Wednesday, October 28, 2015

The Future of NAFTA -- Is There One?

NAFTA is now 20 years old. Has it been good for the three countries involved: the U.S., Canada, and Mexico? Has it led to an improvement in the living conditions of the majority of persons living in each of the countries? Can any productivity improvement in the three countries be credited to the effects of NAFTA? These were proponent claims and promises at the time. Are these still the hoped-for benefits 20 years later?

One opinion: "NAFTA brought neither the huge gains its proponents promised nor the dramatic losses its adversaries warned of." (see reference 1)

Another: "Growing trade deficits with Mexico and Canada after NAFTA took effect reduced (U.S.) employment in high-wage, traded goods industries, resulting in a substantial loss of wage income for such workers. This contributed to growing inequality in wages and falling demand for workers without a post-secondary education, males in trade-related production, and minorities.....NAFTA has also hurt workers in Mexico and Canada in many different ways, as documented elsewhere in this report. Without major changes in NAFTA to address unequal levels of development and enforcement of labor rights and environmental standards, continued integration of North American markets will threaten the prosperity of a growing share of workers in the United States and throughout the hemisphere." (see reference 2, dated Sept. 2006 ).

So, if NAFTA was bad for the majority of people in each of the countries, then who was it good for? And, was it truly bad, or would continued protectionist and (here-and-there) isolationist economic policies in each of the countries have made matters even worse? 

Proponents argue that because NAFTA created rules for safer, border-crossing capital investment, so dollars and pesos could follow opportunity and spread wealth. Critics counter that the improved investment freedom increased instability for currently-employed workers, and shifted economic power and quality-of-life influences away from governments, and square into the hands of multinational corporations. They further counter that most of the wealth did not make its way to "the people," but only to the upper-most wealthy.

And so, the arguments continue.

But to simply matters a bit, NAFTA is a trade agreement in a corner of the world where political boundaries have become secondary to the hopeful benefits of economic cooperation between three adjacent and friendly countries. On the surface, the notion sounds like a fine one. 

However, today, multinational corporations are much more adept than 20 years ago at ferreting out opportunity and jumping continents to develop workforces, industries, and markets. Does that make NAFTA less relevant now than in 1993 as far as multinational corporations are concerned? Maybe so.

But NAFTA also helps define North America as a place where the rules are clear: Your money is safe; we're not a manufacturing dumping ground for the world; there are definite limits to the exploitation of labor and clear requirements for workplace safety; our countries respect each other and won't be unfairly played against each other.

NAFTA has its troubles. The EU even more and bigger troubles. But both are basically sound and good examples of multinational cooperation and of what someday "could be." Both are works in progress in hopes of very long-term benefits.

Some say NAFTA hasn't proven itself worthwhile.  Maybe 20 years isn't quite enough time.

reference 1: https://www.foreignaffairs.com/articles/canada/2013-12-06/naftas-mixed-record

reference 2: http://s2.epi.org/files/page/-/old/briefingpapers/173/bp173.pdf (page 24)

Thursday, October 15, 2015

The Next Recession

When will we have the next recession?  Nobody really knows for certain.  The better question may be how will be combat the next recession?  The Federal Reserve cannot reduce interest rates to a below zero percentage rate.

Some presidential candidates have suggested lowering corporate taxes.  That would definitely help by ensuring companies had more cash for expansion, but many politicians will not touch this for political reasons.  Also, it still may not result in enough job creation to offset the economic downturn of a major recession.

Does this mean that the next recession will be longer and more extensive than normal?  If any recession does have a normal time period, the answer may be yes.  The tools we use to bring an economy out of the economic downturn are already the being employed to prop up or subsidize the current economy.  So, what happens when this economy takes a turn for the worse and where would it be it we were not already “stimulating“ it?

Monday, September 28, 2015

Defense Spending Increase

Whoever the next president is going to be, this person is going to have to make a decision about defense spending and whether to increase it, decrease it, or maintain the current rate.

Donald Trump, a Republican candidate, has made increasing defense spending one of the pillars to his campaign’s platform.  In doing so, he was brought the defense spending debate to the forefront of the 2016 Presidential Campaign.

