Beat And Battered

Last time I filled up my gas tank it cost me $64.28. As I was standing there at the pump I started thinking.

I realized I had absolutely no idea why the price of gas was so high.

I mean sure, I get emails from MSN money every day telling me that oil hit a new record high.

I hear mutterings about China, and problems in the Middle East.

But, when it came right down to it, all I really understood was this:

I’m getting squeezed at the pump – and I want to know why.

So, with that in mind, I thought I’d do a little digging, and share with you what I learned.

Basically the price of gas breaks down like this:

• Federal, State and Local Taxes account for about 15% of the price per gallon.
• The price of crude oil accounts for roughly 55% of the price per gallon.
• The cost of refining the oil is about 15% of the total price per gallon.
• Advertising costs also make up about 15% of each gallon of gas.

This is just an average breakdown. The actual numbers vary from year to year and company to company.

Now, the taxes I understand. I’m not happy about it, but I get it. I also understand the refining costs and the advertising costs. Based off of these numbers, I decided that the main reason I am getting my pocket picked twice a week when I fill up has to be the base price of crude oil, which is at an all time high.

So, what’s going on with crude oil?

High Demand:

Right now there is a booming commodities market where there used to be hardly any at all. Namely, all over Asia – especially China and India. They are demanding all types of commodities in quantity, especially oil. Over here in the U.S. much of the way we live our lives also depends on oil. Not only do we put the refined version of it into our cars as gas, but it’s used in everything from plastic bags to Styrofoam. Even though oil prices are at an all time high, our demand is not really decreasing.

Low Supply:

There have been disruptions in the supply of oil all over the world in the last few years. Nothing that would normally make much of a difference, but when you couple it with record demand for oil and oil based products, it is pushing the price up. Here are a few specifics:

• In April of 2008, Nigerian rebels launched attacks on Exxon Mobil. They temporarily stopped production of 800,000 barrels of oil a day.
• On July 18,2008 Eni SpA (Italy’s largest oil company) also stopped production in Nigeria because of faulty pipelines. They will lose 47,000 barrels a day until the problem is fixed.
• Saudi Arabia (which claims to own about 21% of the world’s oil) isn’t exactly falling all over itself to increase production – but they are finally going to. The good news is, they are planning to increase oil production by as much as 500,000 barrels per day starting this month. (July 2008)

Fear of a Limited Supply:

Many economists buy into a theory that we are reaching “Peak Oil.” That’s the theory that the world’s oil reserves are limited and that we will eventually hit a point where we reach a maximum output. A place where companies will begin to cut back on production to avoid running out of oil.

While there’s no arguing that oil reserves are limited, exactly when we will reach “Peak Oil” is anyone’s best guess. With the increasing demand from Asia, this theory is getting more and more attention.

Some people even speculate that Saudi Arabia has refused to produce more oil because they are afraid of reaching a “Peak Oil” phase sooner than anticipated.

War in the Middle East:

Obviously, things aren’t looking too good over there. If Iran is attacked and they actually back up their threats by closing off Straits of Hormuz then they would effectively cut off one fourth of the worlds oil supply. If that does ever happen, oil prices at $200 a barrel will seem generous. The threat of that alone is probably driving oil prices higher than they have to be.

The Declining Dollar:

In some ways, it appears we can thank the housing bubble for the rise in oil prices too. The price of oil is measured in U.S. Dollars. When our dollar value declines compared to the rest of the world, then the price of oil goes up because it takes more dollars to reach the actual value of a barrel. (Gotta love that logic!)

It’s our fault too:

Yeah, I know, that’s a hard one to swallow. Still, some economists believe that as the U.S. economy takes a dive, most investors start looking for “safe” places to put their money. Usually, they turn to commodities. This actually drives the price of those commodities up because of the sudden increase in demand.

So, what do I think about all this?

There are some investors who believe that oil prices are in a bit of an unnatural bubble right now. While I do agree that prices are at record highs, I also believe that this is just a natural part of the commodity process. Commodities run in cycles. When demand outstrips supply, prices rise. Usually there is a short period where supply stays low, and prices stay high.

Eventually, more and more companies with $$ signs in their eyes jump in and increase production. In the mean time, we (the consumers) simply find ways to do without whatever it is as often as we can. So, eventually the increased supply and decreased demand helps the price to “right itself”.

There are a couple of wild cards in this scenario. Mainly the increased demand from developing countries and the threat that we may be running out of oil sooner than anticipated. Still, I believe that eventually the price will right itself (though I don’t think the price of gas will ever return to it’s pre-cycle lows).

In fact, I think that if you truly understand the principles of supply vs. demand, as well as how the economy, and government factor in, then you can apply that knowledge to any commodity. The same rules are still going to apply, whether you are talking about oil, or oranges.

