Banknotes in Bottles?

Despite a steady stream of bad news on both the macro- and microeconomic levels this week, the markets held up reasonably well compared to past performances. We even managed to pull out a mid-day rally today despite a much worse than expected jobs report. The Dow Jones Industrial average lost 1.9 percent for the week, the S&P 500 gave up 2 percent, and the Nasdaq Composite declined 1.7 percent.

November’s jobs report was the worst in recent memory, with the US economy shedding some 533,000 jobs in the month, marking the 11th consecutive month of losses. That’s the fastest pace of job loses in 34 years and pushes the current unemployment rate up to 6.7 percent. So far this year 1.9 million workers have lost their jobs and a total 10.3 million Americans are unemployed.

Perhaps the most worrisome aspect of the report, aside from the total losses, was the fact that they’re longer concentrated in the few industries most affected by the current crisis. In fact, on a year-over-year basis, only a third of the 15 industries tracked in the report are showing positive growth: natural resources and mining, education and health services, utilities, government and the catch-all “other services.” And with the continued softening of energy commodity prices, we could begin to see losses in the natural resources sector soon.

Amidst the losers, the service sector was the hardest hit in November, dropping 370,000 jobs. We’re not likely to see a staff up in that sector going into the holidays as we normally do, meaning employment data will probably remain grim through the end of the year.

Although it’s probably not going to come as a shock, the weak employment data coupled with a declining service sector and falling durable goods orders doesn’t bode well for fourth quarter GDP. Given the data, we’ll probably see a contraction of at least 1 percent.

This could be a feather in the cap for The Big Three automakers though; surging unemployment will leave legislators with little stomach to deny their bailout, for better or worse. It would hardly be politically expedient to add to unemployment rolls now. And the automakers are going to need it, with US sales falling 37 percent last month.

The employment news helped push Treasury yields to record lows this morning, with yields on the two-, 10-, and 30-year securities falling to the lowest levels since regular sales of the debt began.

Another side effect of the report was a steep decline in oil prices, with crude touching $41.38 mid-afternoon as investors worried about demand decline. As I write at 3 pm ET, oil is on track to post its largest weekly decline in almost 17 years. That’s led to speculation that some parts of the country could see gasoline prices as low as $1.25 in some parts of the country by early next year. Anecdotally speaking, I filled up my tank earlier this week and for the first time in at least a couple of years, it cost less than $20.

There was a bit of improvement in weekly initial jobless claims however, falling to 509,000 last week from 530,000. Continuing claims continued their rise however, hitting a 26-year high of 4.087 million, as workers continue to have difficulty finding new jobs.

The bad news in real estate continued to pile up, with foreclosures spiking 76 percent in the third quarter from year-ago levels, with nearly 3 percent of homes in foreclosure. The number of homeowners whose payments are delinquent also rose to 6.99 percent as the economy continues to weaken and job losses mount, the highest delinquency level since tracking began. Currently, almost one in 10 homeowners here in the US is either behind on their payments or in foreclosure.

Mortgage application activity spiked 112 percent in the last week of November as the Federal Reserve and Treasury Dept took steps to push down mortgage rates. The hope was to encourage buyers, but in reality, as lenders remain reluctant to write new loans, it was more of an opportunity to refinance. According to the Mortgage Bankers Association, refinancing activity jumped more than 200 percent.

The average interest rate for 30-year fixed-rate mortgages fell to 5.47 percent last week, down from 5.99 percent in the prior week, with Treasury planning to take steps to push rates down to 4.5 percent.

Finally, it was reported that average hourly wages up 3.7 percent in the past year, almost keeping pace with the 3.8 percent rise in the consumer price index.

However, that pace of wage growth, coupled with rising unemployment, means that the government program to push down mortgage rates will probably meet with limited success short of a further decline in home prices. As lenders continue to demand pristine credit histories and solid debt-to-income levels to write new mortgages, it really doesn’t matter much how low rates grow.

Interestingly though, despite the steady stream of bad news this week and a much worse employment report than expected, all three stock indexes finished the day in positive territory. That would seem to suggest that investors and traders alike are already pricing much of this bad news into the markets, which could indicate a bottom.

Too bad we can’t say the same for the real estate markets.

In the free e-zine Nanotech Investor News, GS Early wrote about water from an interesting perspective. You frequently hear about the scarcity of the resource from a consumption perspective, but really from the energy standpoint:

When you hear about alternative energy or renewables, most people immediately conjure images of solar panels, wind turbines, fuel cells and batteries. The one image that doesn’t usually pop up right away is water, or hydro energy.

Perhaps it’s because we’ve been using hydro energy for so long that is doesn’t seem like a new, hip way to derive even more energy. Alternatively, there are plenty of folks who see the consequences of damming once-powerful rivers and the long-term environmental and commercial costs associated with it.

Well, there’s a new world of hydro, and it’s already being used in places. There’s wave energy, tidal energy, current energy and a number of other variants that are being used to tap into the extant power of the earth’s most abundant resource.

Not surprisingly, the UK has been a leader in new hydro technologies. But there are also companies in the US and Canada that are hard at work developing systems to harness river currents, tidal shifts and ocean energy.

The advantage some of these new hydro projects promise is that unlike wind and solar, water doesn’t stop shining or blowing. Some early tidal energy projects were limited to big tidal shifts that meant you could only gather power about 10 hours a day. But new technologies can take advantage of more subtle tidal shifts that allow hydro energy capture almost constantly since most tidal waters are in a constant state of flux.

Smart tech investors should start to learn about these new systems, become familiar with the players and keep an eye out for these generally private companies landing contracts with far-sighted publicly traded power companies. ScottishPower, now owned by Spanish energy player Iberdrola (Spain: IBE), is a major player in wave energy technology. And Iberdrola is a significant global alt energy player along with fellow Spanish energy player Abengoa (Spain: ABG).

Click here for a primer on new hydro technologies.