From 2010 to 2015 the total defense budget has deceased over 25% based on numbers from the U.S. Department of Defense (National Defense Budget Estimates).  If what is budgeted for FY2016 is included, it would be a 31% decrease over those 6 years.

The year 2010, was extraordinary, in that we were in the middle of 2 conflicts.  So, perhaps that 2010 number is an anomaly.  The question then becomes, have we cut back too far?  Have we gone from one extreme (spending too much) to another (spending too little) or have we just “righted the ship”?  Only time will tell.

Monday, September 21, 2015

Tag! Soon Artificial Intelligence Will Find You.

In May, 1997 the world's chess champion, Gary Kasparov, lost a 6-game challenge to Deep Blue, an IBM supercomputer. An advantage to the computer's programmers was the full history of Kasparov's previous public matches -- his style -- as well as that of dozens of other grand masters and their moves in various opening-, middle-, and end-game scenarios.

To give Deep Blue credit, its moves were the result of algorithm-driven analyses (e.g. how important is a safe king position compared to a space advantage in the center, etc.), according to the results of 700,000 or more grandmaster games. The machine could explore up to 200 million possible chess positions per second in this way. This wasn't just a memory exercise.
The rest is history.

Since then, developers have combined various forms of data (financial, scientific research, social, etc.) with application algorithms and massively parallel processing to aid human observation, pattern recognition, detection, forecasting, and decision making. Meanwhile, improved software and heuristic decision making have permitted much smaller dual I-Core microcomputers to perform as well as or better at chess than Deep Blue.
But, until recently, a computer's ability to truly "learn," that is, to write its own algorithms and rules according to data presented, has not been achieved -- and here comes the part you may not like....

You see, processing and working through mountains of data is no problem for computers these days. The problems arise when the rules (algorithms) become so complex for certain tasks that they just can't be written -- by a human. And, as it happens, identification of people and other objects by comparisons of characteristics or traits (for example, five pictures, same person, different pose) is an incredibly difficult set of algorithms to write.

Now, who might have access to those five mug shots of you, as well as your name "tagged" in each one? And who might have the same data on 50 million or more additional individuals? In a word -- Facebook. We and our Facebook friends have created a huge data garden from which to enable algorithm development via AI. 

Just wondering. How does that make you feel?

We at E.T.I. are looking forward to the day when AI in a supply chain gives us five more days notice on a rush order for a difficult part, or, when our AI can talk to your AI. Until then, from our point of view, caution is required on where AI is heading, who's taking it there, and whose rules they're following.

Tuesday, September 8, 2015

Bailouts

On August 14th, Greece received its third bailout since May 2010. The troubled country will get up to €86 billion ($95 billion) in rescue funding over the next three years.

This is the conclusion of a very interesting drama through late July and early August, which even included (in effect) a popular referendum to "vote down" a deal with the major Euro contributors/creditors (France, Germany, Britain) that included continued harsh economic austerity measures.

You've got to love the Greeks for their spirit. But three weeks of bank closures, credit card restrictions, and little or no cash was apparently enough to soften popular resolve, as well as that of their recalcitrant leader, Alexis Tsipras, the Greek prime minister.

And so begins the third bailout, which brings us around to that "b" word. What is a bailout?

In the case of the U.S. and the auto industry, a "bailout" took place to prevent collapse of GM and Chrysler -- and to prevent the huge social costs of large-scale layoffs by the automakers and their support industries. The "bailout" took place in the hopes that -- with some painful but necessary restructuring and loss prevention and some bona-fide improvements -- along with some authoritative oversight -- the companies would turn themselves around and once again become profitable.

Important -- the hope of a turnaround (if not confidence) was real. And the likelihood of a second or third bailout would clearly have been quite small. For the automakers who took the help, it was clearly make-or-break. And the deal was very much grounded in arithmetic, dollars, and cents.
Most would say that, in hindsight, that the U.S. Government gamble on "Government Motors" and Chrysler was a good one. If the payback has fallen a little short -- a matter of contention -- the shortfall is debatably much less than the economic and social costs of the automakers' (and their support industries') collapse.

