DailyFinance.comhttp://www.dailyfinance.comDailyFinance.com%http://www.blogsmithmedia.com/BlogURL%/media/feedlogo.gifDailyFinance.comhttp://www.dailyfinance.comen-usCopyright 2012 Weblogs, Inc. The contents of this feed are available for non-commercial use only.Blogsmith http://www.blogsmith.com/Three Questions You Must Ask Yourself Before Buying a Homehttp://www.dailyfinance.com/2011/04/21/home-buying-advice-questions-tips-advice/http://www.dailyfinance.com/2011/04/21/home-buying-advice-questions-tips-advice/http://www.dailyfinance.com/2011/04/21/home-buying-advice-questions-tips-advice/#commentsFiled under: ,

It's a brave new world in the U.S. housing market -- one in which many of the old familiar norms have come in to question.

To say that the current housing market is likely to punish those who don't painstakingly evaluate their decision to buy a home would be an understatement. In most parts of the country, there's no strong tailwind of buyer demand to provide a safety net against home purchase mistakes. With all that in mind, here are three questions that prospective home buyers would be wise to incorporate into their evaluation process:

1. Are you prepared to own the house for five to seven years?

The housing bubble is long since gone, and with it, the old idea that you could count on a 5% to 10% average annual appreciation in your home's value. Today, that only applies in a few high-demand niche markets. That means if you have to move again in a few years, you're probably going to pay a high transaction cost. Between the costs of selling, and the possibility of a decline in value of your home, or a minimal increase, you may end up netting less money than your outstanding mortgage principle.

So examine your goals. If you're thinking you'll be able to flip this home for a quick profit in a few years, the odds are against you in most markets. If you don't see yourself owning the new home for at least five years, you're probably better off from a financial transaction standpoint in your current home, all other factors being equal.

2. Are you buying the best house in the neighborhood?

The value of the best home in a less-than-ideal neighborhood will always be constrained by its sub-par locale, but the effect is magnified in a soft housing market because buyer demand does not exist to offset the neighborhood factor.
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Never buy the best home on the street or in the neighborhood. What you want is a home comparable to the homes around it, and one whose value is also bolstered by several well-maintained, higher-value homes nearby.

The current situation is not a bust -- the housing market is recovering in selected markets -- but it's a sluggish, uneven recovery, with some metropolitan areas stabilizing, and others showing signs of falling into a double-dip. In such a soft market, think extra carefully about location liabilities: Does the street have many homes worth less than the one you're considering? Too many vacant homes? A rainwater drainage problem?

To guard against such issues, do the following test: Examine two homes to the left of the house, two homes to the right, and at least four across the street. If more than three appear to be of lower value than the prospective house, eliminate that home from contention, and proceed to the next potential house in another neighborhood.

3. Does your monthly budget have room for an oil shock?

Determine exactly how much it costs to commute to work from the prospective new house.

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For example, if you face a 45-mile commute one-way from your prospective new home in Van Nuys, Calif., to your office in Anaheim, and you travel by car, determine exactly how much your commuting costs would be if the price of gasoline doubled. Admittedly, the price of gas -- currently about $4.20 per gallon for regular unleaded in Southern California and about $3.80 per gallon nationally -- is not likely to double to $8 per gallon in the immediate years ahead. But it could, if another oil shock occurs.

Some probably view this spring's $1 per gallon surge in gas prices as an oil shock, but the reality is prices could vault much higher if Middle East civil unrest worsens, or if some other factor reduces the supply of oil to the U.S. for a sustained period.

Given that uncertain energy climate, it's best to stress test your monthly budget for higher fuel prices. If your 45-mile commute to work at roughly $4 per gallon would become a serious hardship at $6 per gallon or $8 per gallon, then a comparable home closer to work -- perhaps one that has a 20-mile or 15-mile commute -- may make more sense, depending on other cost and location factors.

It's also worth considering your potential new home's ease of access to mass transportation, because as long as the U.S. continues to use gas as its primary transportation fuel, the nation will be vulnerable to an oil shock.

There's no way to sugarcoat it: Buying a home is more complex than it used to be. In addition to adequate living space, good schools and public services, and the potential for quiet enjoyment, prospective buyers have to think in longer terms, and gauge risks they might once have ignored. The boom is over, and the safety net is gone -- so be careful.

