Donald Trump pulled off a masterful deal that saved more than half of the jobs at the Carrier plant that was supposed to be shipped out to Mexico. The deal involved a $7.0 million tax incentive from the state.  I assume there was some verbal jabbing with respect to the almost $7.0 billion a year the company’s aerospace and aircraft engines divisions does with the federal government.  

Now, there is the anticipation of more announcements as the list of companies moving to Mexico and other countries is relatively long.

Some conservative economic purists on the right like Jonah Goldberg and even Sarah Palin (see box) don’t like the idea of a President or President –elect cutting deals with companies; using taxpayer funds, suggesting its simply crony capitalism.

On the left, Bernie Sanders and Paul Krugman claim that the president bowed to extortion.

Politicians picking and choosing recipients of corporate welfare is railed against by fiscal conservatives, for it’s a hallmark of corruption. And socialism. The Obama Administration dealt in it in spades. Recall Solyndra, Stimulus boondoggles, and all their other taxpayer-subsidized anchors on our economy. A $20 trillion debt-ridden country can’t afford this sinfully stupid practice, so vigilantly guard against its continuance, or we’re doomed. -Sarah Palin

The fact of the matter is that companies aren’t inherently anti- American but their bottom line comes from patriotism. On that score, these companies would love lower taxes, fewer regulations, and the ability to save money (being closer to the buyer of their products).  America also has an abundance of energy, including cheap natural gas and even cheaper coal.

Still, as recently as Friday, Ford reiterated its intentions of moving small car productions to Mexico. The CEO of the company, Mark Fields, said he was willing to work with the new administration if some things could be done on the Corporate Average Fuel Economy (CAFE) standards and other incentives.

Wink: Tax breaks?

It’s not scheduled to happen for a couple of years, so there’s time for the Trump administration to make America more attractive to manufacturers. However, there are some companies where employees need Trump to work his magic immediately.

The Eye of the Storm

Rexnord Corporation (RXN) is down the road from Carrier. The publicly traded company’s shares are changing hands at $20 from north of $30 back in Mach 2014.  The company was on the receiving end of a strongly-worded Donald Trump tweet this past weekend, and it will be under a tremendous spotlight.

Cardone Industries is the largest manufacturer in Philly, but it has been sending workers to Mexico for years despite the pledges not to go a long time ago.  Dematic Corporation made their layoff announcement earlier this year. It’s unclear if the workers can be saved, but the company still has 900 workers in America that would love a different fate.

Caterpillar (CAT) is altogether a different beast, which has grappled with this issue for years. As of now, 70% of its business comes from outside the United States. Be that as it may, the Trump win has sent the company’s shares soaring. It’s only a matter of time before the president - elect has the company in his sites.

Rexnord	Indianapolis	300
Cardone	Philadelphia	1,336
Dematic	Grand Rapids	300
Caterpillar	Joliet	230

I think there are economic principles that shouldn’t be ignored, although there are elements that will jumpstart this economy, including an inspiring flyover country.  The Carrier deal is not the same as Obama’s solar fiascos in a sense that it didn’t subsidize one industry while punishing another, but there is a danger of appeasing companies with federal favors. 

By the same token, the stock will only go so far. No one is going to stay in business to lose money or see profits capped - customers will pay the 35% tariff or go with products they don’t want.

Investors Know the Score

The market ended with a whimper on Friday, followed by the lead of the November employment report with a mixture of mostly disappointing data, underscoring how entrenched our jobs recession has become. Perhaps the biggest disappointment was that more than 200,000 people dropped out of the workforce, and wages slipped from October.  

The jobs report is really two surveys.  One is the so-called Establishment Survey of businesses, and there’s the Household Report.  According to the latter, November saw only 9,000 full-time jobs versus 118,000 part-time jobs, and that was an improvement from October, where 90,000 part-time jobs couldn’t offset the loss of 103,000 full-time gigs.

The news was disappointing, although it’s not shocking and not a deterrent to new enthusiasm. There is a general sense the market has come too far, too fast.  