Allright. I’ve told you what I thought – It’s your turn!

Do you think we are about to see a turn around in gas prices? Do you think now is a good time to begin investing in oil, or a good time to start selling your shares?

Let me know – you can use the comment form below! And, if you loved (or hated!) this article, then this post explains how you can offer your feedback for a chance to win $50. Thanks!

Photo © Connie Brooks

Writer Auditions - Author Connie Brooks - Offer Your Feedback

This may sound crazy but I haven’t looked at the peformance of our investments in quite some time.   When one of the Money Writers suggested we all do an overview of our of holdings I realized how long it had been and was afraid of what I’d see when I logged into our accounts.

My fears were well-founded, it’s been an ugly year so far for our investment portfolio.

401k Losses
The largest percentage of our investments are in my 401k, which is down 8.68% year to date.   The largest holding, about 60%, is an S&P 500 index fund, so this account tends to track the market.  The next largest holding is a bond market index fund and then there are two international mutual funds.  All of which are down : (

Vanguard 500 Index (VFINX) – Large Blend
Vanguard Total Bond Market Index (VBMFX) – Bond Index
American Century Intl Growth (TWIEX) – Foreign Large Growth
Dodge & Cox International (DODFX) – Foreign Large Value

403b Losses
My wife’s 403b is down a miserable 14.25% year to date.  Luckily it’s under half the size of my 401k investments so it’s 14.25% of a much smaller dollar amount. All of these funds are with American Century, the Ultra Fund is the one that’s hurting us the worst, down 16.7% this year according to my numbers.

American Century Equity Income (TWEIX) – Large Value
American Century Ultra (TWCUX) – Large Growth
American Century Heritage (TWHIX) – MidCap Growth

This is the investment where we noticed the biggest dollar amount drop, simply because we’re no longer contributing to the account.  With all of our other investments, as the market drops I keep reminding myself we’re buying new shares at cheaper prices which should (hopefully) appreciate over the next few decades.

However, since no new money is going into the 403b, the portfolio value keeps dropping along with the market.  I can see how this downturn would be stressful for someone living off of their retirement savings.

IRA Losses
Our IRA investments have lost the least in 2008 so far, mine is down 5.35% and my wife’s 6.48%.  The Small-Cap Index Fund Inv has been our biggest detractor for these accounts, year to date down about 7.6%

Vanguard Small-Cap Index (NAESX) – Small Blend
Vanguard High-Yield Corporate Fund (VWEHX) – High Yield
Vanguard REIT Index (VGSIX) – Real Estate

Misc Losses
We also have a little money in Oakmark International (OAKIX) which is classified as a foreign large value fund.  I’m having issues with our site login so I don’t have our specifics but the fund in general is down 17.52% year to date so that’s probably our biggest loser so far.  Luckily it’s our smallest holding : )

Other than a few other shares of stock here and there I didn’t include, that pretty much sums up our investment performance so far this year.  In two words, “Really BAD”.

Money Writer Investment Performance
I heard a rumor that Million Dollar Journey has managed to squeak by with just over a 1% loss in their portfolio so far this year.  Who would have thought a few years ago I’d be envious of a portfolio with a 1.35% loss!

Here are the investment returns of the other Money Writers:

• My Dollar Plan -7.8%
• Generation X Finance -13.32%
• The Digerati Life
• Lazy Man & Money
• Brip Blap
• The Sun’s Financial Diary

I spent a good part of this week with my car in the shop. Since it’s a used Cadillac the entire front end pretty much has to be torn off any time we need to repair something, and that’s frustrating for me since I am used to doing my own repairs whenever possible.

This time it was the alternator, and we spent a whopping $600 to get it repaired. I spent the rest of the week being thankful for my emergency fund. Having some money tucked away in savings kept me from having to use credit to pay the bill. That was one bright lining in an otherwise stressful week.

Do you actively put money into an emergency fund? Has it ever helped you out like it did me this week?

Writer Auditions

Writer auditions are still going on! This week the writers will be covering various investment strategies. Don’t forget, you can win $50 cash simply by offering your feedback on the writers.

Money Articles Review

There were some incredible personal finance posts around the web this week. Here’s a few that I loved from The Money Writers.

• Frugal Trader over at Million Dollar Journey wonders if we are hitting peak oil, or if we are just in a bubble. This is a really neat take on a hot topic - and he gets to play devil’s advocate from both sides. Don’t miss it!




• Madison over @ My Dollar Plan is going to quit her day job! She’s getting to experience early retirement, more time with her family, and all in all I’m green with envy. Congratulations Madison!




• Jeremy @ Generation X Finances put together a list of the 12 Money Mistakes Most People Make. I have to admit I’m guilty of at least two of these things: Lack of goals and lack of estate planning… How about you?