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]]>advicebuying+a+homebuying+a+housebuyingahomebuyingahousecommutinggasoline priceshome priceshome+buyinghomebuyinghousinghousing bubblehousing busthousing sectormortgage ratesmortgagesneighborhoodoil pricesoil shocksingle family homestips for buying a housetips+to+buying+a+housetipstobuyingahouseJoseph LazzaroThu, 21 Apr 2011 15:00:00 ESTThree Old Reliable Stocks to Buy for the Long Haulhttp://www.dailyfinance.com/2011/04/21/three-old-reliable-stocks-to-buy-for-the-long-haul/http://www.dailyfinance.com/2011/04/21/three-old-reliable-stocks-to-buy-for-the-long-haul/http://www.dailyfinance.com/2011/04/21/three-old-reliable-stocks-to-buy-for-the-long-haul/#commentsFiled under: , , ,

Three Old Reliable Stocks to Buy for the Long Haul Every market is replete with short-term traders -- they account for the bulk of stock price movement and trading volume. And if you're a professional trader or otherwise adept at taking advantage of short-term price discrepancies or other mis-pricings, hats off to you.

However, if you're like most individual investors, you probably won't fare as well with short-term strategies. For the majority of us, identifying stocks likely to perform well over periods of years -- or even decades - represents the rational investment strategy. With that in mind, here are three "old reliable" stocks that every long-term investor should consider.

United Technologies: The Jet Age Has Only Just Begun

Hartford, Conn.-based United Technologies (UTX) will likely continue to benefit from the economic expansion taking place in emerging markets.

A large backlog in commercial aircraft orders at Boeing (BA) and Airbus, to which UTX supplies jet engines via its lead Pratt & Whitney unit (24% of revenue) will be a major driver of profits. And while U.S. travel may experience low revenue growth in 2011, international travel growth should remain at adequate rates this year, led by strong emerging market GDP growth -- which should generate future engine orders.

In addition, infrastructure spending in the U.S. and key emerging markets such as China bodes well for two of the company's other units: Otis (elevators, 23% of revenue) and Carrier (air conditioning, heating, and ventilation systems, 25% of revenue). The value-adding dimensions of Otis and Carrier can't be underscored enough. Otis is the world's largest elevator and escalator marker, and Carrier is the largest heating/air conditioning/ventilation systems manufacturer, offering products that are intrinsic to the modern world. Those products will play an even larger role in the development of Asia and Latin America, than they did in U.S. development.

UTX's Sikorsky unit (9% of revenue) and its Fire and Security division (11% of revenue) round-out the impressive, industrial business model.

In short, United Technologies is a company operating on all cylinders that's well-positioned for the global economic recovery. Reuters expects UTX to earn $5.36 and $6.08 per share in 2011 and 2012, respectively.

United Technologies' stock chart has formed a short-term double-top at/near $86 -- a bearish technical pattern, but if you're willing to hold UTX more than two years, you should do fine -- assuming the price of oil tops out in the range of $110 to $120 per barrel.

GE: The Mutual Fund in One Company

Political and social upheaval in the Middle East has rattled the oil market -- and pushed crude above $100 per barrel -- but the calculation here argues that when conditions on the ground stabilize, the global economic growth story will be intact. That's a good reason to own diversified industrial giant General Electric (GE).

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GE's stock vectored above $20 during the winter, pushed $22 before pulling back slightly, and is currently jockeying with that $20 support/resistance level.

Look for GE's energy infrastructure, consumer/industrial, and technology units to post revenue increases in 2011, boosted by increasing demand from both emerging markets and the developed world. GE should record impressive gains in oil and gas products, health care imaging, and airplane engines. There's also a chance that GE Capital Finance -- hit hard after the housing bubble burst -- could contribute to profits in 2011. If it does, a $26 stock price for GE would not be unreasonable by the end of 2012.

Overall, 2011 revenue will likely rise 2% to 3%, followed by a probable 2% to 4% rise in 2012. Reuters expects GE to earn $1.34 and $1.62 per share in 2011 and 2012, respectively.