Case in point: According to the American Association of Individual Investors, bullishness declined by six percentage points in the past week to 43.8%, after it surged by 109% from a per-election low of 23.6%.   While Wall Street likes to label an individual investor’s enthusiasm as a contrarian indicator, I’ve come to respect the intuition of Main Street.

(The main problem with Main Street investors is poor diversification and the unwillingness to take losses.)

Moreover, I like that investors have calmed down a little, but bullishness is still well above its historical average -that’s the bias that should mitigate the downside for Trump stocks. 

Survey Results for Week Ending 11/30/2016

Data represents what direction members feel the
stock market will be in next 6 months.

BULLISH 43.8% -6.1
HISTORICAL AVERAGE: 38.5%

NEUTRAL 31.1% +3.1
HISTORICAL AVERAGE: 31.0% 

BEARISH 25.1% +3.0
HISTORICAL AVERAGE: 30.5%

Comments

Overall - Approve! I do not think the state deciding to give incentives is a problem at all and the Pres-elect has no power to give anything, other than his proposals, so its a WIN. Robert Wunderlich on 12/5/2016 9:56:09 AM

I approve. It is a win win win for all. The state saves money on paying unemployment benefits and loss tax revenues. Carrier saves on paying unemployment benefits, training new folks in Mexico, and buying good will from the American public. The federal government wins with keeping tax revenues and possibly not having to fund welfare benefits. The employees win by keeping their jobs. The community wins because the saved jobs lead to other jobs but also the local economy having money from the employees going back into the economy. I do not see the downside of this. Mel Aben on 12/5/2016 10:01:56 AM

Anytime a president (or in this condition, president elect) cares enough about our country and in effect us working class I approve. It's refreshing to feel as though our government cares about its people. He understands that I am a taxpayer which makes me part owner of this nation. I'm excited to see this administration work for me (us)! Shara Duke on 12/5/2016 10:04:59 AM

Charles: Here's what most if not all pundits don't get which still is the case with dems. The story says it better than I can:). Why don't they just give the guy a chance. We want the racoons GONE! Period! Now we've got him. http://www.dailykos.com/story/2016/3/19/1503841/-Trump-to-save-us-from-nasty-Raccoon-invasion Bob Waddell on 12/5/2016 10:12:23 AM

I think Charles is right as usual. Trump knows that his tax and regulation policies should be enough, but will take awhile to get in gear. Short term pragmatics ok, long term bailouts not ok. Allan on 12/5/2016 10:25:31 AM

I agree.I feel it was only meant as a symbol to reinforce his overall stand. Tax reform and regulation reform will be the means of bringing back industries to the USA. Raymond Kotwasinski on 12/5/2016 10:54:13 AM

I approve. At the beginning of this whole trend in 1978, I watched a whole industry go down the tubes because of unfair competition from imports that could have been easily handled with the application of moderate tariffs. Cheap overseas labor has an inherent unfair advantage that totally destroys home grown entrepreneurialism. There is nothing wrong with the use of tariffs to level the playing field. That's not the same as "protectionism." If you caught someone beating the hell out of your wife and kids, you'd intervene, wouldn't you? Unfair foreign competition that destroys American jobs is exactly the same thing. Tariffs are an efficient way to level the playing field, and they help balance the heavy burden of taxes on the rest of us. Why shouldn't cheap imports have to pay their fair share? Dennis Howard mbaforlife@gmail.com on 12/5/2016 10:57:13 AM

Why the city of Indy, the state of Indiana and every chamber of commerce across the country voice the result is the Carrier deal is a mystery. Abating $700k per year vs. a plant expansion of at least $16M at about a point and a half in net new waved property taxes (est $240K of the $700), maintain a payroll of $68M which equates to over $2M in Indiana income taxes (flat 3.3% tax), federal income taxes at 10 to 15% is another $7 to $10M for the IRS, and 1100 families paying bills and spending money in the community. All the while not having unemployment benefits costing $390 per week or $20M+ per year up to 99 weeks plus possible housing, food stamps, ADC, etc. kicking in... All for a net give up of about $450K! Wow. Does anybody ever do the math on retaining and growing company payrolls, not mention corporate taxes that also would be lost. No matter the party affiliation, this should be viewed as important. Chris Widing on 12/5/2016 11:36:06 AM

