E-letter: Odds on a positive direction

As you read this, our friends to the south are voting (finally). Should provide relief from their interminable cycle for a while. I’m guessing 40 days, 60 tops, and they’ll be back at it again.

So, now that the American election is over and we don’t have a clue who’s the next president, let’s take an overview of the market landscape and see what’s going on.

Kerry Knudsen
Kerry Knudsen

First, the Dow Jones Industrial Average has been steadily down for the last week-and-a-bit, blasting back up again yesterday. The talk on the pundit shows pretty consistently says the reason is because the Trump campaign is surging and the market had priced in a Clinton win, then responding with a positive, for Clinton, action by the FBI. Mostly the pundits are saying Trump would be bad for business. I wonder if anybody ever considers that stocks were invented as a gauge of a company’s production value? Now, they trade based on what they can sell them for, short or long. We have kind-of traded the value of a hard day’s work for baseball cards, with traders hanging on James Comey’s every word, and ignoring trends and profits.

Anyway, I don’t agree that Trump will/would be bad for business. I think the market is reflecting a fear of what will happen if Trump gets hold of the billions of dollars Obama is providing the brokers under the flag of Quantitative Easing. The value of baseball cards goes up in direct proportion to the wealth of the bidders.

Either way, I don’t agree the Dow is a bellwether. If the New York Stock Exchange was in Las Vegas instead of New York, they would call it The House. Of course, unlike Vegas, it has never gone broke.


For reference, the Dow consists of 30 companies: 3M, American Express, Apple, Boeing, Caterpillar, Chevron, Cisco, Coca-Cola, Disney, EI DuPont, Exxon Mobil, General Electric, Goldman Sachs, Home Depot, IBM, Intel, Johnson and Johnson, JP Morgan Chase, McDonald’s, Merck, Microsoft, Nike, Pfizer, Procter and Gamble, Travelers, United Technologies, United Health, Verizon, Visa and Wal-Mart. And it surprises nobody that manufacturing is poorly represented in an average of industrials.

Certainly, 3M, Apple, Boeing, Cat, Nike, etc., manufacture, but their profile exists more in the retail space. Compare that to:

1956: Allied Chemical, American Can, American Smelting, American Telephone and Telegraph, American Tobacco, Bethlehem Steel, Chrysler Corn Products Refining, Du Pont, Eastman Kodak Company, General Electric Company, General Foods, General Motors Corporation, Goodyear, International Harvester, International Nickel, International Paper Company, Johns-Manville, National Distillers, National Steel, Procter and Gamble Company, Sears Roebuck and Company, Standard Oil of California, Standard Oil of New Jersey, Texas Company, Union Carbide, United Aircraft, U.S. Steel, Westinghouse Electric, Woolworth.

At the end of 1896 there were 12 stocks in the average: American Cotton Oil, American Spirits Manufacturing, American Sugar, American Tobacco, Chicago Gas, General Electric, Laclede Gas, National Lead, Pacific Mail Steamship, Standard Rope and Twine, Tennessee Coal and Iron, and U.S. Leather.

To me, it’s interesting the degree to which our current “industrials” rely on consumers with money in their pockets to flourish. And small businesses seem to be cut right out of the loop when it comes to all aspects of the government economic activity except when it comes time to pay.

One last point on the Yanks. Trump is criticized by many of his business “peers.” Elon Musk, Mark Cuban, Jeff Bezos, etc., are cited by the Left as evidence Trump is a loose cannon. However, In the realm of alpha males, it would not surprise me if the biggest political donors are very nervous about being flanked by somebody that could affect their plans.

So my sense is that Trump might be positive for small business and Clinton not so much. Trump bad for Goldman Sachs, Clinton bad for taxpayers sans loopholes. We’ll see.


Moving on. Our building permits are in record territory, and have been for months. We tend to see that as a universal positive, since every house, apartment, condo, hospital, doctor’s office, Tim Horton’s and mall needs our products and installation. And the builder market may scoop up the lion’s share of the contracts for new construction, but it also adds energy for upgrades on starts, and “anything goes” in remodeling.

Canada’s position with raw materials is as good as it’s ever been, particularly with such renewable resources as timber. Even in hardwoods, where we simply can’t keep up with the States, we have a substantial supply and what we need from the States we can get. Depending on whether and if Trump gets hold of NAFTA, as he threatens. I’m guessing we can still get hardwoods, and there is no disputing that a trainload of walnut and oak from Pennsylvania costs less to transport than a shipping container to China for processing and the return trip. One day, that equation will fail. The same is true of marble, tile and other raw materials and components.

Labour will continue to confound the facts going forward. The unions – particularly the public-sector unions – will continue to demand more and produce less. They will follow the lead provided by cultures and governments before, and I hope and trust that we can correct the direction before we get the inevitable result. Historically, unions never have “enough,” until they topple the society upon which they feed.

We should be in a great position with labour. We have a substantial portion of post-graduation students that cannot find the jobs their school’s recruitment office promised. They may be overeducated and underperforming, and they may feel they are too good to work for manufacturing wages, but life’s pressures have a way of forging responsibility. Better to pay off a student loan at low wages than no wages. Besides, I have known nearly 20 years of the wood industry in Canada, and the vast majority of you did not set out to own or manage factories. Most of us, including me, came here in search of something with more meaning than what had gone before. And I dare say most of us found it.

We also continue to have a strong immigrant population, and that provides and will provide increasing demand, increasing fiscal resources, increasing labour resources and new ideas for design. Downside for Canadians – most of our immigrant countries see our idea as ludicrous that a “hard day’s work” is slightly over eight hours. Immigrants will do our work, but our young people need to figure hard about who’s going to pay their rent.

So my view from this day, where two (political) roads diverge in a yellow wood, to steal from Robert Frost’s “The Road Not Taken,” is that labour, economy and market are moving forward in a positive direction. I remain of the opinion that our small sector needs to unify with one political voice for the purpose of affecting our position in the political arena. Manufacturing needs to be protected by government to the same extent as we protect our agricultural resources, and for the same reasons. If we can do that, it will make all the difference.

Just to keep things fun, since our opinions don’t matter in the least, I predict two things: Trump will win, and the media will come up with exactly the wrong reasons why.


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