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The Daily Reckoning | Monday, April 23, 2012 A closer look at China's shrinking manufacturing advantage, Readers weigh in on despair, the state and parboiling frogs, Plus, more from Elizabeth on the Bonner family's trip to Argentina... ................................................................................................. Look At This, While It's Still Legal The day is coming when the recommendations you'll find at the page below may very well be against the law.  For now, the window of opportunity is open, everything you're about to see is legal. Will that be the case after the next election, or even next month?  Are you really willing to take that risk? The risk that everything you have could be taken away by a system desperate to maintain control?  Click here to start protecting yourself today >>  Despair and Parboiled Frogs Your Fellow Reckoners on the stuff that matters Joel Bowman Joel Bowman, reporting from Buenos Aires, Argentina... As promised in this space last week, we've selected an "editor's choice" reader mail from the Daily Reckoning inbox today. You'll find it below...along with a handful of other musings from our Fellow Reckoners. Let's begin...  First up, Reckoner Kevin B. writes in with a submission for our permanent portfolio "Group Research Project." (If you missed Addison's original article on the subject, you may wish to read it here.) Reckons Kevin...  These are the five choices I would make: HYB would receive 20% (New America High-Yield Bond Fund); CEF would receive 20% (Central Fund of Canada); CNY would receive 15% (Market Vectors Renminbi Fund); MOO would receive 20% (Market Vectors Agribusiness Fund); SPY would receive 25% (Market Vectors S&P 500 Fund). I anticipate that the gold and silver in Central Fund would protect in case of severe inflation. If we have a recession, then I expect the income from the bonds would become even more valuable. If the dollar is displaced as the world's reserve currency, I expect China will take its place. I also expect that farmers will make a fortune over the next decade, so I want to ride their wave. And if we have some inflation, then I expect large-cap stocks will act as a proxy for [that] inflation, and will actually produce earnings.  DR: Remember, you can still write in with your own "permanent portfolio" submission. We'll be featuring a selection of them in upcoming issues.  Next up, Reckoner D. Smith writes in response to our bitty missive on taxeslast week...  Doesn't surprise me that Oliver Wendell Holmes should come up with a humdinger like the quote on taxes attributed to him. ["Taxes are the price we pay for civilization."]  Here's another one from that SOB: "Truth is the majority vote of that nation that can lick all the others."  And he was a Supreme Court justice! Things were really, really rotten quite some time ago in the Republic.  Switching gears, Reckoner Lydia P. writes in with a few kind words...  First allow me to say Thank You for Reckoning!  It's more than just a thank you. I have now started emailing your articles to friends and family who haven't yet "noticed" what is actually happening, or in some cases seem to know but won't fully acknowledge it. This is the denial stage. I even have one friend who still believes that the US gov't cannot, or will not, ever do anything to harm its citizens. After all, this is Amerika, right? She believed Bush was good for us, but she absolutely hates Obama. For decades I've not trusted any of them. They have all done their share of harm.  Please live long and prosper and always tell it like it is. My hope is that one day, we as a nation will wake up fully and stop this madness, for my sons' sakes and the sake of future generations. Keep eyes wide open in front, and learn how to evolve to have eyes in back.  DR: Thanks! Astute Reckoners may have noticed a small but very important change made to the footer of our daily missives. We are now publishing under the Creative Commons and, as such, are free to encourage the sharing of our articles. Sharing is learning, so please, in the words of acclaimed novelist, Paulo Coelho, "Pirates of the world unite and pirate everything I've ever written!"  Next up, this one comes from the virtual pen of 70-year old Vietnam veteran and Fellow Reckoner J. Hall...  Many thanks to Jeffrey Tucker for the article "Despair and the State." He has so poignantly addressed the secondary effects of war unleashed by the psychological trauma brought home from the battlefield. Its impact reverberates through friends, family and society.  Suicide is obviously the most tangible, shattering reality while the unleashing of anger associated with PTSD slowly releases its venom on the nation's psyche. The latter impact, while less calculable than suicide, is perhaps in totality even more potentially destructive to society and culture.  Thank you Mr. Hall. And thank you to all who wrote in with thoughts and comments. While we can't possibly publish (nor respond to) every email, we certainly do read and enjoy them all.  And now, finally, for this week's "editor's choice" email. It comes from Fellow Reckoner, Raff G., who piqued our own anarchistic interests when he wrote...  The great Aristotle summarized 2300+/- years ago the essence of what many of you are saying: "Republics degenerate in Democracies and die in Tyranny".  His words were expanded and at the same time concised in what, I think, are the truest word ever spoken in defense of Liberty for man. These words come from Cicero, then writing in the dying days of the Roman Republic. With Julius Caesar's grab for power imminent, he said:  "The individual has only ONE enemy, the STATE!"  Apparently this was the statement that sealed his fate on orders from Marc Anthony.  