I think it's great. He got involved and made a difference. It will get other companies thinking, and I for one, would be willing to pay a little more for a Carrier product vs the foreign made competition. Jim Weaver on 12/5/2016 12:27:49 PM

Trump's Carrier intervention was a HOME RUN. Obama picked companies to win or lose... Trump picks companies where they AND their workers both WIN. LOVE IT! Barry Gold on 12/5/2016 12:52:47 PM

OF COURSE, HE DID THE RIGHT THING! Frank AGUIRRE on 12/5/2016 1:41:26 PM

I agree with the Carrier decision. He is not President yet. Let us not criticize his actions until he executes his vision for America, as President. His actions may be different. They may work. My portfolio suggests they are currently working. FMT on 12/5/2016 1:44:10 PM

Of course I am always glad to hear of jobs saved in America, but I am not comfortable with the way Trump handled Carrier. If EPA regulations, excessive taxes, or other government interference caused Carrier to decide to send jobs to Mexico, then Trump's conversation with them should have been limited to finding out how he can dismantle those damaging policies when he becomes president. He could also reassure Carrier that he will do everything possible to make it easier for them to keep their plant in the U.S. open. Offering one company in the HVAC industry incentives to stay in America and/or threatening them with a tariff if they don't is unwise and unethical. Think about how this will affect the other HVAC companies like Rheem, Trane, Lennox, etc., and what it will do to the price of HVAC goods in America. Erling Nielsen on 12/5/2016 1:49:05 PM

Yes. Carrier didn't make that decision just to look good for the media. Patricia Flynn on 12/5/2016 3:55:31 PM

Why not. At least this President is interested in jump starting the economy. Wants to help the American Worker, the lower, middle and upper class. In fact wants to turn the country around. God Bless America. Bob Medkeff on 12/5/2016 7:18:04 PM

Jonah is a fanatical never-Trumper. Sarah hath the fury of a woman scorned. For everyone else, after 8 years of unbridled picking and choosing of winners and losers, it's a hell of a time to be a purist. John Parnell on 12/6/2016 1:12:47 AM

The Carrier deal which is a $7milliom tax break or $6400 per employee is peanuts. This working employee at $23 per hour and 20% income tax will pay $8400 taxes. It is a $2000 profit for the feds. If that employee was out of work the cost to the government would be $40000 per year (unemployment insurance, Medicaid, and welfare). The deal is a clear profit for everyone. The left and the conservatives are joining their concerns. At least we have D. Trump, he can count??? Philippe on 12/6/2016 2:47:27 AM

Why cant an investor savy president take charge to save American Jobs! We have seen too much old establishment business as usual government mis spending the taxpayers dollars ( Oh well ! Who cares! Its not GOVERNMENT in DC money! Suckers) Well i and many others are coming to put a leash on the crony establishment and they will do as they are told! Yes! If Donald Trump is going to take a stance on America and Americans then why not Intervene and save jobs and peoples livelihoods! Enough is enough! AMERICANS FIRST! Screw this bringing America down to a 3rd world global nation! Im a Vet! Cliff on 12/7/2016 2:42:21 PM

Yes, I agree with Trump's Carrier move. HOWEVER, he is making major strategic errors as I see it when it comes to these cabinet picks. Nikki Haley? Romney's niece? DOL guy? And the most faithful and smartest-Guliani, Huckabee, Gingrich, Bolton, Christie are thrown under the bus? TRUMP HAS TURNED ME AND MANY OTHERS OFF. Terrible. Who is feeding him-Priebus? All we need next is Romney for SOS and I am not supporting him for one more minute. Sad-as a former NYer, I was with him 100% since day one too. Barbara Dabroski on 12/9/2016 7:38:51 PM

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