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Jason Tillberg
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I am 37 years old, happily married and have two young daughters 2 and 4. I live upstate New York near Ithaca in a town called Newfield. My research involves the study and incorporation of the following: Time Use Survey (Culture) Consumer Spending Survey Economic Data Demographics Economic... More
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  • It's Time To Invest In Your Home Economy

    Each and every year, the physical assets in America, from our cars to the school buildings our children attend, depreciate due to normal wear and tear. At the same time, each and every year, we invest some money back into either replacing these old assets or improving the assets with new technologies and better design.

    What has been happening over the last 4 years is we've cut back in investing in the physical economy as I will show you below. I would like to argue that some of the best investments we can make are investments in physical assets and not just stocks or bonds.

    Take a look at this monthly chart of total public construction spending from 1992 to 2013:

    (click to enlarge)

    This includes spending on highways and streets, educational buildings, healthcare related building and public housing.

    Public construction spending as a percent of gross domestic product (NYSE:GDP) since 1992, is about the lowest since 1998:

    (click to enlarge)

    Our current state of investment in general public construction is so low it's getting scary.

    Not only public construction spending, but businesses and homeowners also invest to replace or improve their capital assets every year.

    Each year, assets are acquired and some are disposed, like a television set that may work fine but is disposed of and a new television set is bought.

    The net result of all these assets acquired and disposed gives us what's known in economic terms as "Gross Capital Formation."

    In 2012, the U.S. gross capital formation was $2,473.35 billion.

    (click to enlarge)

    Gross capital formation as a percent of looks like this:

    (click to enlarge)

    The percent of our GDP that was spent on the physical economy has collapsed in the past 4 years to between roughly 15% and 16%.

    Every year, a percent of our fixed capital assets get consumed. In 2012, the U.S. consumed $2,011.8 billion in fixed capital. Here is a chart of consumption of fixed capital in the U.S.:

    (click to enlarge)

    Gross fixed capital formation and consumption of fixed capital as a percent of GDP together looks like this:

    (click to enlarge)

    The blue line is the percent of GDP that is invested in gross capital formation and the red line is the percent of our fixed capital that was consumed.

    I played around with these numbers. Using inflation adjusted dollars, I added up the previous 10 years worth of gross capital formation and total consumption of the fixed capital starting from 1955-1964.

    I then divided the consumption of fixed capital by the gross capital formation to get a percent of the consumption of the previous 10 years worth of gross capital formation.

    In 2012, we consumed 71.39% of the total gross capital formation of the previous 10 years. This was the highest percentage rate of consumption of formation for the previous 10 years going back to 1955. Here is the chart I created showing that result from 1964-2012:

    (click to enlarge)

    A lot of the fixed assets have a life of over 10 years, like bridges and houses. Some have a life of as little as 3 months, like a pair of sneakers from Walmart (NYSE:WMT) that I once bought for $12 that literally ripped in half on me in 3 months. (You get what you pay for.)

    My case is as follows: We need to constantly invest in our physical estate from our own homes to the private construction of our utilities, to the public construction of our streets and schools in order to maintain and grow our standards of living.

    Innovation and technology are the drivers to improving our productivity, which is critical and vital to both growing and even maintaining our standards of living.

    I would be substantially less productive if I were still using my Dell Computer (NASDAQ:DELL) from 2001 Vs the 2011 Apple iMac (NASDAQ:AAPL) computer I'm using now. If I were still driving my 1986 Monte Carlo (NYSE:GM) Vs. driving my 2005 Toyota (TOY) Camry, I would be paying a good deal more in gasoline. Visiting Grandma takes us about 500 miles round trip. That Monte Carlo got at most 20 miles per gallon Vs the Camry that gets at least 30 mile per gallon. At $4 a gallon of gas, the difference in gas price is $100 driving the Monte Carlo and $67 driving the Camry to visit Grandma.

