Archive for March, 2013

Mid-March 2013 Blog Update of THE GREAT DEPRESSION of DEBT

March 15, 2013

Note that my new novel “The Child Remover” is now available on Amazon as both a paperback and in a Kindle version. 

CAN YOU HEAR THE MOBS PUSHING THE GUILLOTINES INTO THE STREETS? 

Okay, maybe not yet.  But there is bound to be some reaction by the resulting “sans-culottesas” if we continue to reduce the amount of wealth held by the common man.  Here are the recent percentages of US total net worth held by US “citizens” in the lower economic 80% (from an article by Domhoff, “Wealth, Income, and Power”):

1983    18.7%

1989    16.5%

1992    16.2%

1995    16.1%

1998    16.6%

2001    15.6%

2004    15.3% 

2007    15.0%

2010    11.1%

The situation is even worse for those in the lowest 50%.  They have gone from having 3.6% of total US net worth in 1995 to 1.1% in 2010 (per the Congressional Research Service).  Among countries with at least a quarter-million adults, only Russia, Ukraine, and Lebanon are more unequal, according to Credit Suisse Research.  We have taken the lower 50% of people out of the American Dream.  What do parents in this group tell their kids, to “Work hard so you can buy the wealthiest a few more houses or Picasso paintings?” 

I don’t know what percentage of this drop in common-man-wealth is due to tax loopholes, change of tax structure, reduced taxes on corporations, or whatever.  But I suspect that the drop is NOT because the top 20% are smarter and working harder than they were thirty years ago, or that the lower 80% have become lazier.  I also know that history tells us that if you get enough have-nots, they eventually demand what they perceive of as their fair share, and they back up their demands with violence. 

If the top 20% were truly smart, they would be reducing this wealth transfer for their own survival and well-being.  Even if the “haves” all buy assault rifles for protection, those without wealth will have even more of these weapons and truly know how to use them.  In my opinion, the only thing that has stopped some degree of public rebellion already is the lack of a charismatic leader of the poor. 

There are those in the high wealth category, like Warren Buffet, who are bringing attention to this issue.  But they seem to be outnumbered by those wealthy who are buying windup politicians with limited abilities who only know how to say “no new taxes.” 

MORE ARTICLES ON US ENERGY INDEPENDENCE AND RELATED ADDED JOBS 

USA Today, October 23, 2012

“IHS says the oil and gas drilling boom, which already supports 1.7 million jobs, will lead to the creation of 1.3 million jobs across the U.S. economy by the end of the decade.”

“It’s the most important change to the economy since the advent of personal computers pushed up productivity in the 1990s,” says economist Philip Verleger, a visiting fellow at the Peterson Institute of International Economics.”

“The major factor driving domestic production higher is a newfound ability to squeeze oil out of rock once thought too difficult and expensive to tap. Drillers have learned to drill horizontally into long, thin seams of shale and other rock that holds oil, instead of searching for rare underground pools of hydrocarbons that have accumulated over millions of years.” 

CNBC, February 11, 2013

US Is on Fast-Track to Energy Independence: Study

“U.S. oil and gas production is evolving so rapidly—and demand is dropping so quickly—that in just five years the U.S. could no longer need to buy oil from any source but Canada, according Citigroup’s global head of commodities research.” 

“Citigroup’s Edward Morse, in a new report, projects a dramatic reshaping of the global energy industry, where the U.S., in a matter of years, becomes an exporter of energy, instead of one of the biggest importers.” 

“Crude oil generated the largest single annual increase in liquids production in U.S. history last year, with an increase of 1.16 million barrels per day. Oil production is booming in places like Texas and North Dakota, which has the lowest unemployment in the country at just 3 percent last September, compared to the national rate of 7.8 percent then.”

“At the same time, Citi sees a big impact on the U.S. economy. The current account deficit is about 3.2 percent of GDP, and the oil import bill is 1.7 percent of GDP. Citi expects that energy self-sufficiency, combined with the impact of low natural gas prices, could cut the current account deficit by up to 2.4 percent of GDP.” 

“The Citi report, titled “Energy 2020: Independence Day,” also projects a larger and quicker decline in demand for oil in the U.S. over the next decade or two, due to efficiency and the shift to cheaper natural gas. For instance, Citi expects 30 percent of the U.S. heavy duty truck fleet to turn to natural gas-based fuel by 2015. That would reduce diesel demand by an estimated 600,000 barrels per day. It also expects new automotive efficiency standards to reduce U.S. oil production by two million barrels per day.”

REUTERS, March 13, 2013

“Exxon Mobil Corp expects oil and natural gas production in North America to rise 45 percent over the three decades to 2040, boosted by output from U.S. shale formations, Canadian oil sands projects and the Gulf of Mexico.” 

“The company sees U.S. energy consumption falling about 5 percent from 2010 to 2040, driven by efficiency gains in the transportation sector.”

“The combination of rising output and slowing demand should lead to North America becoming a net energy exporter by about 2025, Exxon said.”

HOW DOES THIS ENERGY EXPLOSION TIE IN WITH THE SEQUESTER?

It doesn’t!  Rather than dynamically including this economic growth opportunity in future budgeting, including its likely benefit in reducing our deficits, Republicans are emphasizing immediately cutting back dramatically and the Democrats want to blindly move forward with little thought on how we will pay for current or future programs.

THE COST OF FOOLISH WARS

Almost unspoken in the current budget debates is what we have wasted on foolish wars.  We want to reduce teachers, social programs, Medicare, and so on, but Congress doesn’t want to discuss how much we have wasted on our silly military excursions.  Yet a March 14, 2013 article in Reuters show that the total cost of the war in Iraq, besides the sad loss of lives, could grow to more than $6 trillion dollars.  Not only aren’t the costs mentioned, but some of those most ardent Senators on our needing to reduce our deficit (like Lindsey Graham and John McCain) harassed Chuck Hagel, the new Secretary of Defense, in his confirmation hearings.  He was harassed because he was one of the few voting against the Iraq war. In a fair and just world, Graham and McCain would be apologizing to Hagel! Perhaps in the remaining Obama presidency there will be more restraint before we spend lives and dollars on foolish wars.

SO, WHAT SHOULD WE BE DOING? 

Tax laws, loopholes, and so on for wealthy Americans and corporations should be changed such that the wealth disparity is reduced.  Not eliminated (socialism), just reduced.  Stop pushing for severe austerity which will devastate our country.  Instead, invest in and encourage growth of businesses that can gain from an abundance of energy that the US is about to experience.  Use the related direct and indirect job growth, and the resultant increased tax income, and the increased taxes from wealthy individuals and corporations, to reduce our deficit.

THE STOCK MARKET NUMBERS

The Price/Dividend (P/D) ratio for the S&P 500 is now 49.5.  The current P/D of 49.5 can be compared to the historical median P/D of 26 and the 17.2 target I use to get back into the market.  At current dividends, the market will have to drop 48% to get down to its median P/D and drop 65% to get to my own entry target P/D. `

Do not interpret the P/D ratio as a predictor of the direction of the economy.  It is a historical unemotional measure that I believe reflects whether the market is overpriced.   The P/D ratio can stay very high for many years with little rationale, as it has since the nineties.

Here is where I get my P/D ratios. http://www.indexarb.com/dividendYieldSortedsp.html. Go to the bottom of the table and read the value opposite “Average Dividend Yield (%) of All S&P 500 Stocks.” Take the inverse of this number X 100 to get the price/dividend.

As always, people should use their own judgment/data to affect their own investment strategies; and they should not blindly use the above information.  Intelligent people can, and do, disagree.