especially in conjunction with offices like the Chief of Staff and Press Secretary. (Photo credit: Wikipedia)

On May 14, as Washington officialdom was transfixed by the IRS scandal, the Congressional Budget Office announced that the budget deficit will shrink this fiscal year to $642 billion, or just 4 percent of gross domestic product. It’s the smallest deficit since 2008, and less than half 2009’s record $1.4 trillion shortfall. Since February, the CBO has cut $200 billion off its deficit projection for 2013 and $618 billion off its cumulative estimate for the next decade. Thanks to higher tax revenues and deep spending cuts, the deficit has been shrinking by about $42 billion a month for the past six months. The CBO projects that the deficit will fall to $342 billion by 2015, or only 2 percent of GDP.

Even so, the country’s improving finances haven’t lowered the din of partisan bickering over U.S. fiscal policy. Keynesian economists say that the deficit is narrowing too quickly, curtailing growth and threatening to derail an economy that grew a tepid 2.5 percent in the first quarter. Republican deficit hawks are unimpressed by the short-term reductions and want more cuts to head off exploding long-term debt driven by rising spending on Medicare, Medicaid, and Social Security.

“I must have missed the Kool-Aid,” says Douglas Holtz-Eakin, a former CBO director who served as John McCain’s chief economic adviser during the 2008 presidential campaign. To Holtz-Eakin, a deficit that’s 4 percent of GDP isn’t worth bragging about. Plus, the short-term reductions are mostly from technical revisions such as tax code changes and a $95 billion, one-time payment from Fannie Mae and Freddie Mac. The long-term situation is still scary, he says.

As millions of baby boomers retire, entitlement spending will start eating up government funds. Unless those programs are reined in, the CBO projects the budget deficit will start to rise again in 2016 and hit $895 billion by 2023. Also, today’s low interest rates, which allow the government to sell 10-year Treasury bonds below 2 percent, won’t last forever. The CBO projects that by 2023, annual interest payments on the country’s debt will nearly quadruple, to $823 billion. A new plan being floated by über-austerians Erskine Bowles and Alan Simpson, co-chairs of President Obama’s 2010 debt commission, calls for replacing the $85 billion in cuts from the sequester with $2.5 trillion in additional deficit reduction, including $220 billion in defense cuts and $585 billion in health-care savings through reforms to Medicare over the next 10 years.

Doves say that’s overkill given that the government is already shrinking faster than at any time since the post-World War II military demobilization. “The patient is checking out of the hospital, and the doctors are still planning surgery,” says Jared Bernstein, a senior fellow at the Center on Budget and Policy Priorities and Vice President Joe Biden’s former chief economist. Echoing a warning the International Monetary Fund issued last summer, Bernstein is concerned the deficit is contracting too fast from all the spending cuts enacted since 2010, including the $1 trillion in cuts President Obama agreed to in 2011. That’s stymied growth. In 8 of the last 10 quarters, the federal government has been a drag on the economy, subtracting 3.25 percentage points from GDP since the fourth quarter of 2010. “We’ve overfocused on the deficit,” Bernstein says. “It’s time to tackle the jobs crisis.”

According to the CBO, the economy is operating 6 percent below its potential, a difference of about $1 trillion this year. For every dollar the economy runs below its optimal level, the deficit rises by 37¢ due to cyclical factors such as lower tax receipts, says Andrew Fieldhouse, a budget policy analyst at the Economic Policy Institute. That’s what’s happened in Europe, where austerity has boosted debt-to-GDP ratios by about 5 percent. “Fiscal stimulus right now would decrease debt to GDP,” Fieldhouse says.

Not everyone thinks Medicare is doomed. Based on lower growth rates in health-care costs since 2010, the CBO cut its estimate for Medicare and Medicaid spending by $162 billion over the next decade. That could change, however, when Obamacare and potentially higher policy premiums go into full effect.

One thing the dip in the deficit has changed is the urgency to reach a deal on long-term debt reduction. Continued gridlock might not be so bad. “The last thing we want is some grand bargain,” says James Paulsen, chief investment strategist at Wells Capital Management. He argues that as long as the economy keeps growing, the deficit will continue to trend lower: “Who would you rather put in charge of fixing the country’s finances: Congress or the invisible hand of Adam Smith?”

 

The bottom line: The federal deficit will shrink to $642 billion in 2013, or 4 percent of GDP, less than half the $1.4 trillion shortfall in 2009.

Barron’s Predicts U.S. Manufacturing To Boom

Barron's (newspaper)

Barron’s (newspaper) (Photo credit: Wikipedia)

The cover story of last weekend’s Barron’s “The Next Boom” presents a fairly bullish case for the revival of
America’s manufacturing industry.

“Made In The U.S.A.” used to account for nearly 40% of the things made globally. Today, American pride only makes 18% of good sold worldwide. But that is about to change, Barron’s highlights that the weak dollar, stagnant wages, and cheap energy (natural gas) are drawing manufacturing jobs back to the U.S.

Cheap natural gas not only reduces the U.S. trade deficit, it makes American factories more competitive globally. This is why many U.S. manufacturers and interest groups are opposed to plans from LNG exporters to permit the unlimited export of natural gas abroad.

Peter Huntsman, President and CEO of Huntsman (HUN), stated last week, “We think it very short-sighted and bad public policy to allow our
nation‘s natural gas advantage to be stripped and sent overseas to build a new manufacturing base that would otherwise be built here in the U.S.” Companies like Apple (AAPL), Caterpillar (CAT), Ford Motor (F), General Electric (GE), and Whirlpool
(WHR) that are making more of an effort to make their goods in the U.S. again.

In addition, Samsung is building a semiconductor plant in Texas, Airbus SAS is building a factory in Alabama and Toyota (TM) wants to begin exporting minivans made in States to Asia. Quoting the National Association of Manufacturers, Barron’s notes that for every dollar spent on manufacturing, another $1.48 is added to the economy. Manufacturers account for two-thirds of what the private sector spends on research and development. Barron’s has named eight companies that should prosper in the natural gas fueled manufacturing revival: Southwestern Energy (SWN), LyondellBasell Industries (LYB), Nucor (NUE), Dover (DOV),
Calpine (CPN), CF Industries (CF), Williams (WMB) and Union Pacific (UNP).

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