I personally see exactly what you're saying, and I know the source of my grief. Many people are like the proverbial frog in a pot of cold water over a stove, where the heat is raised one degree at the time, parboiling the animal without his awareness.  DR: We'll be in contact with Mr. Raff to offer him a complimentary one-month trial to Addison's Apogee Advisory.  We assume Reckoner Raff has read Albert Jay Nock's indispensible work, Our Enemy, the State. We find it difficult to recommend it too highly.  "Nock was a prominent essayist at the height of the New Deal," explains Jeffrey Tucker, executive editor of Laissez-Faire Books, describing the (counter) intellectual backdrop at the time. "In 1935, hardly any public intellectuals were making much sense at all. They pushed socialism. They pushed fascism. Everyone had a plan. Hardly anyone considered the possibility that the state was not fixing society but destroying it bit by bit."  The works of Albert Jay Nock are among a growing virtual library available to members of the Laissez-Faire Book Club. The project is a direct response to the ever encroaching state and aims to help members share ideas about freedom in order to further its noble cause.  "The more aggressive the government becomes in restricting our day- to-day activities," writes Laissez Faire Books publisher Doug Hill, "the more important this project becomes."  If you're interested in joining, we recommend you check out the array of benefits inside. Charter membership is still available here, along with a special report, penned by Mr. Tucker.  And now, it's on to today's feature essay... The One Retirement Plan Obama Can't Touch If you've already retired, or want to retire soon, I urge you to watch this video presentation before we have to pull it down.  This "Secret $200 Retirement Blueprint" shows you step-by-step how to grow a monster-sized nest egg with a little time and a tiny grubstake.  Click here to watch this video presentation now.   The Daily Reckoning Presents A New Trend "Sneaking up on People" Chris Mayer China has lost its edge.  There was lots of skepticism about a piece in my March letter called "The Great Comeback No One Will Believe" about the revival of U.S. manufacturing as China loses its cost advantage. But I continue to find evidence that the piece was spot on.  I had a good talk with Scott Huff, a principal at Innovate International, which does product development work and contract manufacturing for several industries. Scott's story is worth passing on because the arc of his career in the last 10 years tells the story better than any set of statistics.  Scott is a design engineer. He started going to China in the mid-1990s to do work for clients. Huff was living in Chicago at the time. Every year, the travel got heavier as more and more clients manufactured in China. "So in 2004, after spending three months in the country in two-week blocks in the first half of the year, I figured maybe I ought to just move here," Scott recalled. "My wife is pretty adventurous. So we moved lock, stock and barrel to Shenzhen and started rebuilding the business there."  There were tons of opportunities, and the business grew. Things went well. Then, last year, it started to change.  "In the middle of last year," Scott said: I realized it when I was getting price quotes for some injection-molded plastics. Chicago used to be a center of excellence for this, and it's since been decimated by overseas competition. But there were a handful of the old hands that survived. They kept up with the technology and got very lean and efficient, using electric presses and things like that that reduce cycle times and labor. He continued: Suddenly, prices from them weren't that different from what you could get in China when you factored in transportation costs. It looked better and better as we took another big labor increase in China in the third quarter of last year. Of the last four out of five jobs I quoted for injection molding in the U.S. versus molding in China, the U.S. won. Most people don't believe me when I tell them I'm getting better prices in the U.S. The first instinct people have, the paradigm that they've learned to live with, has been to bid work in China. Your editor sympathizes with this. I've had a lot of people shake their head in disbelief and call me crazy when I tell them it is (sometimes) cheaper to manufacture in the U.S. now. But here you have a real-world tale from a man on the ground seeing this new trend unfold in real time.  "Things are getting expensive in China, pure and simple," Scott told me. "Labor costs have gone up substantially in China. That's not a mystery to anybody. The amount of labor available at any price for some jobs is just not there. If you want to polish a piece of stainless steel for the kitchen industry or tie rawhide pet treats, you're going to have a tough time finding people. People have options. They'd rather put together an iPad now."  Even though labor costs have surged, one could argue they have not kept pace with the cost of living. "Food prices in China are ridiculous," Scott says. "It's a hell of a lot cheaper to live in the United States than it is in China if you equalize people's incomes. As a percentage of someone's income, the chunk for food is a huge line item there. Land prices have been skyrocketing everywhere. Apartment prices are through the roof. It is cheaper to live in the U.S."  Remarkable, isn't it?  So business is just starting to move away from China. Manufacturers are seeking out cheaper markets in Southeast Asia. Scott has a new plant there already, in Cambodia. "Cambodia is small but in a good location," Scott says. "Right in the middle of everything, really."  