    Ideally, for comparing the cost it takes to drive 500 miles, I need to drive a Tesla (NASDAQ:TSLA) Model S, as I calculate, based on data from this website, it would cost me $23.65 in energy to make the 500 mile trip.

    I counted 50 light bulbs in my house. I could stick with having all 50 bulbs be General Electric (NYSE:GE) 40 watt incandescent bulbs that last maybe 2-4 years, or I could invest in Cree's (NASDAQ:CREE) new 40 watt LED equivilent that uses 84% less energy and comes with a 10 year warranty. Now that could be a good $500 investment right there!

    A snow storm on Long Island a month ago could not be adequately addressed by the local government's snow plow team. Granted, 30 inches of snow fell down, but this was the response by the local Government there:

    "Panico said a scarcity of heavy equipment caused an issue with snow removal since the snow was heavy and traditional plows weren't able to handle the weight of it.

    He said the highway department had 500 pieces of equipment available for snow removal, with help from the town's departments of parks and waste management. He said a "good amount" of equipment got stuck or broke down during the storm."

    (emphasis mine)

    Perhaps that's because they are not keeping up with the required investment in general maintenance of their snow plow fleet.

    Here is a chart of major power outages up to 2011 compiled by various sources indicated:

    (click to enlarge)

    For example, our streets won't be adequately cleaned of snow, then it may make sense to invest in some Goodyear (GT) snow tires for your automobile. If you continue to see long periods of having now power because of storms, invest in some batteries and perhaps First Solar (NASDAQ:FSLR) or any other company's solar panels for your home.

    Jeff Immelt, CEO of General Electric, said in a recent letter to shareholders, according to a CNBC reporter, that "GE's top priority remained growing the dividend." He went on to warn that the fiscal situation in the U.S., coupled with political uncertainty will impact capital investment.

    It's not very encouraging for the CEO of one of America's largest capital equipment companies to be too scared to invest the company's money into America's fixed capital base.

    At least as individuals, we are the chief asset allocator of our home economies. I recommend looking at home for investment opportunities, like replacing old light bulbs with new and improved, more efficient LED light bulbs to start.

    Disclosure: I am long AAPL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

    Mar 12 5:31 PM | Link | Comment!
  • Another Leg Down In U.S. Employment Coming?

    From its peak in 1990, Japan has been experiencing an aggregate decline in the total number of hours worked. If I were to multiply the total number of employees in Japan by the average annual hours worked per employee, I get a chart that shows the aggregate number of hours worked per year that looks like this:

    (click to enlarge)

    The same year the aggregate number of hours worked in Japan peaked, 1990, was the same year their stock market peaked. Investing in the iShares MSCI Japan Index Fund (NYSEARCA:EWJ) would have proven a poor long term holding.

    Here is a chart of the Nikkei 225 index:

    (click to enlarge)

    Source: Yahoo

    I cite Japan simply as an example of a large economy experiencing 20+ years of decline in aggregate work hours and because there is no reason it can't happen here too.

    In the U.S., we have similar measures of work that show an aggregate decline since 2000.

    First, here is a chart of the total number of hours worked per year in the U.S. by multiplying total employees by average annual hours worked:

    (click to enlarge)

    Second, here is a chart of the average hours worked in the U.S. per week per capita:

    (click to enlarge)

    This is why household incomes are down for the working class, we're working less hours.

    Third, here is a chart showing the percent of the total population that is employed in a job in the U.S.:

    (click to enlarge)

    This chart above is the most depressing as for what the future might hold for employment in the U.S. because if this percent continues to go down just back to the levels of the 1970's or even the 1960's, that means we'll have no job growth in the years or even decades ahead. It's depressing in the sense that we have such a high percent of the total population that wants work because of the need to pay debts and the high percent of woman in the work force. Even more of a concern is the already high percent who have become more and more dependent on income from the State Vs. the income from an employer.

