At my last Global Strategy Luncheon, I had the pleasure of sitting next to an anesthesiologist who was a long-time reader of my research.

As much as he loved my service, he confided in me that his trading results were awful.

I told him I knew why.

Doctors, scientists, aircraft pilots, and even anesthesiologists all share the same problem.

As smart as they are to plow through 12 years of college studying subjects of mind-numbing difficulty, obtaining MD’s, PhD’s, and ATPL licenses, they are terrible when it comes to trading their own stock portfolios.

A doctor friend once confessed to me that as fast as he was taking money in at his seven-digit a-year private practice, he was shoveling it out the door in trading and investment losses.

And if he got mad at it, or grew stubborn, the losses then compounded. He considered it a disease, like a gambling addiction.

I have to admit that I once suffered from the same malady, as I was originally trained as a scientist and mathematician. That is until I identified my problem and dealt with it.

And here is the dilemma.

Science, medicine, and flying high-performance aircraft all require tremendous degrees of precision. The practitioners have to be exactly right about everything all the time.

If they aren’t, people die.

Let me give you some examples.

I happen to know that the daily dosage for the heart drug, Digitalis, is 0.25 mg per day. If you accidentally raise that to 0.50 mg, you die, especially if you have a small body weight.

I also happen to know that the stall speed of a Boeing 787 Dreamliner is 125 miles per hour. At 126 miles per hour, everything is fine.

But at 124 miles per hour, you risk stalling on approach, crashing, and killing everyone aboard, especially if it is hot and humid, wind shear is present, you are overweight, or at high altitude.

So as far as doctors are concerned, the premium is on precision.

This absolutely does NOT work in the stock market, which is anything BUT precise.

For precision means buying stocks at their perfect absolute lows and selling them at the perfect top ticky highs. The problem is that this is impossible.

I have been trading stocks for almost 60 years and can think of only a handful of times when I nailed the perfect highs and lows. When I did, it was purely because of random chance, by accident.

By insisting on perfection in his stock execution, doctors miss every trade. They then get frustrated and chase the market, throwing all discipline out the window. This is where the losses ensue.

I can almost see the knowing nods of agreement out there.

It gets worse.

Doctors are used to working with a perfect set of facts, a lab report, a pulse rate, a temperature, or an MRI scan.

In the stock market, you have to deal with the fog of war. The facts you have at hand may or may not be true. New, contradictory information is getting dumped on you all day long. And the guy on TV is usually telling you the exact opposite of what you should be doing.

Most talking heads on the boob tube are in fact failed traders. If they really knew how to make money they would be locked up in a dark, windowless room somewhere grinding out the dollars by the millions.

There is another important factor. If only numbers determined stock market success CPAs would be making the most money. They don’t. The stock market is a combination of numbers and emotions and you have to succeed at both to prosper. And while they offer master’s degrees and PhDs in every kind of numerical pursuit, they don’t in emotions. Only 60 years of experience can do that, as I have.

After a couple of decades, you get used to operating in a world of uncertainty. In fact, you thrive on it. You learn which information sources to trust and which ones to ignore when the fur starts to fly. After much practice, you learn how to make the right decision when push comes to shove.

Unless doctors work in an emergency room or in combat with the military, they don’t get to learn how to make decisions in the fog of war. To them, markets all seem like a mass of confusing and conflicting information. For the perfectionist, it’s their worst nightmare.

No wonder they lose money.

So doctors have three choices when it comes to their investment portfolio.

They can index, balance stocks against bonds, and get used to subpar returns.

They can hand it over to a professional financial advisor, out of harm’s way.

Or they can learn the tricks of the trade that I have, which is the purpose of this newsletter. If you learned from my own half-century plus accumulation of mistakes, you don’t have to repeat them yourself.

Your portfolio will love it!

Now that I have your attention, I have this pain in my back that keeps bothering me….

By now, we have all become experts in offshoring, the practice whereby American companies relocate manufacturing jobs overseas to take advantage of low wages, missing unions, the lack of regulation, and the paucity of environmental controls. The strategy has been by far the largest source of new profits enjoyed by big companies for the past two decades. It has also been blamed for losses of US jobs, with some estimates reaching as high as 25 million.

When offshoring first started 50 years ago, it was a total no-brainer.  Wages were sometimes 95% cheaper than those at home. The cost savings were so great that you could amortize your total capital costs in as little as two years. So American electronics makers began filing overseas to Singapore, Thailand, Hong Kong, Taiwan, South Korea, and the Philippines. After the US normalized relations with China 50 years ago, the action moved there and found that labor was even cheaper.

Then, a funny thing happens. After 40 years of falling real American wages and soaring Chinese wages, offshoring isn’t such a great deal anymore. The average Chinese laborer earned $100 a year in 1977. Today, it is $6,563, and $24,000 for trained technicians, with total compensation rising 20% a year. At this rate, US and Chinese wages will reach parity in about 10 years.

But wages won’t have to reach parity for onshoring to accelerate in a meaningful way. Investing in China is still not without risks. Managing a global supply chain is no piece of cake on a good day. Asian countries still lack much of the infrastructure that we take for granted here. Natural disasters like earthquakes, fires, and tidal waves can have a hugely disruptive impact on a manufacturing system that is in effect a highly tuned, incredibly complex watch.

There are also far larger political risks in keeping a large chunk of our manufacturing base in the Middle Kingdom than most Americans realize. With the US fleet and the Chinese military playing an endless game of chicken off the Tawan coast, we are one mid-air collision away from a major diplomatic incident. Protectionism constantly threatens to boil over in the US, whether it is over the dumping of chicken feet, tires, or the latest, solar cells.

This is what the visits to the Foxconn factory by Apple’s CEO, Tim Cook, are all about. Be nice to the workers there, let them work only 8 hours a day instead of 16, let them unionize, and guess what? Work will come back to the US all the faster. This week, the Chinese press was ripe with speculation that Apple-induced reforms might spread to the rest of the country like wildfire.

The impact of a real onshoring move on the US economy would be huge. Some economists estimate that as many as 10%-30% of the jobs lost to offshoring could return. At the high end, this could amount to 8 million jobs. That would cut our unemployment rate down by half, at least. It added $20-$60 billion in GDP per year, or up to 0.4% in economic growth per year. It would also lead to a much stronger dollar, rising stocks, and lower bond prices. Is this what the stock market is trying to tell us, rising by 34% off the October lows?

Who would be the biggest beneficiaries of an onshoring trend? Si! Ole! Mexico, which took the biggest hit when China started soaking up all the low-wage jobs in the world. After that, the industrial Midwest has to figure pretty large, especially in gutted Michigan. With real estate prices there below their 1992 lows, if there is a market at all, you know that doing business there costs a fraction of what it did 20 years ago.

 

I Hear They're Offering $2 an Hour Across the Street