Thursday, April 14, 2005

Scroogeview: Technology and Productivity

Scroogeview: Technology and Productivity

Mr. Jones, aka My Old Merrill Pal, has been a successful broker, accountant and business executive. The manufacturing accounting package he promotes is a good example of the way the world is changing.

One of the poorly understood phenomenons of our time is the change in China. I find most people are surprised when I tell them that China has lost more manufacturing jobs than any other country in the past 10 years. I must admit that I have not looked up the actual figures but take the word of a good friend of mine on this point. However, it makes much sense that this would be the case when you think about the process of industrialization.

In the same way that spinners and weavers in the cottages of England were left unemployed in the 1700's, the Chinese have lost a lot of jobs to industrialization. Productivity growth has been super strong. American industry has been forced to adapt quickly as well. Productivity is such a powerful concept. The law of substitution and the concept of productivity are under-appreciated. Inflation is not nearly as bad as the alarmist would have you believe. Therefore interest rates, both long and short, do not need to go up as much as most market prognosticators would have you believe.

Low interest rates and low inflation rates are part of the incredible market opportunity that lies before us. Jump on board the bucking bull market before the next phase kicks-in. A big surprise move to the up-side is going to happen; it will be dismissed by most as part of the back and forth and forth and back moves of recent months. It will take a break out of significant proportion before short-term traders realize they are missing the move. This market is going to be chased to high levels once the move gets started.