October 10, 2003

Scrap as a Cash Crop

Ohh, it’s good to be back behind the blog-wheel. Lots of ground to cover in the Insider today. Let’s hope all those rumors about increasing productivity are true. But before I get into the heavy stuff, I’m going to start with some belly laughs. I laughed, at least. I hope you do too. I’m subscribed to about 15 different reports from the Bureau of Labor Statistics. This means instead of waiting to read the Bloomberg version of a report, the data comes to my mailbox unfiltered. Later today, I'll break down the trade balance numbers. But yesterday, I got a report that didn’t seem to make any headlines, but should have. The BLS reported that prices for imported goods fell half a percent in September. And on the other hand, export prices were up .4%. How can this be? Isn’t a weaker dollar supposed to make imports more expensive and exports cheaper? Shouldn’t import prices be rising and export prices be falling? And falling right now!! Granted, the big culprit in falling import prices was petroleum. BLS reports that the price index for imported petroleum fell 5.2% in September. That fall offset the 1.4% rise in non--petroleum industrial supplies and materials. Meat and coffee prices were up. And in the last year, prices for imported foods, feeds, and beverages are up 2.3%. The trade deficit in motor vehicle parts is consistent and large. Immediately destroying imports and exporting the parts back to Japan would reverse some of 2003’s $41.9 billion deficit. Here’s an interesting note, the price indexes for imported capital goods and cars both FELL in September. Cars are getting cheaper while raw materials are getting more expensive. This leads me to a new business idea and a new economic law: the law of destructive destruction. The business idea is simple: pay zero down and buy imported cars at low interest rates. Immediately scrap the cars sell the raw materials back to Japan for a profit. If we can’t produce it more efficiently, why no destroy it for a profit? After all, America is the world’s leading consumer of stuff. Why not turn all that crap in your garage or in your storage unit into profit? Talk about a wasting asset. This is an enormous profit opportunity. You’re making a mistake if you have a garage sale. What you ought to be doing is rendering all that old furniture from Ikea into lumber and selling it back to Canada at a fat profit. And just think about the vast expanses of tract housing that will sit unoccupied when the housing boom goes bust. Buy up the defaulted mortgages for pennies on the dollar, pay a few bucks to a work crew, and reduce the place to scrap, the parts obviously being worth more than the whole. (Think of all the new jobs….it could be a real turn around in employment.) I jest, sort of. I recall doing some research a few months ago which showed that one of the industries the U.S. consistently showed a trade surplus in is scrap metal. And in fact, export prices for textile fibers (and their waste) are up 17% in the last year. Export prices for meatlliferrous ores and metal scrap are up nearly 30%. So you see…perhaps there’s a business after all in buying cheap imports on credit, destroying them into their component parts, and exporting them back overseas at a profit. We could convert America’s junk surplus into honest to goodness cash. One nation’s trash is that same nation’s treasure, if we’d only get to destroying. America’s projected apparel deficit for 2003 is $59.4 billion--a 15% increase over last year. The solution: rip up last year’s fall collection and export it for a profit. In fact, that’s what we’ll call this new law, the law of destructive destruction. Value is added by subtraction. True, there is some labor involved in destroying things. And there would be technical problems in measuring output per hour for those in the destroying business. But presumably, the more you destroy, the more productive you are. This is something American's definitely have a competitive advantage in. Even Greenspan is going to love this.


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