• Silicon Valley Blogger @ The Digerati Life has an interesting Immigration Story this week. She makes an excellent point about how economics and finances shape our families.




• Steve over @ Brip Blap wonders if you are a big picture person or a small picture person?




• Lazy Man and Money has 35 Tips to Save on Gas. There were some really good tips in this list. I’m going to print it out and keep it handy.




• Sun @ The Sun’s Financial Diary shows us how Google can help us with our budgets!

  
  

Here are some of the highlights from the Money Blog Network:

• A look back at the federal minimum wage over time @ Five Cent Nickel.




• Withdrawing Money from UPromise @ No Credit Needed.




• The Top Three Career Dilemmas at Free Money Finance




• Stay Cool This Summer: Air Conditioner Alternatives @ Consumerism Commentary




• Earn Free Visa Gift Cards for Searching the Web @ Mighty Bargain Hunter




Around the Blogosphere:

Trent over at The Simple Dollar reveals the Single Biggest Money Mistake He Ever Made. Can I get Rich On A Salary reveals the Smartest Financial Advise He Ever Got, and Get Rich Slowly poses the question, “How Can You Get Your Wife to Talk About Money?”

We were featured in several Carnivals this week. Thanks to everyone who took the time to include our articles!

• Carnival of Financial Planning #8 - Cute Kitten Edition @ Financial Learn




• Carnival of Money, Growth and Happiness #51 @ Credit Card Lowdown




• Carnival of Debt Reduction: The Secret to Life Edition (#149) @ American Consumer News




• The 69th Carnival of Money Stories @ Almost Frugal




• Festival of Frugality #135 - The Frugal All Over Edition @ Antishay Ventenne




• Money Hacks Carnival #21 @ Help My Cash Grow




• Carnival of Financial Planning - July 26 2008 Edition @ The Skilled Investor




• The Carnival of 20-Something Finances @ Dollar Frugal

From the WSJ:

Housing Bill Relies on Banks To Take Loan Losses
Lawmakers Pressure Lenders to Pitch In To Curb Foreclosures
By DAMIAN PALETTA
July 28, 2008; Page A3

WASHINGTON — The housing rescue bill passed by the Senate Saturday hasn’t been signed into law, but top Democrats already are putting pressure on regulators and bankers to make sure a major program to prevent foreclosures doesn’t fall flat.

For struggling U.S. homeowners, the success or failure of the program — which would let roughly 400,000 owners refinance into affordable, government-backed loans — depends largely on bankers’ willingness to take a partial loss on the loans and to reduce the amount of money borrowers owe.

Bankers say they will do it, but it isn’t clear how many loans they might be willing to restructure.

“I absolutely do believe that there will be more principal reductions,” Michael Gross, Bank of America Corp.’s managing director for loss mitigation, mortgage, home-equity and insurance services, told a congressional panel Friday.
…
Experts say the program’s eventual participation could rise dramatically if home prices continue to drop — which could put more pressure on lenders to offer borrowers more assistance. Lawmakers are already pressing regulators and lenders to prepare now so the program can begin without delay when it goes into effect Oct. 1.
…
Taking a loss on a loan by writing down the principal owed is one of the least desirable options for loan servicers. They typically prefer to either lower the interest rate or extend the life of the loan — from 30 years, for example, to 40 years.

“The real problem is going to be, just like with every program out there, are the banks going to take this seriously?” said Rebecca Case-Grammatico, a staff attorney at the Empire Justice Center in Rochester, N.Y., who advises clients facing foreclosure. “And if they don’t, we’re in the same position we’ve been in all along.”
…
The program will be run by the Federal Housing Administration, a division of HUD, and will insure up to $300 billion in refinanced 30-year, fixed-rate loans. The mortgages can’t be for more than 90% of a home’s newly appraised value. For mortgages that exceed the value of the home, the lender would have to voluntarily write down the principal to the qualifying level. If the home goes up in value, the borrower must share newly created equity with the FHA.

The program will begin Oct. 1 and end Sept. 30, 2011. Borrowers won’t be able to qualify if they have intentionally defaulted on their loans or if they had a debt-to-income ratio of less than 31% as of March 1.

Six years ago my wife and I decided to purchase a home just before our wedding day. After a few months of looking we decided to build a starter home close to my work. It seemed like the perfect decision to make at the time. Interest rates were low, around 5.5% for a 30 years fixed [...]

I’m hopeful everybody got they fix of CNN this past week, I’m sure they got some huge ratings. Unfortunately, I don’t get down with talking heads and think they may be doing more to divide America than bring us together. I mean the title alone, sure there may be two three or four Americas, but I don’t think a TV special does anything than tell folk what they already know and experience. Unless we live under rocks like Armadillidiidae vulgare, excuse me I mean pill bugs or Earth worms. Strange to me also was the timing, while Obama was on his worldwide tour. Folk brought out 200 stacks of folk out in Germany. Yep, it was a good look, but what does it do for me is my query?

