GENERAL

Well if anyone was still wondering if our government knew or even cared if all industry is leaving the U.S. – I guess the doctor erased any doubts at the CFA in D.C.  Greenspan reassured us that the Congress was well aware that manufacturing was leaving the U.S. and that in no way, shape or form were they going to protect U.S. industry.  About a year ago Bush made a one sentence comment, “We need to be on a level the playing field.”  You never heard another comment because he knew he was in a no win situation with Congress for protectionism.  Congress must have felt that Bush meant the U.S. industry had too much of an advantage on China so they raised the minimum wage to “level the playing field!”

So let me see if I understand Greenspan’s evaluation of the future:  1. We are not going to protect U.S. industry.  2.  Instead – we are going to be a highly intellectual, innovative economy whose headquarters is the Silicone Valley.  But – Houston we have a problem.  3.  Our educational system is in the toilet and we are raising a bunch of idiots.  4.  And – anyone who has any smarts is retiring.

Greenspan’s observations of the Congress’ attitude is accurate but to sit back and just watch it happen is a huge gamble and I don’t think business had this in mind, when business preaches “Laissez Faire.”

The Congress has been stealing from us by taking our social security money and using it to balance the budget and if any of you at my age (59) you got your letter from the Social Security saying “we’re not going to pay you what you have coming!” And that’s why when Bush wanted us to be able to use our social security to invest privately – it got nixed immediately by Congress because they would have no funds to pilfer to balance the budget.

What’s this going to mean to us?  As Greenspan put it:

“We are going to have a few casualties.”

Somehow I don’t think any of those casualties will be past, present or future Congressional leaders.  Our preamble of “By the people and for the people” is hypocrisy if any of our congressional leaders thinks it applied through their leadership.

So what to do?

1. Your Social Security that you pay into each year goes to purchase a Treasury Bill that goes into your 401K.  The next year your Social Security plus last year’s ‘T’ Bill goes to purchase another 1 year ‘T’ Bill.  You may start selling ‘T’ Bills at age 65 and if you die they transfer to your next of kin.  You’re funding your retirement and investing in our country.
2. All imports are taxed a $110/container fee collected by the harbor and disbursed directly to the U.S. Government general fund to replace the social security money since they won’t be able to steal from us anymore.  $10 goes to Homeland Security for port security and protection.  This will also slightly raise the cost of imports and slightly make U.S. manufacturing goods more competitive.

But, won’t this make other countries not like us, and they may threaten not to buy our “T” Bills.  So don’t buy them:  the citizens of the U.S. have already replaced your investment.  But the reason they buy our “T” Bills and the reason they invest in our country are because it is the most stable and financially secure economy in the world based upon its past performances.

But you have seen a weakness lately in the value of the dollar compared to other currencies and other countries are telling us something “based on the way you are heading you may not be the strongest economy in the future.”  Once you lose that credibility from the world economies, they have put a dent in the armor and you are no longer invincible and therefore you are defeatable.  Perception of strength and momentum are a strong force but once that strength shows signs of decline that momentum and perception may be hard to get back.

BUT, NONE OF THIS WILL WORK UNLESS WE HAVE TERM LIMITS ON CONGRESS.  TWO (2) TERMS, THEN YOU’RE OUT FOR ONE (1) TERM AND IF YOU WANT TO RUN AGAIN – THEN GET ELECTED.  THESE HALF DEAD AND SPECIAL INTEREST PROTECTING CONGRESS PERSONS ARE STIFILING ANYONE WHO COMES IN TO TRY AND DO SOME GOOD.  THEY HAVE TO GO.

So what does this mean to asset based lending if the venture capital and hedge funds do not buy your potential liquidation.  The amount of buyers has narrowed to a small handful and at some point they have become so huge that they really don’t care if a small competitor comes on the market place – they’re just not a threat.  So you will end up with all these (1) high end (2) specialty – short run or (3) niche players to make up for all the high production facilities that will have left the U.S. There just won’t be enough demand for all the supply of equipment and prices will eventually drop due to the surplus manufacturing capacity.

AUTOMOTIVE

Will have a huge trickle down effect hitting first the automotive accessories.  You are already starting to see a lot of injection molding sales (large tonnage), automatic screw machine, wheel industry sales, etc.  After that you will see Ford & GM plant closures and that’s when the large stamping presses will come onto the market place.  I can’t see any foreign company rescuing Ford & GM because who would want to manufacture cars in the U.S. with the cost of labor, unions, environmental requirements & pensions.

WOODWORKING

About two years ago, you had a lot of furniture manufacturing company departures due to foreign long run competition.  But a lot of companies remained because housing was so good that it kept them afloat.  That’s why we used to say furniture is down but cabinetmakers were still doing well.  If the housing market continues to downsize in ‘new homes built’ then woodworking will have nowhere to go.  We have (1) sale in February, (3) in March and we are looking at (5) other woodworking sales – and we are just one auction company.

FOOD

Very few auction sales.  If you are going to pull the plug now is the time.  The prices are thru the roof.  Venture Capital likes it for the same reason, we got into it 7 years ago – “You gotta have food!”  The mains are not spinning off divisions yet because they are still mapping out their game plan.

MACHINE SHOP

Still doing great but not quite as hot as it was last Fall or Spring.  Maybe down just a little from that time maybe 5%.  But the aerospace industry is on fire but not just from defense (which will weaken within the next couple of years) or from Boeing’s huge orders of commercial aircraft, but from the small regional jet & business jet manufacturers.  This new source of business, along with Boeing, has swallowed up all spindle capacity in the U.S.  What has that done to the price of a ‘New Cincinnati’ or ‘SNK Profiler’ and

What will happen if a used one comes on the market place?  Price becomes a non-issue.  Great for another 5 years, sell the company off and then buy it back 5 years later for 10% of the price you sold the company for.

You will see some machine shops coming on the market place from the automotive segment but there is enough demand that prices will stay constant in CNC equipment.

SHEET METAL

Seems to have no slowdown in the fabrication side of lasers, brakes, structural fabrication, computer frames, etc. but watch out for heavy stamping.  Dealers are even going to be a little hesitant to spend the money to move and store these mammoths.

PLASTICS

There are a lot of large tonnage machines that have been sold and the prices have been pretty good.  Most of the sales are coming from automotive but the saving grace for plastics is that large molders are used in other segments of manufacturing commercial goods.  You can use a 1000-ton molder to make automotive seats or you can make plastics trashcans.  Also manufacturing large bulky plastic products makes you competitive with overseas because of the space they take up for shipping.  Large molders are plant size and energy hogs but they do not require much labor.  Small injection molders are doing well in the Pharmaceutical and medical industry since quality control is such a huge concern.

GENERAL

If the new home building continues to slow it will have a trickle down effect for woodworking, air-conditioning, and roofing industries.  These guys have had a 10-year run and were doing fantastic in 2001 thru 2004 when every other industry was suffering.  So they may have over expanded or people have gotten into the industry that have never had to deal with a downturn.  So as we have been told “there will be some casualties.”

AUTOMOTIVE – unless Ford & GM let it all hang out and develop a new energy, fuel efficient, economically affordable automobile, I think they will have a tough time making it in their present form.

Sincerely,
TAUBER ARONS, INC.

STEVE W. QUALE