Coca-Cola: 'No One Ever Went Broke Holding Coke'

Venerable Coca-Cola (KO) stock has roughly doubled in price since 2009 to about $67, but don't fret that you've missed the boat: Coke appears to be headed to $80 and beyond during the current economic expansion.

Fundamentally, Coca-Cola's operation remains strong. Coke will likely post 2011 revenue growth of 20% to 25%, including acquisition revenue, after a 3.5% gain in 2010. KO's top-line results will be aided by good international sales, and strong growth in non-carbonated beverages. Efficiency improvements, adequate cost containment, and stronger growth in emerging markets should offset higher commodity costs -- round out the story of Coke leading the soft drink pack in another recovery.

In addition, Coke has successfully re-positioned itself amid the consumer trend toward health and sports drinks (POWERade, vitaminwater) and away from carbonated drinks. That said, the "big 4 carbs" -- Coca-Cola, Diet Coke, Fanta, and Sprite -- are doing nicely internationally, which will more than offset sluggish U.S. volume in the signature cola brands. A $1.88 annual dividend rounds-out the positive story. Reuters expects KO to earn $3.87 and $4.25 per share in 2011 and 2012, respectively.

Safest Pick: Coca-Cola (KO).

Best Pick: (higher risk) United Technologies (UTX).


Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.



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]]>Buy and Holdemerging marketsinvestment adviceLong term investingmarket forecastoutlookrecessionrecoveryStocks to buyUnited TechnologiesUTXJoseph LazzaroThu, 21 Apr 2011 11:00:00 ESTThe Frugal Consumer: Have Friends Over for Dinner with a Side of Suspensehttp://www.dailyfinance.com/2011/04/16/frugal-consumer-home-theater-dinner-suspense-films-movies/http://www.dailyfinance.com/2011/04/16/frugal-consumer-home-theater-dinner-suspense-films-movies/http://www.dailyfinance.com/2011/04/16/frugal-consumer-home-theater-dinner-suspense-films-movies/#commentsFiled under: ,

America's uneven economic recovery has prompted belt-tightening in almost every income group, but that doesn't mean couples have to eliminate their entertainment budgets altogether. Here's an idea that will both lower your entertainment costs and allow you to enjoy a superior evening: Host a home-theater dinner party with a classic Hollywood film.

If you own a plasma or LCD big screen TV with a decent sound system, you've already made one of the most cost-effective entertainment purchases of your life.

Listed below are three classic Hollywood suspense films that should please your dinner party guests. All are available on DVD for under $15. So there's no need to spend a bundle on entertainment -- just remember to chill the chardonnay and make plenty of hors d'oeuvres.

Rollover (1981). Genre: Thriller/Drama/Romance. Stars: Jane Fonda, Kris Kristoferrson, Hume Cronyn. Fonda plays Lee Winters, the widow of a corporate chairman trying to find out why her husband was murdered. Banker Kristoferrson grows romantically close to Winters while trying to broker a financing deal for Winters' company, and unbeknownst to them, another banker, played by Cronyn, recklessly and callously puts self-interest ahead of national interest. (This film could easily have been made in 2008 instead of 1981.) Rollover played to small crowds in 1981 because audiences then were less informed about the global financial system and investing, but today's viewers will undoubtedly recognize several stunning parallels to the problems plaguing credit markets and the U.S. and European economies now. Director Alan J. Pakula also deftly deepens the romance/relationship between Fonda and Kristoferrson to give viewers the shelter they need amid the financial and political turbulence.

The French Connection (1971). Genre: Action/Drama. Stars: Gene Hackman, Roy Scheider, Fernando Rey. The winner of five Academy Awards, including Hackman for Best Actor as NYPD detective 'Popeye' Doyle, this masterpiece is based on the real-life efforts of narcotics detectives Eddie Egan and Sonny Gross to disrupt drug smuggling between Marseille, France, and New York City. Set in crime-ridden, deficit-plagued early-1970s New York, Hackman's larger-than-life performance is supported by Scheider's street-smarts, and a superior, engaging script that will have you rooting for the pair as they pursue French drug smuggler Alain Charnier (Rey). Director William Friedkin brilliantly intersperses periods of action with analysis and introspection, and also oversees what is the undisputed greatest urban car chase scene in motion picture history: Hackman's frenetic, dangerous drive under one of New York's elevated subway lines to pursue a suspect.