His company is also moving business to the States. When I caught up with Scott, he was in Knoxville, Tenn. He is still a resident of Shenzhen, China. That's where he officially lives. But his kids are going to school in Tennessee, and he is looking to build a business back in the States. It's a complete reversal of what happened eight years ago.  "I don't think anybody has any idea that's happening," I said.  "It's sneaking up on people, but they're going to realize it. The handfuls of survivors in the molding industry in the U.S. are busy as hell right now. It's not just the plastics industry. Anybody that was left here with manufacturing intact is getting extremely busy."  "So it seems there would be an opportunity in U.S. manufacturing," I said. Scott agreed, with a caveat.  "There is an issue that we're battling. The U.S. lost an entire generation of toolmakers. They're just not there. The old Polish toolmakers I used to work with in Chicago have all retired, or if not, they are more gray-headed than I am. And there aren't the apprentices ready to step in. You can't find a good toolmaker in Chicago right now. It's hard to come up with. And the skill set -- you can't just turn it on and off like a faucet."  This is something people -- especially political types -- overlook. It's not just a matter of bringing back the jobs. The skill set has to be there, and that takes time to build.  "Technology changes, too," Scott added, "so it is extra hard to find someone who's kept up with it all. You can still cherry-pick and pull out a tool in Asia and bring it to the U.S. You just have to figure out a way to maintain it without a toolmaker."  "Wow," I said, "that's a complete reversal of what went on before where people would take machines from the U.S., disassemble them and ship them to China."  "I was one of them," Scott said. "Now I'm designing products from China and carrying them to Chicago for production. Touch base with me in a couple of months and I'll let you know how it went."  I said I would. In the meantime, we'll continue to watch this story. China losing its once-formidable cost edge would have a sweeping impact on manufacturers everywhere. Stay tuned...  Regards,  Chris Mayer for The Daily Reckoning  P.S. Lastly, my new book, World Right Side Up: Investing Across Six Continents, is now available. It's the product of nearly eight years of travel and research. I think you will find it full of useful ideas and resources as well as entertaining stories about people and places. You'll get on-the-ground views of markets from Colombia to Cambodia, and many actionable ideas on each. This book covers the most-important investment trend of the 21st century. I hope you enjoy it.   New Breakthrough Fuel Could Power Your Car It took the earth 300 million years to make the oil we burn.  Imagine if we could squeeze that whole process into just a few months... a few weeks... or even a few days. Because that's exactly what could be happening.  At least a half-dozen labs and companies are working on this, right now.  If they get it right, we could literally "make" as much gas for your car as you need. We could make fuel for planes, trains, and diesel trucks this way too.  Find out more by clicking here. And more thoughts on the Bonner's trip to Argentina, from Elizabeth... Tales From The End of the Road More from the Bonner Family's Trip to the Argentine Mountains... Gustavo discovered the petroglyphs while walking with his grandfather as a young boy, and later when taking his own children on Sunday expeditions on the mountain slopes overlooking his family's arriendo. He offered to show them to me and one day last week, we set off on horseback. Gustavo took the nice-mannered criollo and I rode one of the horses we are trying out -- a strong and stocky dark bay. He's young and energetic, not entirely convinced that the aids are there to help him. It seemed like a good way to find out if he were up to the challenge of scrambling up and down rough and rocky mountain slopes.  We rode the easy way to the Compuel road; I prefer it to the shortcut up the mountain and through the high pass behind our house. That way is all perpendicular drops and ascents. Breathtaking. The views are probably magnificent but as my mental forces are fully absorbed in negotiating the path, I haven't been able to appreciate them. Instead, we went out our entrance, through the allées of yellowing cottonwoods, across the little stream that swells into a pool as it crosses the road from the reservoir near the house to water the big meadow below. We passed the chapel and the school, and started following the road. It starts off through the gentle green meadows blooming with yellow daisies and rich blue sage, and goes past a few scattered houses. These are all made of adobe with barro or mud roofs; doors are made of cactus wood lashed together with strips of goat leather. A scattering of pink and mauve cosmos flowers; perhaps a sharpl y pink rose, and brightly colored laundry hanging on the line. Dogs poke their noses out of doors and lounge in the dirt under the shade of a twisted algarroba tree. Victorina, Jose, and Hugo, who use these houses, all have young children and live in them during the school season. We kept on climbing until we were on the road that clings to the side of the mountain. We had a few tense moments, when dogs accompanying Maria Luisa, a woman who lives with her four sons in one of the mountain farms, frightened the criollo and he wheeled. The road is too narrow for emotional incidents! It is being rebuilt at the moment, because the heavy rains washed down boulders and mud. But the roadbed itself is in surprisingly good condition. As it winds around, you can look back and see that the bed, which projects out from the mountainside, has been built up from below with carefully placed stones.  