Private Markets Week in Review: American Manufacturing and Vampire Squid

News media this week exposed two significant events: a number of reports about American manufacturing and jobs, indicating a very good potential investment opportunity in the industrials sector, and the resignation letter to end all resignation letters penned by Greg Smith upon his departure from Goldman Sachs.

Manufacturing in America

Based on the four pieces reviewed this week, American manufacturing may be on the upswing and is poised to be a lucrative investment strategy. Jobs are growing, we have a glut of middle class workers looking for work, Chinese labor costs are rising, and American manufacturing is more profitable when compared to foreign competitors.

Jobless claim fall, manufacturing holds up – Reuters
The most notable stat in the jobs report released this week was that the jobless claims rate fell to a four year low. Looks like the economy could finally be pulling back. Also notable was that activity in the Northeast actually rose.

How the Tractor (Yes, the Tractor) Explains the Middle Class Crisis – The Atlantic
The week’s deepest and most intriguing article. The Atlantic piece highlighted how changes in technology, ie the tractor in the early 1900s, displaces mid-career workers into other industries. Previously we had a robust industrial sector for the displaced farm workers, but overseas outsourcing has left our middle class jobless.

By 2015, manufacturing could be just as cheap in US as China – rising wages cut advantage – Economist
When you connect the Atlantic piece above with the rising price of labor in China, an argument can be made for a rebound in American industrials. The Economist piece pulls out data that shows US manufacturing costs could be directly competitive within three to five years.

Sales Go East, Margins go West – How Asia and the US switched places over the last 15 year – Business Insider 
The Business Insider piece highlighted two charts from a CITI report showing that while most of the revenue and volume from manufacturing has moved to Asia, most of the profit has actually shifted to the US. Put this together with the previous two pieces and there’s an exceptionally interesting potential for investments in the US.

Goldman Sachs Resignation

This was the single most explosive news in the financial world for the week. While we didn’t learn anything unexpected, but it caused quite a bit of buzz in the industry.

Our Clients are Muppets – the original resignation letter – New York Times 
Greg Smith, an executive director at Goldman Sachs, penned one of the most amazing resignation letters in recent memory. He revealed that some employees refer to clients as muppets and the vampire squid is really only after money whether or not it’s good for the client. Interesting but not entirely unexpected, especially with last week’s El Paso – Kinder double dealing news.

The Muppets ARE Goldman Clients – KPCC
The day after the Greg Smith explosion, illuminating that clients are called muppets at Goldman Sachs, Matthew DeBord at KPCC discovered that the Muppets actually were clients of Goldman Sachs a few years ago. Jim Henson was advised by Goldman when he tried to buy them back in 2003.