IN-DEPTH: TRANSCRIPTION - UnderTheLens - 02-26-25 - MARCH - A Sustainable US Competitive Advantage

 

SLIDE DECK

Download Slide Deck

TRANSCRIPTION

SLIDE 2

Thank you for joining me. I'm Gord Long.

A REMINDER BEFORE WE BEGIN: DO NO NOT TRADE FROM ANY OF THESE SLIDES - they are COMMENTARY for educational and discussions purposes ONLY.

Always consult a professional financial advisor before making any investment decisions.

SLIDE 3 – COVER

As we have well documented, the US faces unprecedented economic and financial challenges as the national fiscal debt soars seemingly out of control.  However, there is a solution if the US is to take bold and decisive action.

The window is rapidly closing; the time short; and the risks are not insignificant – but it is possible!

SLIDE 4

The US must implement a national policy approach that will place it on the path to delivering a sustainable competitive advantage for the nation.

This sustainable competitive advantage must deliver performance that will be consistently better than its competitors over the longer term.

SLIDE 5

This sustainable competitive advantage must have unique strengths that will be difficult for competitors to replicate.

SLIDE 6

This subject is important enough that we will do it in a two part series accompanied by expanded materials in out weekly newsletter.  Hopefully, this effort will aid you in building an investment portfolio that will likewise perform and the results also being sustainable.

In Part 1 we will cover the areas outlined here, where we will focus on what and why something must be done - as well as what it will take.

SLIDE 7

In Part 2 we will focus on how it can be done!

The approach is different than anything previously attempted by the US but actually builds on what is already in place but which needs to be properly organized, structured and financed.

SLIDE 8

We will start with reinforcing some critical understandings and appreciation of what strategists will call the Situational Analysis.

SLIDE 9

You have likely seen this slide before showing the growth of the US National Debt in red versus the US economic GDP growth in turquoise?

You will notice the inflection point at the bottom of the chart marking the increased rate of growth of the National Debt in 2000, as a consequence of the implosion of the Dotcom Bubble and the monetary reflation of the economy.

You can see after the 2008 Financial Crisis the US was forced to implement a whole new untested monetary process dubbed Quantitative Easing or QE.

Both assisted in keeping the US from falling into a serious economic depression.

SLIDE 10

At its core the US faces two central issues:

    1. The US Consumes more than it Produces and has for decades, resulting in increasingly destabilizing global twin US deficit funding bleeds.
    2. US Deficit Spending no longer generates the GDP growth it once did. Specifically Debt Growth no longer produces economic growth at a sufficient rate.

What is happening now that few seem to realize is that the ERA OF KEYNESIAN STIMULUS GROWTH IS OVER!

  • Specifically, in the US it now takes as much as $2.50 of New Debt to produce the $1 of economic growth.
  • In the US it now takes as much as $1.50 of Deficit Growth to produce $1 of economic growth.
  • Velocity of Money has become chronically smaller than Money Supply growth resulting in further GDP headwinds.
  • The latest Q4 GDP reports those numbers have deteriorated further:
    • In Q4 it actually took $5.8 of Debt to generate  $1 of GDP growth
    • For the whole year of 2014 it took $3.9 of Debt to generate $1 GDP growth.

When I heard the newly elected German government announce earlier this week announced they will immediately initiate fiscal deficit spending to re-ignite the troubled German economy I found it astounding how poorly educated and outdated the political class has become.  The bind leading the blind.

SLIDE 11

Each of the two US problems requires a different approach but most critically need to be implemented in concert with each other.

The solution to problem one is that the US must rapidly RE-industrialize.

  • The US lost 54, 000 Manufacturing Facilities after China’s WTO entry in 2002
  • We went through massive Off-shoring, Down-Sizing and Right-Sizing in attempts to halt this exit but it was too little too late
  • That exit did not halt and we have now lost over 70,000 manufacturing facilities. (Example: RI Wind Blade Plant)
  • 5% of 70K = 3500 new facilities
  • Even with new technology we keep losing manufacturing facilities and jobs
    • I witnessed a major sailboat manufacturing facility in RI covert to manufacturing wind turbine blades. The company hit the market perfectly and the growth was well needed in the area. With the business growing they then shut down the entire operation and moved it to Mexico! The problem has not gone away
  • If we could only “reshore” 5% of the lost facilities this would mean 3500 new factories.
  • This is how you return jobs to America

I have already done a couple of videos on this subject which I will leave our new subscribers to review.