Gustavo's arriendo is the last in a series of farmsteads that follow the river Barranca as it tumbles down from the heights from Compuel. The vast campo of Gualfin, where our cattle graze, is at the foot of this river. As it approaches the valley, the river levels out. Centuries of sedimentary deposits in this area near the campo have created a rich alluvial soil in pockets large enough for subsistence farming. The first of the pockets of land is a long wide band along the river, which is used by the finca for maintaining the bulls over the winter. The next is used by Javier, whose house is perched on a high rocky ledge overlooking the valley, and has no fields around it. Next up is the land farmed by José, one of the masons on the casita project. Then there is Hugo's arriendo, then Natalio's, then Pedro's and finally the arriendo where Gustavo lives with his wife and three children, his mother and her sister Clara, and his 86-year-old grandfather. It was an hour's ride just to get to the house.  We cut through Gustavo's fields and crossed the acequia where he gets his water for his house and fields. This is the same acequia that eventually brings water to our house and the fields around it. We waded the horses through the boulder-strewn river flowing next to the acequia, and crossed another field.  Then we started climbing in earnest. Gustavo is an observant person who makes an interesting guide. He would seemingly be immune to the beauty of the landscape in which he has spent his entire life, but he takes pleasure in pointing out both grand perspectives and minute details -- the panorama of the valley, the pungent fragrance of a particular kind of wild pink sage, the subtle touches of pink and violet in a white butterfly's wing.  The first rock he showed me is a big flat piece of stone sheared off from a boulder. The shape of a huge rounded shield, it is carved with an intricate series of rounded channels, as if someone were making a map of a water system. One channel ended in three prongs, like a bird's claw.  We climbed higher and came to a place Gustavo called a cimento. A cimento is a structure of stone, a wall of a terrace or corral, or of a house -- as Gustavo put it, where the stones have been purposely placed rather than pushed together by water. There were the remains of a wall on a level piece of ground where the surface was fine soft sand. Gustavo leaned down and picked up two pieces of broken pottery made of red clay -- one was striped orange and dark brown and the other had part of a complex design, curved lines, dots and squares, in black and cream. The latter was a piece of the neck of a jar. "Augustina loves to find pieces of pottery and has made a big collection," he told me. Augustina is his youngest child, who is four. We had passed her along the road, set atop a burro, as she and her mother Gabriela were walking to the little school. Gustavo's next child is a six-year-old boy called Augustin. The 5th-century Saint Augustine, he o f the City of God, is the patron saint of the priestly order that tends to Gualfin.  The next rock Gustavo showed me was about the same large size, and it was also carved with channels. The channels went around the perimeter of the rock, and inside it were carvings of men. They were abstract figures holding weapons. One had a little pompom on his head; perhaps it represented an Inca hat. The Inca subjugated the Gualfin Indians in the 15th century, making them pay tribute to their empire. Two hundred years later, after bitter and protracted fighting, the Spanish destroyed the Gualfin tribe for good.  We climbed even farther up the mountainside and came to a very large petroglyph of a man on the face of a sheer rock cliff, overlooking the valley and the mountains across. He was similar to the man on the boulder, a linear bullet-shape, with arms and legs, large round eyes and a straight bar of a mouth. He holds a knife in his left hand, and a clearly drawn arrow or spearhead is shown near his right hip. Someone had come along later, it seems, and scratched a bandoleer across his chest and a bow-tie where his neck would be!  The most spectacular petroglyphs awaited us on another fold of the mountainside. We rode over a precarious path to get under them and then hiked on foot up to where a huge cardon cactus, perhaps 200 years old, sheltered a sheer rock face. The petroglyphs were carved on two walls of rock that come together like pages of a slightly open book. Here are line drawings of what seemed to be a puma, snakes, llamas, and a vizcaya, a small mammal about the size of a groundhog that we have seen in Compuel. Curiously, I couldn't see any shape that resembled a bird. There are also figures of men, but in a different style than those of the other petroglyphs. They are graceful abstract line drawings, giving the idea of movement rather than static menace. One of them is holding what looks like a shepherd's crook, though it might be a hunter's bow.  There are other petroglyphs are Gualfin: more channels, these in the shape of a river system or a many-fingered hand, and an abstract animal shape are at the Quebracha de Compuel. Another group are found on the same kind of intersecting faces of sheer rock as those above, on the way to Pucarilla. These seem to be a jumble of animal images -- a spotted one that might be a puma, llamas and others, as well as geometrical figures such as spirals and squares.  Who drew these things? When? What happened to the people who made them? No one knows...  Regards,  Elizabeth Bonner, for The Daily Reckoning ------------------------------------------------------------------- Here at The Daily Reckoning, we value your questions and comments. If you would like to send us a few thoughts of your own, please address them to your managing editor at joel@dailyreckoning.com