Stories like this highlight the "problem" with the current US economy. Inefficiencies are created by laws like the Jones Act. Inefficiencies do not have to have any moral value positive or negative in my view, but they can have an effect on prices. The Jones Act serves to protect an industry (US shipbuilding) at the expense of consumer prices. I find it funny how the supporters of the repeal even talk about how it will create jobs. Perhaps in some industries, but clearly US shipbuilding would suffer. And perhaps, it should. In unfettered capitalism, the destruction of one industry would spawn other opportunities and that has been one way the US has grown to be the strongest economy in the world.
So, in the end, I'm all for becoming more efficient. I would also suspect most Americans would be as well. There can be no denying though, that, at least in the short term, in the process of becoming more efficient, there will be losers. The American worker is one of those. Structural unemployment in the guise of improving efficiency will put a cap on economic growth in the short term.
The Detroit situation is also telling. We have a lot of infrastructure that is underutilized. Idle factories, idle cities! The economy has to work through that which also puts the brakes on growth. I am watching the muni situation closely as there will be some precedents set on the handling of who takes losses. Unfunded liabilities caused by defined benefits to a population that lives longer with every medical breakthrough is a crushing load on the current taxpayer. I believe that there will have to be haircuts taken by said benefits earners. Tax burdens are ever increasing without commensurate increases in services - why? Because the population earning defined benefits keeps getting larger. In the private sector, companies switched to defined contributions a long time ago, but governments have not and until that changes, we will be in this conundrum.
Good companies will continue to become more efficient and create earnings for their shareholders. Perhaps not a lot of top line revenue growth, but earnings. I believe this will be good for stocks and I suspect we will come out of earnings season with higher prices.
I like IWM (smaller cap stocks) in addition to the solid dividend paying larger cap names.
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