SLIDE 12

What I want address in this video is how does the US address problem #2 – How does the US create sustainable Economic Growth in an increasingly highly competitive global world economy?

SLIDE 13

Currently US exceptionalism abounds! But is it sustainable?

As DeepSeek recently illustrated technology leadership can change abruptly with breakthrough new approaches and discoveries. This is to be expected. The US must become the disruptor – not the disrupted!

SLIDE 14

We might want to take a step back and look how strategy and industrial capture has been working for the last 40- 50 years which I have often referred to as Modern Mercantilist Strategy.

This form of Mercantilism was initiated by Japan in the late 70’s and then “tuned” further by China in the new millennial. How it works is:

  1. A competitive country sells competitively priced products into the US in an attempt to capture market share. They can do this fairly because they have an advantage such as labor costs or they can do it unfairly through dumping, state financing, minimal profit and ROE targets or other creatively disguised trade policies.
  2. The competitive country then returns the Profits to the US to Buy US Bonds
  3. US Bond Demand Drives down Interest Rates
  4. Lower Interest Rates Mean Consumers Can Borrow more to Consume
  5. Hold Growing Currency Reserves in US Dollar then also strengthens the US$ giving an exchange advantage.
  6. Without stopping this cycle a competitive country can eventually bleed a target country try despite the rules or apparent enforcement of the WTO.

SLIDE 15

This is what has been steadily happening to the US.

Today, increasingly Asia and China specifically are being forced from just being the low cost provider as their labor costs rise, to moving up the value ladder to higher priced products which traditionally pay higher salary levels.

There are plenty of countries already further squeezing the low end.

This is moving up the value ladder is not speculation but the articulated strategy of China’s Xi Jinping.

This is a major threat to the developed nations which former Treasury Secretary Janet Yellen specifically made a trip to China to discuss the global ramifications – her arguments felon deaf ears!

SLIDE 16

I need to get a little tough here in my comments because the harsh reality is exactly that.

Never under appreciate that:

“The Chinese Communist Party or CCP is effectively an organized crime organization.

It is neither elected nor supported by the people

It holds power solely through force

China plays by its own rules!

China is not a Competitor but in reality an Enemy

It is China who has made it extremely clear in state media that they are at War with and preparing for War with the US.”

SLIDE 17

As a consequence Trump finally brought the hammer down officially last Friday (02-21-25) with two Executive Memorandums strongly directed at China.

These Presidential Memorandums reversed many of the Biden’s Executive Orders including Preferred Nation Status for China and the cancellation of the Department of Justice China Initiative.

Just to highlight a few of the key directives:

  • The Committee on Foreign Investment in the United States (CFIUS) will be used to restrict Chinese investments in strategic U.S. sectors like technology, critical infrastructure, healthcare, agriculture, energy, raw materials, and others.
  • The United States will protect farmland and real estate near sensitive facilities, strengthen CFIUS authority over “Greenfield” investments, and restrict foreign adversary access to U.S. talent and operations in sensitive technologies.
  • The United States will establish new rules to curb the exploitation of its capital, technology, and knowledge by foreign adversaries such as China to ensure that only those investments that serve American interests are allowed.
  • The Trump Administration will consider new or expanded restrictions on U.S. outbound investment to China in sensitive technologies, including:
    • semiconductors,
    • artificial intelligence,
    • quantum,
    • biotechnology,
    • aerospace,

… and more, to stop American funds from supporting China’s Military-Civil Fusion (MCF) strategy.

  • China is exploiting our capital and ingenuity to fund and modernize their military, intelligence, and security operations, posing direct threats to United States security with weapons of mass destruction, cyber warfare, and more.
  • Chinese hackers have repeatedly targeted U.S. entities, including recently breaching the Treasury Department’s CFIUS office, the entity responsible for reviewing foreign investments for national security risks.

