Toyota Now at the U.S. Car Manufacturing Helm… Whats Next America?

The American Century began in the beginning of the 1900’s, when the United States passed Great Britain to become the world’s number one economy, and the U.S. capital market grew to be the largest on the planet. Germany was hard on America’s heels, then, although the Teutonic competition – along with the rest of Europe – was buried in the trenches of World War I. That left the United States as undisputed numero uno.

Toyota (NYSE: TM) surpassed General Motors (NYSE: GM) in worldwide sales in the first quarter…after GM had dominated the world auto market since it passed Ford in 1931.

But last month, still early in the 21st century, another milestone was passed. European capital markets – including Russia – are now bigger than the U.S. capital market. “We may no longer be living in the American century,” writes Simon Pickard.

No, it’s probably not the American Century. Other economies are growing faster. Other peoples are saving more money. Other businessmen are making better investments. And other workers are earning more money.

It’s a very big and competitive world – and you don’t win in a competitive world by kicking back. In athletics, you don’t win by lounging in front of a TV; you win by training rigorously. In money matters, you don’t win by throwing around the stuff; you win by rigorously saving, working, and investing.

In China, they build factories. In America, we build casinos and hotel rooms. In China, people save 25% of their piddling incomes. In America, net savings rates are near zero – on the largest incomes in the world. In China, foreign reserves increase by more than $1 billion per day. In the United States, net outflows to foreigners exceed $2 billion per day.

Americans work hard… but how much of this work is actually done in industries that make people wealthier? Americans invest… but how much of the investment goes into productive industry?

This is why, as far as investment strategies go, we tend to steer towards the Chris Mayer ‘tangible assets that sweat’ line of thought.

“Tangible assets are simply things we can touch and feel, things we can see and count,” Chris reminds us. “These investments include things like buildings, timber, cash, certain machinery, land, vineyards and other unique assets. Industries that are not going away and that are in no danger of the next generation of competitors making them obsolete.

“Contrast this with the most exciting and best-loved investments of the tech boom years. Companies like AOL, Lucent, JDS Uniphase and a host of others that carried billions of dollars in intangible assets on their books – such as ‘capitalized software development costs’ or ‘goodwill,’ among others.

“These assets were on the books because accounting conventions required it, not because they represented value that could be sold or accessed in any direct way. Most of these assets were subsequently written down, leading to billions of dollars in losses for those companies and their shareholders as well.

“Tangible assets seldom lose value like that. Most of the time an asset like timber or unique real estate only become more valuable as time goes on. That’s the general idea – I like to be involved in companies where time works in my favor and where the principal assets of the company are things I can touch and feel, that I can count and see.”

Chris has recently added industrial pipe manufacturers, sugar havesters, obscure shipping lines – even a chicken harvester to his recommendations. Granted these stocks are nowhere near as exciting as investing in a big name company with favorable earnings reports…but what many investors don’t realize is that earnings can be very deceptive (we think Enron proved that pretty well.)

“Cash flow is the sweat, the streams of actual cash that a company generates,” says Chris.

“Cash flow gives companies options to pursue wealth-generating strategies, to reinvest in the business for future growth, to pay dividends or buy back stock, or to make smart acquisitions. Cash flow means that a company has options.”

What do you think? If this is another American century, what kind of century will it be?


Markets and Money offers an independent and critical perspective on the Australian and global investment markets. Slightly offbeat and far from institutional, Markets and Money delivers you straight-forward, humorous, and useful investment insights from a world wide network of analysts, contrarians, and successful investors. Founded in 1999, Markets and Money is published in 7 countries with a worldwide readership of almost 1 million people.

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Being an economic illiterate, I’ve always wondered why people invest in companies that value themselves not according to how well they make money. Why is that?

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