The first industrial revolution saw the creation of many incredible technologies that changed the very face of the planet. Today, with the advent of 3D printing, globalization and manufacturing, we are beginning another one. How will this change the face of the planet in the 21st century?
The P4Capital executive team investigates.
Good morning listeners! Here at Planet4IT we’re always saying we are in the midst of the Digital Revolution. But how that affects other areas of commerce is something we’ve never truly examined. Today, the P4Capital executive team explores the concept of the next Industrial Revolution.
Jim: Today’s topic is about the resurgence of manufacturing in North America and how it will affect future wealth management portfolios, specifically with the billions if not trillions of dollars in the baby boom portfolios in this decade.
Archana: The manufacturing industry has over the years definitely struggled, but we are seeing sure signs that the industry might be in for better days ahead. One sure way how the manufacturing industry would be trying to make a comeback would be the use of technology. And creating solutions that are not only faster, and probably cheaper but also offer a greater security.
Shaheerah: For example Citigroup has been very big in the Asian private banking and wealth management space. And this is because they can offer very high level service to those who put in at least 10 million dollars or more in investment. And this is because of all the heavy investment in technology, and they’re now able to provide very sophisticated financial at relatively low-cost to customers. So obviously fees across the industry are falling and becoming more transparent, and because of this, the banks are now to offer their online wealth management services, and invest in more online systems that will provide sensible advice at low costs.
Jim: With manufacturing returning to North America and it’s returning in a different composition, just go with what Archana had mentioned right there for a second. Archana had mentioned that there’s aluminum coming into the product set, so that means just through that whole raw material and resource piece, there’s going to be companies that are going to create jobs and wealth among themselves, so they should be part of a portfolio. The harnessing of wind again, driving down the overall cost of power so that will affect maybe some of your power producers, that are your natural oil and gas ones, but also increase maybe more of your natural power ones which are who own the wind turbines and stuff. In the 20th century, a huge amount of wealth generated out of steel manufacturers and all the raw resource providers, all those companies went from zenith of wealth to basically bankruptcy, and they did it relatively quickly over two decades. So if I owned a stock and was trading for 20 dollars, and that stock then went, within 20 years, went from 20 dollars to zero dollars. If I held that in my portfolio and invested that into 5000 shares, and there was 20 dollars that’s 100,000 dollars. Not only did I not get 100000 plus 7% return, I went the other way – it went into zero dollars. So now my 100,000 dollar investment plus the compounded effect of 7% has now turned into zero. That’s a huge, huge hole in my portfolio. Again, does that make sense for everybody?
Jeremy: Well, what do you think the reasons were why American and Canadian manufacturing failed over the last 20 years?
Jim: High cost of living. Absolutely. The number one thing that anybody can look up quickly is known is that when General Motors went bankrupt in 2008, at that point in time before they put one nut on one bolt, each car cost them $11,000 dollars in union obligations. Think of Greece, except think of it in the auto industry. So Ford, Chrysler and General Motors basically had every car being produced at $11,000 before the process started. What happens of course is that cost is now by Autos being produced parts of the world, and the rise of the Japanese, the Korean and the German Autos they over took North America so they sold less product.
Jeremy: Yeah, you’ve got about $4,000 worth of health care in each GM car too. Not sure if that’s part of the 11,000 or not, but that’s a stat that I heard.
Jim: Yeah. It’s outrageous. Either 11,000 plus 4,000 or to just have 4,000 rolled into the 11,000. What that means to the cost of a car, if you will, those costs are now driven out. You can now produce a car in North America with maybe, 2,000 – 25,000 of kind of worker obligations through benefit and pension plan obligations. That’s a dramatic drop in itself. If you would have bought a car in 2008, and if you went and bought a car in 2015, the actual absolute cost is that it’s way less now than it was in 2008 if you compound some inflation in there, because it’s virtually the same price. And the Acura that was sold in 2008 costs $40,000 all in, go into any auto dealership right now and you can get yourself a first call Acura all loaded in – same price, $40,000.
Jeremy: I’m pretty sure that’s a Japanese car Jim.
Jim: Pardon me?
Jeremy: I’m pretty sure Acuras are Japanese.
Jim: Laughter. Sorry. I should have used a Chevy. Laughter. Think about it? All those Chevy’s, with taxes, they cost 15 – 16 thousand dollars.
Jeremy: That’s a good deal!
Jim: You couldn’t buy a car, a GM or a Chevy, which is one of their divisions, or a Ford or Chrysler for that money just six or seven years ago.
Archana: Talking about automotive, but just in terms of the recent initiatives that governments are taking just to sort of get manufacturing back on the map, the US in fact in the beginning of 2015, Obama announced the creation of something called manufacturing, innovation hubs. And these are essentially consortiums of companies, non profits, R and D labs, all brought together with the common goal of investing in new technologies and bringing back manufacturing into the current map. And also, another point to be noted here, even in Canada, the drop in oil prices, the softer dollar, obviously the drop in oil prices relates to the weakened ability of the western energy centre. Central Canada might become much more in play this year with the rise of the manufacturing sector.
Jim: And again, following completely on those facts Archana, are that if I’m doing a forward portfolio management, I want to know who those companies are involved with in those innovation centres. I want the successful ones to be part of my portfolio. Just one even thinks of our industry technology, you imagine just 10 years ago, and adding Google, or Facebook, they hadn’t even been out in the public forum for 10 years, but imagine being able to buy them in their early days. Think of what that would mean to your portfolio today. Well, just fast forward to today – who are those companies that are going to be successful are those innovation centres that are being boosted by the facts of a complete new way of manufacturing? I want them in my portfolio right now, and I want to get rid of the oil, the natural gas. Wildcatters that have already crippled Alberta as we speak.
Amanda: That was the P4Capital team investigating the concept that the human race is in the middle of another Industrial Revolution. Want to know more? Check out our website at http://www.planet4it.com Thanks and see you next time.