SLIDE 18

It goes on including further directives in the second Executive Memorandum encouraging Foreign Investment while protecting National Security loopholes that are blatantly being taken advantage of.

SLIDE 19

Many of these Directives are intended to stop what is already happening which is allowing the Industrial Capture of US industries.

A prime example of the mistakes being made can be seen with the recent spat under the Biden Administration concerning US Steel.

  • In 2022, China built 800 commercial ships, while America built just one.
  • Ships take a lot of steel to produce and this sort of demand shortfall is the sort of thing that forces US Steel to be "in-play" for a foreign takeover.
  • You can't maintain being a great nation if you can't cost effectively produce your own steel!
  • The Biden Administration didn’t see the takeover of US Steel as a threat to national security.
  • Meanwhile the Congressional Budget Office (CBO) released its independent analysis of the U.S. Navy’s shipbuilding plan, warning that the number of battle force ships will decrease from 295 today to 283 ships in 2027, reducing the fleet’s firepower.

SLIDE 20

  • The CBO predicted that over the next 30 years, “...the nation’s shipyards would need to produce substantially more naval tonnage than they have produced over the past 10 years. The rate of production of nuclear-powered submarines, in particular, would need to increase significantly.”
  • The Shipyard Accountability and Workforce Support (SAWS) initiative that would have allowed U.S. shipbuilders to invest in their workforce and suppliers, stem the rising cost of submarine production through technological innovation, and allow 17 more boats to be built.
  • SAWS achieves this by using taxpayer dollars more effectively without Congress having to appropriate another nickel.
  • SAWS represents an immediate, comprehensive approach to revitalizing American shipbuilding. On Day One:
    • It will provide wage increases to 45,000 shipyard workers across the nation while smartly using authorities in the 2025 National Defense Authorization Act to fund both these wages and critical, cutting-edge shipyard technologies, helping our major primes and new market entrants build faster, smarter, and more efficiently.

Through streamlined processes that will speed up ship and submarine production, along with careful resource management, SAWS is projected to save taxpayers over $20 billion while strengthening our industrial base and has a real chance to both fix our current issues and make a technology-driven manufacturing leap over the CCP ahead of the looming 2027 Pacific timeline.

SLIDE 21

  • The Biden administration nixed the Shipyard Accountability and Workforce Support (SAWS)
  • Instead, Biden asked Congress for nearly $6 billion dollars as a Band-Aid to fix the problem.

WHAT WAS NEEDED

  • In his first week, President Trump picked up the ball the outgoing administration had dropped and sent a signal to the CCP that he will not wait to rebuild American manufacturing strength.
  • What we needed was the leadership that understands the urgency of our challenge and is willing to take bold action to restore being a world’s industrial superpower – and ensure that the 21st century remains an American century.

ACTION

  • President Trump’s pick for secretary of defense, Pete Hegseth, recognized the urgent need for shipbuilding in his confirmation hearing, signaling industrialization as a top priority of the next administration. In short, we need many more ships, and we need to build them now.
  • This week Trump met with the newly elected Prime Minister of Japan and agreed to an investment partnership with Japan for US Steel.

SLIDE 22

There was also another recent National Security brouhaha regarding Chinese owned TikTok

  • TikTok captured the US youth audience quietly, almost overnight
  • Industrial Capture had already worked and was growing
  • As a Chinese controlled product TikTok was only then recognized as a threat to the US for national security reasons

WHAT WAS TO BE DONE?

  • It was in the process of being banned from the US.
  • Trump’s actions on the first day of his Presidency were instructive, especially since he initially was recognized for flagging the issue and then raising it with the Biden administration.
  • Trump has extended the Biden ban by 75 days to allow the Trump Administration and the Chinese based owner ByteDance, the opportunity to restructure with a 51% controlled US owner with firm control of the operating algorithms.

SLIDE 23

The AI industry was given a “Sputnik” shock moment with China’s DeepSeek making its announcement.