No Way Out (1987). Genre: Thriller/Romance. Stars: Kevin Costner, Gene Hackman, Sean Young. Based on Kenneth Fearing's novel, The Big Clock, this late-Cold War era film shows the price our nation pays and the harm that occurs when craven, valueless individuals occupy key positions in the Pentagon. Costner plays Navy Lt. Cmdr. Tom Farrell, who is hired by Defense Secretary David Brice (Hackman) to investigate whether the Soviet Union is working on a balance-of-power disrupting submarine, or whether it's myth. Costner is at his best in this fast-paced, twisting thriller, and the movie's on-location Washington, D.C., and Arlington, Va., scenes create a credible, you-are-there atmosphere.

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]]>budgetClassic Filmsdinner partydinner party ideasDVDDVDsentertainingentertainmentfilmsfrugalhome theatermoviesNo Way Outpersonal fRolloversave moneyThe French ConnectionJoseph LazzaroSat, 16 Apr 2011 13:00:00 ESTThree Dividend Stocks for Cautious Investors That Are Energy Growth Plays Toohttp://www.dailyfinance.com/2011/04/15/three-dividend-stocks-energy-growth-investors/http://www.dailyfinance.com/2011/04/15/three-dividend-stocks-energy-growth-investors/http://www.dailyfinance.com/2011/04/15/three-dividend-stocks-energy-growth-investors/#commentsFiled under: , ,

If you're a little hesitant to invest more money in stocks right now, that's understandable. The uncertain state of the U.S. economy, the nation's 14.7 million job shortage, and renewed concerns about Europe's government debt are putting some big question marks next to the U.S. and European recoveries.

But for those looking to cautiously commit new money to equities, consider stocks that offer a bit more safety because they pay decent dividends. Here are three in the energy sector:

BP Prudhoe Bay Royalty Trust: A Dividend Star

If you're looking for a low-risk dividend play, BP Prudhoe Bay Royalty Trust (BPT), may be for you.

The trust distributes royalties on 16.4% of the first 90,000 barrels per day of average daily production per quarter from BP's share of the Prudhoe Bay oil field.

BPT's current annual dividend is $8.92 per share, good for an impressive 7.8% yield at the current trust price.

Investors should not expect an outsized capital gain with BPT: a 5% to 7% annual stock appreciation is the realistic forecast, but shares could just as easily retreat 5% during that period.

BPT's 1-year stock range is $79.56 to $131.49, and the 5-year stock range is $50 to $131.49.

TransCanada Corp.: Natural Gas Growth and a Dividend, to Boot

TransCanada (TRP) is a dividend play that offers the promise of above-average growth.

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In addition to its natural gas transmission and storage assets, TransCanada also owns oil assets and electric power generation assets, including 19 power plants. Further, Phase one of TRP's $12 billion Keystone Pipeline System, with the capacity to transport 435,000 barrels per day of crude oil, opened in June 2010. Phase 2 boosted production capacity to 591,000 bpd in February.

Add more than 380 billion cubic feet of natural gas storage capacity in an era in which natural gas will play a larger role in energy consumption, and one can see why there's considerable upside with TransCanada's shares.

TRP's annual dividend is a solid $1.70 -- good for a 4.1% yield at the current $41 share price. Reuters expects TRP to earn $2.29 and $2.46 per share in 2011 and 2012, respectively.

Ferrellgas Partners LP: Promising Propane Play

Low-profile Ferrellgas (FGP) is the second-largest seller of propane in the United States -- a fuel primarily used in areas where natural gas isn't readily available. Ferrellgas will likely post a nice 8% to 11% revenue gain in 2011, after booking a 1% rise in 2010. Sales gains will likely be supported by slowly increasing prices for propane.

A company-wide cost-cutting program, and FGP's effort to expand its profitable cylinder-exchange program add to the positive story.

Ferrellgas's dividend is a solid $2 per year -- good for a 7.6% yield at the current roughly $26 share price. Reuters expects TRP to earn 42 cents and 94 cents in 2011 and 2012, respectively.

Warnings and Reminders

Dividends decrease, but do not eliminate, risk. Keep in mind that all of the above stocks contain moderate risk and are not suitable for low-risk investors.

