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Posts Tagged ‘Investment’

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Ford announced Wednesday that it will move its entire small car operation from America to Mexico.

“Over the next two to three years, we will have migrated all of our small car production to Mexico and out of the United States,” said Ford CEO Mark Fields, during an investor conference it was hosting in Detroit, Michigan. Notice he told investors what they should expect.

Ford’s share price continued its slow decline anyway. The share price peaked back in 1999 at $37.14. It’s been up and down since then, but never back up to the peak. The share price plummeted to a $1.43 in 2009, reached $18.65 in 2011, hit another peak in 2014 at $17.72 and has been going down ever since. The shares traded at $12.11 on September 16, two days after Fields made his foolish announcement to investors.

Ford management has exported over half of its US jobs to Mexico since NAFTA. Thank you Bill and Hillary Clinton. This has been done to reduce its labor costs and increase its profits, share price and dividends. Ford’s decision will also increase income inequality and reduce its long-term per capita sales.

So what happens when virtually all of Ford’s jobs are overseas? What happens when the next recession hits sometime within the next twelve months, most likely by or before June 2017?

Ford management can’t export many more jobs to Mexico, so that avenue to increase earnings and share prices will soon close down. The next recession will be worse than the last one, which I will explain why in a day or so. Ford’s retained earnings peaked at $27.5 billion a year ago. That’s dropped by $11 billion in a year. In other words, Ford is running out of financial room to maneuver, especially during this coming economic downturn.

The company still gives a nice dividend of nearly 5 percent. But all that means is that Ford will run out of money sooner than later during the downturn.

Expect its share price to drop back down to a dollar something, or less. The company likely will be facing a financial crisis and possible insolvency within the next five years.

Ford is an unwise investment, even for billionaires and hedge funds. Even if the company doesn’t face insolvency over the next five years, its share price is going to continue to tank in the long-run, but CEO Fields hasn’t figured that out. He should be investing in US production rather than investors, and to hell with the share price.

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“Bolivia has reduced poverty and inequality more than any country in the Western Hemisphere over the last ten years by increasing the minimum wage 87%, doubling investment in schools and healthcare, and lowering the pension retirement age from 65 to 60. The government paid for these programs by increasing taxes on oil profits from 18% to 82%, which also allowed the country to eliminate its debt and amass the world’s largest surplus. Bolivia is now estimated to have the region’s fastest growing economy this year and next, according to the IMF.”

Everything the government of Bolivia has done has ignited the demand for goods and services. Whereas, in the United States, the government continuously redistributes income from the 99 to the 1 percent via legislation. Corrupt corporate Democrats, about 90 percent of representatives, such as Wall Street Senator Ron Wyden, along with the entire corrupt Republican delegation to congress, are responsible for destroying the American economy by doing the reverse of what Bolivia has done.

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The US senate passed a comprehensive immigration reform bill several days ago. The bill calls for amnesty for somewhere between eleven and twenty-five million undocumented immigrants in the US, which will be granted over a period of thirteen years. Some of the provisions of the bill include the payment of back taxes, increased border security (such as more fences) and an end to family ties as a determining factor for future immigrants.

The bill looks like it was written by Wall Street and the 1 percent, most likely because it was. Wall Street and the 1 percent derive all the benefits; undocumented immigrants and the rest of the 99 percent will pay the price. The propaganda machines of the proponents of immigration reform, some of which are non-Wall Street, are on the march.

A study released by the Center for American Progress says, “Once they (undocumented immigrants) attain legal status, immigrants will be able to contribute to the increased consumption of goods and services that boosts business sales and raises the earnings of all Americans. They will pay taxes on their higher wages and increase the gross state product (GSP). Additionally, immigrants will be able to use their new legal status by integrating their skill set and education into creating jobs and raising productivity.”

Common sense tells us that once undocumented immigrants receive legal status, they will consume approximately what they consume today. It is possible that with higher wages they will consumer more. That will be offset, however, because the rest of us will be consuming less, according to an analysis of the bill by the non-partisan Congressional Budget Office (CBO). According to the CBO, everybody’s wages and job opportunities will decline with the deal. That means the impact of immigration reform will have little, or no, or perhaps even negative, net impact on the consumption of goods and services. It could even result in a decline of GNP. How could the consumption of goods and services go up if everybody’s wages and salaries are going down? They can’t and so the claim by the Center for American Progress is patently wrong.

According to the CBO, the senate bill will depress wages of all workers for the next twelve years, “raise the unemployment rate,” and “result in higher interest rates.” Notice the corporate news media hasn’t reported these things to you.

Immigration reform will also push the unemployment rate higher than it would otherwise be through 2031. Currently, the real unemployment is somewhere between 13 and 15 percent, which is higher than the official rate of nearly 8 percent. In other words, the 99 percent is living during a low grade depression and the government intends to increase unemployment. Immigration reform will force more and more people to compete for a smaller number of jobs, and this will drive wages down.

This same process also occurred after the amnesty granted undocumented immigrants in December 1986. Wages immediately began to plummet for the next six years and didn’t recover to their 1986 level until 11 years later.

The CBO also reported, “Capital investment would rise primarily because the return that investors would earn on a given amount of investment would be higher under the legislation than under current law.” The rationale for this is given with economic jargon, but basically it boils down to this; lower wages will increase profit margins, and so members of the 1 percent will purchase more corporate stocks and bonds.

In other words, immigration reform has been written to ensure Wall Street and the 1 percent benefit by pushing down wages, salaries and other compensation and redistributing the difference between the old rates and the new lower rates into the hands of the 1 percent. Nice scam, but it gets worse.  That issue will be taken up in part two.

All the government really has to do is enforce the laws written in 1986, or it could pass out green cards to legalize the undocumented, place them in line for legal immigration status, and when their number comes up, grant them citizenship.  That, however, is too easy, and not all that profitable for Wall Street and the 1 percent.

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