  • Suddenly, China’s DeepSeek changed the rules regarding CAPEX expenditures for Data Centers, total costs and time to market for AI,
  • Potential leap frog technology is the name of the AI Arms race.
  • The Chinese High Tech sector has exploded higher in the last few weeks
  • We featured this change in last week’s newsletter with an extensive chart pack

SLIDE 24

Studies by Goldman Sachs Global Investment Research have shown that the global adoption of AI which is expected to significantly boost labor productivity, will, also drive economic growth - potentially leading to substantial increases in GDP.

This is a game of productivity through the adoption of application usage.

This is a war you play to win – is more important than short term Profits!

It is about:

  1. Productivity
  2. Innovation and
  3. Disruption

SLIDE 25

It must be seen as a modern day “Arms Race”.

  • It’s a war that no country can lose because it’s more important than profits.
  • You have to play that war to win - not for Profits.

CHINESE

  • The Chinese are a bit behind in the chips, but they’re ahead in the applications.
  • The Chinese play is going to be chips—very inexpensive chips embedded into manufactured goods.  The Chinese produce more.
  • The Chinese are unbelievably good at making things inexpensively.
  • They own 33% of all world-manufactured goods, which is more than the combined US, German, and Japanese manufactured goods.
  • You’ll see Application Robotics, Androids (new terminals) and Humanoid technology

SLIDE 26

Large scale Beachheads are being announced regularly.

STRATEGIC BEACHHEADS

1- ALIBABA

  • Plans for 1 Million new U.S. jobs. Were announced by Jack Ma the head of Alibaba. He announced that Alibaba’s expansion would focus on products like garments, wine and fruits, with a special focus on trade between the American mid-west and southeast Asia.
  • Alibaba is also splashing more cash, with additional plans to spend more than $53 billion on AI infrastructure.

2- APPLE

  • Last week Apple announced plans to invest $500 billion in the US over the next four years,
  • Apple plans to hire an additional 20,000 workers in the production of AI servers.
  • President Trump’s tariffs on goods imported from China are probably a major catalyst behind the move.

SLIDE 27

Currently Trump’s focus on Tariffs is hinting at the fact he has designs on reshoring a large amount of the foreign auto industry.

  • Trump was elected on delivering job growth
  • The automotive Jobs are the low hanging fruit.
  • The Primary Targets:
    • Canada
    • Mexico
    • EU
  • 25% Tariffs:  Steel and Aluminum (Basic Material)

SLIDE 28

What you are seeing with these recent examples is are glimpses of an unfolding National Industrial Policy.

SLIDE 29

One thing America had reinforced during the Cold War with the USSR is that centralized planning has never proven to work - other than possibly in War.

  • Maybe the US isn’t at War with China (technically) but the US does need a better strategy or minimally a coordinated industrial strategy!
  • Biden demonstrated with the mandated implementation of Climate Change programs and the New Green Deal that governments can be counted on to simply through money at a problem with terribly flawed implementation plans. Like a full scale EV automotive direction completely unsupported by a national network of charging stations.  Minimally an incented and planned Hybrid bridge may have been more practical?
  • The US has found that Organic growth by the industry based on pure research efforts funded by the government has proven somewhat effective (DARPA) ….  but slow!
  • Is there a better hybrid solution??   The answer is yes!

It’s about a ..

MODERN SOLUTION:  THROUGH INVESTMENT DRIVEN PARTERSHIPS!

  • Shared Risk
  • Shared Rewards

SLIDE 30

It is about an INVESTMENT DRIVEN v RESEARCH FUNDED approach

  • A Strategic Investment Driven Industrial Policy is about harnessing Investment and not government spending.
  • Government money is a part of the Investment and not an expenditure – that is it has a definable potential payout.
  • The good news is the “target” areas are underway with established US leadership
  • The goal today is not picking the area but rather accelerating the biggest potential areas
  • The better the “horse” performs the more races you enter him in. When his performance lags you go to your stable
  • The US has a big stable of race horses to compete with:
    1. Artificial Intelligence (AI)
    2. Quantum Computing
    3. Genetic Engineering
    4. Bio-Tech
    5. Nano-Tech
    6. Renewable Energy
    7. Neural Sciences
    8. Humanoid Robotics

SLIDE 31

Why A Large Scale Investment?