Last I heard Germans don’t vote up in this camp. And I aint hating, I said the same thing about McCain when he was in Israel. Not to mention, I was gonna post on his lameness today but some more brain cells started to twitch – thus the current thought crime. As I have said in maybe too many post, our economy is fucked. As well, I have recanted a number of factors and postulates as to why we are experiencing what we are. Unlike the pundits or politicians, I have offered DOABLE solutions to this economic conumdrum.

But the way I see it, it will only get worse if we don’t take control and create our own reality. Now I’m no leader, but I was taught that leaders do two things: create their own reality and know how to say thank you. What have they created for me thus far is a porridge of unknown proportions. I se e the Dow Jones, and I see it loose and then make up some of the ground, but each time it does gain its losses, it looses another 200 to 300 points and need I remind you, that aint a good look. Dow Chemical profits dropped almost 30 percent over the past quarter, namely from what they say was due to spending 40 percent more on fuel and raw materials. Starwood Hotels, the folk that own Westin among others reported a 28% loss this past quarter and Kimberly Clark, the folk that make Kleenex and Huggies, reported a loss of 10% (do to rising energy cost as well). These are just the past quarter, I would add the last year but I don’t wanna cry in public.

The problem for me, outside of the political presidential hopefully not dealing with such specifics, is that it is only happening here in this country. I mean Daiwa Securities in Japan expects a profit of any where from 200 to 300 million over the next quarter. Credit Suisse can manage to mogul a billion dollar plus profit for the next quarter when overall net profits dropped. The Qatar Investment Authority has just increased its stake in Barclay PLC of London by more than 6 percent or $9 billion.

Now all American Based companies aint fucking up, I mean ask Occidental Petroleum, they profits increased 63 percent the past quarter, that’s right, they in oil. Now don’t get upset, so I aint watch Black in America or what ever it was called. All I am saying that the America I love and know has been foul to me and mine; that it is not black or white or mauve or polka-dot. If such was the case, we would have the black and white IRS and the Yellow and red Federal government. We have neither. The America that is ours (me my, son, and daughter) is green (dollar, dollar bill yawl), regardless of the denomination. That must and should unite us all, what color is yours jones?

La crisi finanziaria si fa sempre più grave ed altre due banche negli Stati Uniti hanno dichiarato Bancarotta.
La First National Bank of Nevada e la First Heritage Bank.

Con queste due banche sono 7 i fallimenti registrati quest’anno negli USA.
Purtroppo con la crisi dei mutui le banche non riescono a trovare il credito necessario per portare avanti la propria attività e coprire le gravi perdite dovute ai mutui subprime.

Sicuramente in Europa stiamo vivendo una forte crisi economica, ma negli Stati Uniti la morsa sta diventando insopportabile.
Ogni giorno si sentono notizie peggiori.
I pesci piccoli falliscono e muoiono nelle fauci della grande crisi finanziaria mondiale.

Speriamo che in Europa questa crisi non raggiunga i livelli degli USA, ma che tenga un equilibrio come lo è stato fino ad ora.
Un fallimento delle banche a catena è sicuramente l’inizio di una grossa crisi finanziaria, che potrebbe portare il paese in un notevole stadio di regressione economica.

Fonte Ilsole24ore

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With the continued growth of technology and the convneience of the internet bill paying can almost be automatic these days. After taking over the finances a couple of months ago I recently decided to start paying as many of our bills online as possible. I was excited to see last month our electric company sent [...]

I will free your mind today.
thought amnesty. u dont have to think - let me entertain u

1] Is dog toe nail polish different than human, and should I carry it in my store?

2] WORD PROBLEM: Verizion say I get unlimited calls for $99.00 a month, and that they have free calls for verizon to verizon calls, if all my calls from verizion folk, shouldn’t my bill be zero? Pleas express answer in a quadratic equation.

3] Is it just me or do Abe Lincoln and Jefferson Davis look like Twins or brothers?

4] If Iraq has 169K square miles and Afghanistan has 250K square miles, why do we have 170K troops in Iraq versus 60K in Afghanistan, when they say Afghanistan is more important on the war against Terror than Iraq?

5] If folks in Thailand had documented the existence of the Giant Fresh Water Sting Ray for centuries, how can scientist say it was only discovered 18 years ago?

6] Why is that a woman can have pretty azz toes when painted but can look busted than a mug without toenail polish?

7] What gives people the right to get upset when you tell the truth about them?

8] Am I the only Jones in the blogoverse who know a plethora of folks who wear rollers (pink foam) in they hair?

Addendum: Sister Gp drop a C note at my store, good look folk and met some of them black bloggers at the conf folk. Good Look K Ross, my Morehouse class mate and alum.