Does such hope for recovery exist in the case of this third "bailout" for Greece? Does anybody really think so? The IMF isn't buying in, thus far. Will the result of this third bailout be simply a homogenization of the eurodollar, and an absorption of the debt some time in the future? Stock markets around the world barely bounced with the new deal announcement -- apparently it was already anticipated.

The true elephant in the room is China -- as investors in multinational companies everywhere watch their nesteggs tank once again. Apparently, the great minds guiding publicly financed companies and currencies have continued to bet on China's remarkable economic growth and the increasing demand for goods and services accompanying it. This "bet" on an economy appears to have been a shaky one.

Somewhere along the way, the free-market world has become consumed with the hope that its approach to finance (invest, grow, create true wealth, reinvest) would become so inculcated in the Chinese economy that our financial rules would supercede theirs -- whatever they are. This long-term hope may have been fueled by short-term sentiment -- "if we don't jump on the train, others will."

Suddenly, just a few years later, we're reminded that China is a communist country. Public policy is dictated. Power comes first; yuan, dollars, euros, yen and the like come somewhere down the line. There's no "Fed" that is independent of political leadership -- no signals, no hard rules. "Value" as we agonize over it in U.S. and Europe is a different animal in China.

The Chinese government's ongoing infusion of yuan to support its companies' capital-equipment investments, its infrastructure development, and many other ventures has been huge and no secret. Who knew when it would slow down or end? Who really understood the limits of China's investment in itself, or when its leaders might say enough is enough? But now that the rein-in has started, the free-market world is experiencing China's new and considerable economic power and influence.

ElectroTechnik Industries is privately held. Nevertheless, our companies benefit from healthy and real economic growth around the world. Nobody anywhere benefits from uncertainty and surprise -- especially as dealt out by the second-largest economy in the world.

Our complaint isn't that China devalued the yuan, which simply amounts to a sugar boost for its economic troubles. Our fear is that their leadership, in fact, has so little to lose for doing whatever they choose -- and that the "global economy" is ignoring this.

Greece may be burden on the EU. That's understood. The question is, who's bailing out China; and are we starting to do so already?

If so, on who's terms?

Monday, August 31, 2015

Visit Res-net in Paris!

What's the occasion? It's European Microwave Week 2015 starting Sunday, September 6 at the Palais Des Congres, in Paris. The event is actually made up of three separate but closely related conferences: the European Microwave Integrated Circuits Conference (EuMIC), the European Microwave Conference (EuMC), and the European Radar Conference (EuRAD). In addition, there will be a Defence, Security and Space Forum.

Res-net Microwave will participate in the EuMW Trade and Technology Exhibition, to be held Tuesday, Wednesday, and Thursday, September 8th, 9th, and 10th. They'll be providing information on Res-net RF & microwave attenuators, RF & microwave terminations, RF & microwave resistors, and diode detectors for commercial, military, and space applications.

Also highlighted will be Res-net's CVD diamond products, which handle both high frequency and high power in miniature product packages. For example, a Res-net 40 by 20 mil CVD diamond resistor operates up to 35 GHz at 20 watts; a miniature Res-net termination is specified at 26.5 GHz, 50 watts.

ETI Microwave Group companies Star Microwave (ferrite isolators and circulators for telecommunications) and Nova Microwave (high quality passive RF and microwave circulators and isolators) will also be represented.

Come see us at Booth # 144.

Monday, August 24, 2015

Feeling "Corrected?"

Over Thursday and Friday of last week, major stock indexes fell more than 10% from their recent peak. Commentators (calmly) urged investors to remain calm, that "corrections" such as these occur periodically. While additional factors were at work -- including a prevailing concern of a worldwide economic slowdown, China's decision to devalue its currency in the hope of making its products more price competitive appears to have triggered the quick decline.

Over the next few days, it will be interesting to see whether Vietnam, Indonesia, and other Far East countries follow suit and devalue their currencies in order to preserve their competitive positions with China -- which could make this all an exercise in ring-around-the-rosie. An actual correction could be still in the making.

Thankfully, ETI investor relations people aren't burning the midnight oil over this -- because we don't have any investor relations people. We have no stock. We're privately held.

If we have any "safe haven," it's in the confidence of our people, the true value of our products, and the strength of our relationships with our customers.

We like it that way.