Safest Pick: BP Prudhoe Bay Royalty Trust (BPT).

Best Pick: (higher risk) TransCanada Corp. (TRP).





Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.

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]]>BP Prudhoe Bay Royalty Trustbp+dividendbpdividendBPTconservative investingdividend stockselectricityenergy stocksFerrellgas Partners LPFGPLow risk investinglow+profile+dividend+playslowprofiledividendplaysNatural Gasoil pricespipelinepropanestock picks for 2011TransCanada Corp.TRPJoseph LazzaroFri, 15 Apr 2011 12:00:00 ESTThree Stocks Set to Gain Big from Emerging Market Growthhttp://www.dailyfinance.com/2011/04/13/three-stocks-set-to-gain-big-from-emerging-market-growth/http://www.dailyfinance.com/2011/04/13/three-stocks-set-to-gain-big-from-emerging-market-growth/http://www.dailyfinance.com/2011/04/13/three-stocks-set-to-gain-big-from-emerging-market-growth/#commentsFiled under: , , , ,

This certainly is not a market for squeamish investors. The Dow's roughly 25% rise to 12,250 since September, along with surging oil and gasoline prices, have some analysts forecasting that U.S. GDP growth will slow in the quarters ahead, triggering a substantial reversal in the stock market.

With a slowdown in U.S. economy a fair possibility, it's prudent to consider -- if you can tolerate the risk -- global growth stock plays that won't suffer as much if commercial activity in this country slows down. Here are three:

Chicago Bridge & Iron: Taking Care of Business

The stock of Chicago Bridge & Iron (CBI) just keeps rolling along: It has been in an uptrend for about a year, with shares more than doubling in value to about $40, and its future looks just as promising. Chicago Bridge & Iron specializes in projects that produce, process, store and distribute the world's natural resources -- services that are in-demand in emerging markets such as China, Russia, South America, and the Middle East.

In 2011, CBI's revenue should increase by more than 15%, led by profits from its liquid natural gas projects. There are also positive outlooks from its Canadian oil sands projects, and its shale and unconventional gas projects. Reuters expects CBI to earn $2.38 and $2.73 per share in 2011 and 2012, respectively. Based on those figures, a $50-plus price for CBI by the end of 2011 would not be unreasonable.

Cummins: The Right Products at the Right Time

To quote the late "first lady of Broadway," Ethel Merman, "everything's coming up roses" for truck engine and power generation system manufacturer Cummins Inc. (CMI).

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Cummins' stock price surged higher in 2010, slicing through major psychological resistance at $100 in December, and raced to $115, before a recent healthy correction created a decent entry point near $107.

With more than 50% of its revenue from international sources, Cummins is well-positioned to capitalize on continued global economic growth, and sales of its efficient truck engines and infrastructure-based power generation equipment are expected to keep increasing. Cummins is forecast to post strong engine sales growth in India, China and Brazil in 2011, and when you have a product that's in demand in those rapidly growing economies, you're the business world's equivalent of a Broadway smash hit.

Reuters expects CMI to earn $7.21 and $8.68 per share in 2011 and 2012, respectively. Hence CMI should trade above $140 by mid-2012.

Stanley Works: Still Doing Things Right

Old reliable hardware and tool company Stanley Works (SWK) has registered an impressive roughly 50% stock price increase in the last nine months, putting the psychological resistance levels of both $60 and $70 per share in the rear-view mirror. Currently, it's trading near $74, and it should record additional impressive gains during the rest of 2011.

About 40% of Stanley's revenue is international, and it has a strong presence in key, fast-growing emerging markets. Further, three of its important business units -- hand tools, power tools, and accessories -- should perform well as the global economic expansion continues.

Rare is the day you will find a steadier performer than New Britain, Conn.-based Stanley Works. The tool and hardware manufacturer is sort of a microcosm of the industrial ascension of the United States. Stanley is a low-profile, highly productive manufacturer of hammers, screwdrivers, saws, pliers, wood planes, measuring tapes, etc. The craftsmanship and durability of its products is renowned. Reuters expects Stanley to earn $4.93 and $6.03 per share in 2011 and 2012, respectively, which should propel the shares above $85 by mid-2012.