    It is true that the economy of today is substantially different from the economy of 1960. Back then, stores were closed on Sundays and woman were far more likely to be employed in the home, running the household economy Vs. participating in the job market. However, between outsourcing and tremendous gains in productivity, the demand for more labor in the U.S. has diminished and has the potential to continue to do so.

    Here is a forth chart showing the labor force participation rate:

    (click to enlarge)

    All of these charts show a labor market in the U.S. that is relentless in its decline. No different than the relentless decline in labor in Japan that has been occurring for over 20 years.

    Despite declining aggregate hours worked, an economy can still grow. It can still grow because of gains in productivity that come from gross fixed capital investment. Investments that give us better tools and software to be more productive. Investments that give us more energy efficient homes and the like.

    So despite less hours worked, the output per hour worked continues to rise thus giving an aggregate rise in GDP per capita.

    Here is a chart of Real GDP per capita in Japan and the U.S. since 1960:

    (click to enlarge)

    For the U.S., if job growth remains in decline per the trends in the charts above, our economic growth going forward will have to come from gains in productivity just like that is where the economic growth came from in Japan post 1990.

    One problem with that is, in the U.S., gross fixed capital formation has collapsed as a percent of GDP.

    See this chart below of gross fixed capital formation as a percent of GDP:

    (click to enlarge)

    This "tide going out" as I like to refer to it, of jobs and aggregate "work" in the U.S. being in decline makes buy and hold as an investment strategy of equities more risky. I'm basing this on Japan's experience with the Nikkei.

    We're already seeing the signs of another possible leg down in the total percent of the population that has a job.

    Here is a 1 year bar chart showing 3 months of flat to down growth on that data set:

    (click to enlarge)

    America's Job growth looks like another leg down could be coming up.

    Less jobs means less payroll tax collection, less Federal and State income tax collection and more unemployment benefits that'll need to be paid, which would be a huge setback to the need to bring down the budget deficits, not just the Federal deficit but state and local deficits that are all across America.

    This could prove harmful for U.S. businesses and especially profits which should send share prices lower. A clear breakdown in the percent of the population that is employed would be a sign to lighten up on U.S. equities.

    America faces big challenges ahead, we must stay positive and remain confident that the virtues of hard work and prudence will win over our coming economic shortfalls.

    Disclosure: I am long SH. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

    Tags: EWJ, economy
    Sep 27 12:14 PM | Link | 2 Comments
  • The Real Reason Generation Y Is Not Driving As Much

    A recent article put out by Reuters titled "America's Generation Y Not Driven to Drive" tries to uncover why Generation Y, the generation of 80 million between the ages of 16-34, is not driving as much. The article cites the following statistics:

    "U.S. residents started driving less around the turn of the 21st century, and young people have propelled this trend, according to the federal government's National Household Travel Survey.

    From 2001 to 2009, the average annual number of vehicle-miles traveled by people ages 16-34 dropped 23 percent, from 10,300 to 7,900, the survey found. Gen Y-ers, also known as Millennials, tend to ride bicycles, take public transit and rely on virtual media."

    The article suggests that the reasons for not driving as much has to do with this generation being more concerned about the environment so they are riding their bicycles more or using public transportation instead. But the author acknowledges that the main reason is their anxiety over the economy.

    I believe all one needs to see to appreciate why this generation, especially the youngest of this generation, is driving less is because of chronic unemployment. They simply can't afford to own a car let alone the gas.

    This chart of the population of 16-19 year olds to employment ratio tells the story of their situation and why they are not driving as much as before:

    (click to enlarge)

    Post WWII, this age cohort has never been even remotely this unemployed. In the late 1970's. 1 in 2 of those between the ages of 16-19 was employed where as today is close to just 1 in 4 having a job.

    Until we see healthy gains in employment, especially for America's young, owning and driving a car will remain in the backseat for generation Y.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Tags: economy
    Jul 03 10:46 AM | Link | Comment!
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