Tuesday, May 7, 2013
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Where Is It?
Indicators point to economic recovery. The DJIA and S&P Indices have both posted record highs. The unemployment rate was 7.5% for April, the lowest we've seen since December 2008. Consumer confidence ebbs and flows along with weekly jobs and housing numbers.
Are you better off than you were four years ago? Americans aren't answering that question the same way today as they did when Ronald Reagan asked it in 1980.
Pull out your wallet. No need to open it, just feel it in the palm of your hand. Not quite as heavy as it once was, right? Don't you wish you could lose weight just as quickly?
Official Bureau of Labor Statistics (BLS) for April 2013 report the unemployment rate to be at 7.5% with the U-6 rate at 13.5%. The U-6 number includes the underemployed and "marginally attached workers," those discouraged who have stopped looking but still want to work.
The underemployed are those working part-time jobs because they couldn't find something full-time and those who had to settle for entry level positions after a period of unemployment. They have a significant affect on the economy, the same as if they were unemployed, since they can't contribute to consumer spending.
BLS reports the number of unemployed persons at 11.7 million. Those working part-time because their hours had been cut back or were unable to find a full-time job total 7.9 million persons.
While the total unemployed decreased by 220,000 in April, the number of those taking part-time jobs increased by 278,000.
The marginally attached are broken down into several categories. Those that had not searched for work in the previous four weeks due to family circumstances or health reasons totaled 1.5 million. The remaining 835,000 became discouraged and quit looking for work.
Unemployment plus falling wages equal the lowest home ownership rate since 1995. Currently, 65% of Americans own their homes, down from 69.2% at ownership's peak.
What a rosy picture this paints. Is it enough to fuel the surge in the stock markets? If these numbers are accurate, how can the markets be seeing all-time highs? Why are investors confident?
They're not. The Federal Reserve keeps pumping new money into the economy to sustain record low interest rates and keep the economic engine running.
Bonds no longer offer a significant return. So investors buy stocks. The money has to go somewhere.
One weekend news anchor gloated when covering the DJIA's surge. She reported that the market had recovered 164% since its October 2008 crash. Those who had $10,000 invested at the time and didn't panic - left it there - would have $26,400 today.
Tell that to those who had their entire retirement fund invested in such stalwarts of stability as General Motors, Lehman Brothers and AIG.
Before you become totally depressed by such doom-and-gloom, understand that every story has two sides. What spells disaster for some is fortune for another.
My financial adviser offers an insightful analogy, comparing our economy to a car with a manual transmission. If you're too young to remember those, ask your parents.
When a car stalled, it could be restarted by a push from behind. The car would backfire, jolt and buck like a bronco until it finally caught gear and powered ahead on its own.
That car is no different than our economy. It tends to stall during a routine cycle. And then the government gives it a push through stimulus. The markets jolt up and down, backfiring a few times, before running smoothly on their own.
Stock prices fall, and they rise. Jobs are lost, new opportunities arise. Most often all turns out for the best eventually when left to human ingenuity and innovation.
We can only hope the government realizes this and stops pushing the car before the economy runs out of gas.
Folks, the moment I warned you about in January 2011 has arrived. Beware of E15.
The EPA has approved the use of 15% ethanol-blended gasoline known as E15 for all vehicles model year 2001 and later. And this means trouble.
When unleaded gasoline first entered the marketplace, cars equipped to run the new fuel were built with a larger inlet to their gas tank. Gas stations had to get new pumps with a larger nozzle to dispense the fuel so it wasn't accidentally used in cars built to run on the leaded gasoline in use at the time. The nozzle wouldn't fit into the smaller inlet. You couldn't destroy your engine by simply gassing it up.
That won't happen with the introduction of E15. A four-inch label on the pump is all the warning you'll get.
Ethanol interests began lobbying for the increased blend back in 2009. The National Renewable Energy Lab completed research that fall that showed major engine problems with E15 in a variety of products.
The Coordinating Research Council (CRC) conducted further testing that determined as many as one of every three vehicles on the road could experience problems with E15.
The Engine Products Group; consisting of auto, marine and small engine trade associations, sued to reverse the EPA's 2011 decision. The Supreme Court dismissed their lawsuit claiming they were not yet victims so couldn't challenge the decision in court.
This is like saying that several lab rats died after ingesting a new drug, but humans haven't been killed yet so we'll approve it for the marketplace. What is the purpose of testing first if you're not going to consider the results?
Let's forget for just a minute the fact that it takes more energy to produce ethanol than we will ever save on the road. Put aside the fact that the manufacturing process emits more harmful ozone than will be saved on the nation's highways. And how converting corn to fuel removes it from the food chain.
As a nation, we need to establish new sources of renewable energy. But a bad plan is worse than having none at all.
The American Automobile Association (AAA), along with several automakers, are disputing the EPA's claims that vehicles can run safely on E15. They assert that it could damage fuel lines.
Something those in the small engine, motorcycle and marine industries know quite well. The new blend is not approved for these engines, only vehicles.
Not so fast. BMW, Chrysler, Nissan, Toyota and VW will not cover fuel-related claims under warranty. Use of E15 is reason to void warranties by Ford, Honda, Kia, Mercedes-Benz and Volvo. The manufacturer's warn that its use will cause corrosive damage to fuel lines, gaskets and other engine components.
AAA warns that their engineering experts believe sustained use of the gas, no matter the age of the car, could cause accelerated engine wear and failure, fuel-system damage and false check engine lights.
Most gas stations won't go through the expense of installing new tanks to house E15. Instead, they'll install blender pumps which mix the ethanol and gasoline together in the right proportion for your selection.
So if the person who last used the pump chose E15, you're going to get a little bit of residual left in the hose when you select E10. It won't be enough to damage your car's engine, but it could be a problem for your motorcycle, boat or lawn mower.
The new blend is only being offered at a handful of gas stations around the country while legal battles ensue. Pay close attention to assure yours is not among them.
With today's spiraling gas prices, consumers have become accustomed to choosing the lowest price grade available. Selecting E15 may not be the bargain it appears.
Tip of the Week
Today is Password Day. It's an annual reminder to change your email on all of your online accounts to reduce the risk of getting hacked. Find tips on creating a strong password here.
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