  • In the PAST
    • The “Space Race” Against Russia
      • 1957 Russian Sputnik Satellite
      • 1958 US responded with the creation of NASA
      • Next 3 decades the US invested so aggressively in missile technology that Russia couldn’t keep up.
      • Russia went bankrupt and collapsed
      • US maintained its global preeminence for another 60 years
    • TODAY
      • The “AI Arms Race” Against China
        • China leads in 5G Technology
        • China just set the world on edge with DeepSeek
        • Chinese Technology leaders are seeing exploding stock prices from global investment.

…. ??

SLIDE 32

Why is it a Second American Strategic Imperative?

  • MADE IN CHINA 2025 – Stage 1 of China’s 3 stage, state-led program with the ultimate aim of China becoming the leading manufacturing power by 2049
  • It established “Nine Priority Tasks” – these are:
    • Improving manufacturing innovation
    • Integrating Technology and Industry
    • Strengthening the Industrial base
    • Fostering Chinese Brands
    • Enforcing Green Manufacturing
    • Promoting Breakthroughs in 10 Key Sectors
    • Advancing Restructuring of the Manufacturing Sector
    • Promoting Service-Oriented manufacturing and manufacturing-related service industries
    • Internationalizing manufacturing

10 KEY SECTORS TO BE PROMOTED WOULD BE

  1.  Next Generation Information Technology
  2. High-End Numerical Control Machinery & robotics
  3. Aerospace & Aviation Equipment
  4. Maritime Engineering Equipment & High-Tech Maritime vessel manufacturing
  5. Advanced Rail Equipment
  6. Energy-Saving &New Energy Vehicles
  7. Electrical Equipment
  8. Agricultural Machinery & Equipment
  9. New Materials
  10. Biopharmaceuticals & High-Performance Medical Devices

SLIDE 33

America is Under Investing in a Major Way

  • The US invested 8X (800%)more in R&D than China in 2000
  • By 2017 the US only invested 10% more.
  • Chinese R&D investment has grown an average of 17.4% since 2000
  • US has grown on average by only 4.3%
  • This suggests that over the last eight years since 2017 (17.4 – 4.3) China has been advancing at a13.1% advantage each and ever year!

“China may have already surpassed the US in total R&D expenditures at some point in 2019”

Julia Philips, Chair of the National Science Board’s Science Policy Committee

“We will see more technological change in the next 10 years than we saw in the last 50 years. We have been falling behind in that competition. Decades ago we used to spend 2% of our GDP on R&D. Today. We spend less than 1%.

President Joe Biden

SLIDE 34

So what will it take?

SLIDE 35

1- it will take REAL LEADERSHIP

VISIONARY LEADERSHIP

BOLDNESS OF QUEST

THE HARNESSING OF A DIVIDEDED NATION

Such a person is unusual – therefore we can expect the approach to be unusal

Thinking outside the box takes courage.

But the real courage may need to come from the electorate as change is un-nerving!

2- IT WILL ALSO TAKE A NEW WAY

SLIDE 36

This is what we will talk about in Part 2

SLIDE 37

It will require knowing How It can Be Done!

It will taking being Investment Driven

Employing new methods such as a US Sovereign Wealth Fund

..and using new global cross border tools such as Crypto Currencies

Trump said during the campaign he wanted to eb the “King of Crypto”! We may soon find out what he meant.

He announced the Sovereign Wealth Fund two weeks ago to the excitement of my colleague Richard Duncan who I already wrote to you about his work and meeting in Washington.

SLIDE 38

I would like take a moment as a reminder

DO NO NOT TRADE FROM ANY OF THESE SLIDES - they are for educational and discussions purposes ONLY.

As negative as these comments often are, there has seldom been a better time for investing.  However, it requires careful analysis and not following what have traditionally been the true and tried approaches.

SLIDE 39

Do your reading and make sure you have a knowledgeable and well informed professional financial advisor.

So until we talk again, may 2025 turn out to be an outstanding investment year for you and your family?

SLIDE 40

I sincerely thank you for listening!