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Mark's Market Blog

5-6-12: Election Day Special

By Mark Lawrence

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Markets dropped rather emphatically late last week as fear of European stability in the face of elections took over. European elections are likely to result in more political turmoil, and so I think markets are likely to continue to drop for the next few days. Some are calling for a 20% drop in stock prices. But it's still election year in the US, and I expect the Fed will step in and accommodate things pretty soon, and that will be that for this little correction.


S&P 500 November 14 2011 to May 4 2012

This weekend France elects a new president, and Greece elects a new government. Why do you care? If Greece's new government refuses to play along with externally imposed "austerity" in return for money that nearly all goes to foreign banks, the Greece "bailout" will end. This brings the fate of Spain and Portugal into question, then the entire Euro structure. Similarly if socialist party candidate Hollande is elected president of France, he has already said cooperation with Germany will diminish, taxes will rise, and austerity will be cut back severely. Again, the entire structure set up in the last couple of years to save the euro comes into question. What do Europeans think of all this? In the chart below, we see that in Spain deposits are plummeting as citizens withdraw their money, and ECB lending is skyrocketing as the European version of the FED has been printing money in unprecedented amounts. Spanish are voting with their feet as their educated youth emigrate to other countries where there's some chance of getting a job, and their older more established citizens start pulling their money and hiding it under their mattresses, perhaps Swiss mattresses.


Spanish Bank deposits and ECB borrowing, 1999-2012

I've noted here that in Spain unemployment is almost 25% and youth unemployment is well over 50% - worse than Greece. Britain, supposedly a bastion of relative stability isn't doing so great either. Below is their GDP growth compared for the Great Depression of the 1930s against the Great Recession of the 2000s. By this point in the Great Depression, 4 years in, Britain was recovering and the economy was growing again. In the Great Recession growth has flat lined, and any reasonable projection of the graph is rather chilling.


British GDP, Great Depression v. Great Recession.

And in the US, how's Obama's actual jobs record? Since January 2009, his inauguration, the US public sector has created a new of 35,000 new jobs - this in a country where working age population is growing by about 115,000 per month. Meanwhile, governments have cut 607,000 jobs. As of today, 63.6% of our working age people, slightly less than two-thirds, are actually working. And that's counting people with jobs at the Departments of Energy and Education as actually working, although I certainly don't know what they do. And what are the rest doing? How is it our workforce is shrinking and the unemployment number is also falling? In the last 12 months 2.2 million new people have started receiving social security disability payments. That's a quarter of the unemployed, and a quarter of everyone receiving disability. SSDI cost us $132 billion last year, roughly a thousand dollars per taxpayer. And how are these new people disabled? According to MIT economics professor David Autor, "difficult-to-verify disorders, including muscle pain and mental illness, more easily qualify for SSDI under program reforms." In the last year, the civilian population rose by 3,638,000. Yet the labor force only rose by 945,000. Those not in the labor force rose by 2,693,000. Last month, actual employment fell by 169,000, and the unemployment rate dropped by .1%. The unemployment numbers are fraud, plain and simple. Using the cooked numbers, we should be back to normal in about two and a half more year - assuming of course that we don't have another recession in the meantime. For the last 150 years we've had a recession every four to six years and it's been four already, but perhaps This Time Will Be Different.


Unemployment for the Great Recession.


US LAbor Force Participation Rate continues to decline.

Hot in the news this week is Philips winning a $10M award from the Department of Energy (remember, when I'm president these DOE guys are shut down the first week) for their new LED light of the future. How wonderful are these guys? The ads compare them to incandescents, but the truth is most of us are already using CFLs which get us about two-thirds the savings, so the real comparison has to be against CFLs. Let's have a look at using them in your living room or office. In your living room you use your lights an average of perhaps three hours per night; in your office nine hours per day. Over five years, here's the costs:

LED v. CFL v. Incandescent five years of use home / office
BulbLEDCFLIncandescent
Cost per bulb$50$350¢
Life Span50,0008,0001200
Power8 watts13 watts60 watts
KWH used Home / Office45/13272/215330/1000
Electric bill @15¢ / KWH$6.75/$20$11/$32$50 / $150
Bulbs used1/11/24/14
total cost$57/$70$14/$38$52/$157

Unsurprisingly, as businesses get things like this right, businessmen have been using fluorescents for years. Few people use incandescents anymore - I switched my house to pure CFLs before I moved in, at an average (subsidized by SMUD) cost of about 75¢ per bulb, not $3. LEDs are going to have to drop to about $15 before they make any sense.

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