Playing the Productivity Plunge with ETFs
September 12, 2008
By Max Rottersman
Our three main business lines are materials, manufacturing or services.
Materials can be wheat, corn, oil, gas, uranium, timber, etc. Manufacturing is any occupation that changes materials into something useful: cars, computers, clothes, housing. Services are everything else, from restaurant help to investment bankers.
There is no secret to wealth creation. An increase in materials makes us wealthier; a shortage of materials makes us poorer. Improved manufacturing makes us richer and but stagnant manufacturing doesnít. Inexpensive services put more money in our pocket, but rising labor costs donít.
Real growth is the total effect of changes in farming, manufacturing and services. If the price of materials jumps, but our productivity increases faster, we become wealthier. For example, if gas rises to $10, but we get 200 miles per gallon, the net effect is wealth.
Our growing debt is not a financial imbalance; itís our speedometerís way of saying that the nationís economic engine has died.
Itís no wonder weíve forgotten these first principles and have become obsessed with financial gauges. For decades our engine has been reliable and ever-improving. By myself, in my office, I can do the work that four people would have done 25 years ago. At a nation, we became rich because we can do the work of four people, which our parents could not.
For almost 30 years, we have enjoyed more innovation, more productivity. The increases in productivity have allowed us, in aggregate, to buy bigger houses, cars, vacation homes, and amazing electronic gadgets.
So the question now is, if productivity increases are waning, how can we become richer? We canít. The government can pump only so much money into the system. Certainly, it will fix some liquidity problems. But without increases in productivity money piles up as inflation.
Now that productivity is slowing, shortages in materials, oil especially, are acutely felt. When I was born, 47 years ago, there were 2 billion people on the planet. There are now seven billion people and they all want to drive somewhere.
Inexpensive services that we indirectly acquired from
If productivity is truly entering a long-term slump how do we invest?
Letís start with
What about banks? Are they a good investment? In my view, not yet.
Again, itís all about our ability to increase productivity. Whatís the value of a fuel line into a dead engine? The current price of banking stocks relative to the past is irrelevant. If someone invents productivity-boosting robots that do all our menial work, buy banks. If someone develops corn that grows on asphalt, buy banks. Otherwise, banks, contrary to what they say through billions of dollars of marketing, canít make money out of money. Only productivity creates real wealth. Banks make money by siphoning off the monetary fuel consumed by productivity.
For the next 5 years short financials (AMEX: SKF).
What is the next big thing? Until it comes, you can fiddle with interest rates and talk credit and debt forever, to little effect. Regulations, laws, bailout plans--they just re-arrange the furniture.
The 1930ís depression may not have been caused by lack of regulations or bad fiscal policy.
Like today, the
If history repeats, housing pricing will become the least of our worries. If thatís too much doom and gloom then global investments might be a good idea. Think international growth (AMEX: CWI) and (AMEX: VEU).
Max Rottersman is a partner of Hanover Technology Group, LLC. His opinions donít necessarily represent the views of ETFguide.com or Yahoo Finance.
Related News Articles: