The price of the Pittsburgh Steelers is almost double the price of U.S. Steel (X). That's right, at this moment, Forbes magazine values the team that Big Ben and 52 other Steelers play for at $1.9 billion. But the U.S. Steel team that more than 30,000 employees play for? It's worth $1.1 billion, and the stock's down 70% for the year.
The contrast isn't a fatuous one. The United States produces incredible entertainment and does so in part by not diluting its value. There are a limited number of teams and no company in our country has been able to challenge its dominance.
But the world produces a tremendous amount of steel, and no matter how good you are at producing it, no matter how much in costs that you take out, if you make steel in the United States you are going to suffer from the excess of our so-called trading partners. I say so-called because the partners aren't equal. U.S. Steel isn't supported by the U.S. government. But the Chinese steel companies? They are run by the government. The South Korean steel companies? They work hand in hand with the government. The Japanese steel companies? They benefit from a decision by the Japanese central bank to keep the yen low vs. the dollar. The Brazilian steel companies? The real, the Brazilian currency, is so cheap that Gerdau (GGB), its big steel manufacturer, has an incredible edge.
Plus, all these competitors have something else in common. As the world's leaders convene to talk about climate change, the home countries of these steel makers are much less restrictive on emissions. The Chinese, who export a ton of steel to the U.S., also export a huge amount of pollution. We accept it as part of the desire to support free trade. We worship at the altar of globalization and this is the price both parties seem willing to pay.
So what has U.S. Steel, which has worked so hard to get its costs to be in line with the world, had to do? It has had no choice but to keep cutting prices and keep firing workers and closing inefficient plants to keep its customers. For all of its efforts, Wall Street expects U.S. Steel to lose more than $2 per share this year.
Sure, U.S. Steel made a big bet in oil country tube to support the drilling boom and it is scaling back that capacity as fast as it can. But you just don't hear much about the plight of this company, once the world's largest, let alone some of its smaller competitors. It's a given because we have grown to accept that the strong dollar is going to be with us, wiping out U.S. jobs and factories. The 53 men on the Steelers have more of a job future right now than many of their much poorer steel brethren, even though some say NFL stands for Not For Long.
Steel's not alone. All of our commodity and commodity-like industries bear the same fate.
When European Central Bank president Mario Draghi wants to reinvigorate the continent's economy, he simply discusses that the euro's too high vs. its trading partners and needs to go lower.
When Japan's businesses fair badly, Japan's government makes it clear it doesn't support a strong yen.
When China's industrial economy falters but it doesn't want to have mass unemployment, it keeps producing goods and selling them at cost or lower to support its own economy.
So last week you get a terrible quarter from HP Inc. (HPQ), the newly public PC and printer portion of the old Hewlett Packard, with much of the stock's huge decline stemming from what should have been obvious -- price cutting to stay up with the Japanese companies that are backed by a weak yen.
Century Aluminum (CENX) is getting crushed by foreign imports. Its CEO, Michael Bless, just called for "immediate help" as it has had to close plants that can't compete with the Chinese. As old friend Dan DiMicco, former CEO of Nucor (NUE), wrote to me in an email, "We are letting our industries be destroyed in an economic trade war, things that could not be destroyed by military conflict in over 200 years. Where is the outrage?" he ponders.
I think we know the answer. These industries, these workers, are the price we pay for free trade and the U.S. government supports free trade. They are being sacrificed and your portfolio will be sacrificed, too, if you try to bottom-fish in the stocks of companies that can't possibly compete in this new strong-dollar world.