No Guaranteed Upside with Stocks

Keep in mind that all of the above stocks contain moderate risk, and are not suitable for low-risk investors.

Safest Pick: Stanley Works (SWK).

Best Pick: (higher risk) Chicago Bridge & Iron (CBI).


Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.





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]]>BrazilbricCBIChicago Bridge and IronchinaCMICummins Inc.emerging market stocksemerging marketsforecastIndiaInvesting advicemanufacturersmanufacturingmarket outlookprofitrussiaStanley Worksstock market outlookstock picksSWKJoseph LazzaroWed, 13 Apr 2011 09:00:00 ESTThree Late-Model Used Cars That Are Better Than Newhttp://www.dailyfinance.com/2011/04/12/used-cars-that-are-better-than-new/http://www.dailyfinance.com/2011/04/12/used-cars-that-are-better-than-new/http://www.dailyfinance.com/2011/04/12/used-cars-that-are-better-than-new/#commentsFiled under: ,

Three Late-Model Used Cars That Are Almost as Good as New For many Americans in these challenging economic times, buying a new car just isn't an option: The budget simply doesn't contain room for it.

But for those who need a new set of wheels, there's a way around that problem: It's possible to purchase a used vehicle and actually be in a better position, both financially and from a vehicle value standpoint. The trick is buying a superior-quality, late-model used vehicle -- a vehicle that is operationally and aesthetically comparable to a new model, but that sells for a substantially lower price.

Obviously, it takes a little work to find these gems, but you're in luck: We've already done the research. Listed below are three, late-model used vehicles -- an SUV, sedan, and a luxury sedan -- that will provide you with near-new-car service, without that painful new car price. Keep one of these vehicle properly maintained, washed and waxed, and your neighbors will think you're tooling around in a new vehicle. Heck, you may even fool yourself.

(Note: The 2006 and 2008 prices assume each vehicle has about 50,000 miles on it.)

2006 Toyota RAV4 Limited 4WD 6-cylinder
2006 manufacturers' suggested retail price (MSRP): $21,500.
2006 National Association of Auto Dealers (NADA) average retail price: $18,800.

Many know about the Toyota (TM) RAV4's multifunctional characteristics, including its larger-than-meets-the-eye cargo area, but despite weighing only about 2,600 pounds, the RAV4 also rides almost like your father's old Buick or Oldsmobile, and handles very well. The 6-cylinder version has superior acceleration. The RAV4 may be the best late-model used vehicle value in the smaller SUV category, and Toyota's superior craftsmanship means that with normal maintenance, you can count on it performing well for at least another 100,000 miles.

2006 Nissan Altima SL 4-Door 6-cylinder (non-hybrid), automatic transmission
2006 MSRP: $17,750.
2006 NADA average retail price: $14,650.

The 2006 was the last model year made before the Nissan (NSANY) Altima's fourth-generation remake in 2007, and offers superior acceleration (0 to 60 miles per hour in about 6 seconds), excellent handling, and a responsive 5-speed manual transmission or a 4-speed automatic. However, you'll have to go with the 3.5-liter (214 cubic inch), 6-cylinder version to get the aforementioned acceleration. The Altima seats four people comfortably, and its 20-gallon gas tank combined with its strong fuel economy (18 mpg city, 25 mpg highway) means you can drive halfway across your time zone before you need to fill up.

2008 BMW 750Li 4-Door
2008 MSRP: $76,800.
2008 NADA average retail price: $45,075.

The BMW 7-series is known as a "surplus wealth vehicle" because the new models annually transfer surplus wealth from adults to the bank accounts of BMW (BAMXF) and auto dealerships. New 7-series vehicles are both over-engineered and overpriced, which accounts for much of the massive depreciation they take after just a few years on the road. That said, few cars offer the combined ride, acceleration, and handling characteristics of the stately 7-series, and this car has every option conceivable, including seven air bags, traction control and a parking aid. The key to the BMW experience? Buy a nicely-maintained 3-year-old or 4-year-old model. Odds are, you won't notice a performance difference between the used and the new models, and you'll save $30,000, or more.



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]]>7-series750liAltimabest used carsBMWbuying a carcar valueconsumer tipsluxury carsNissanRAV4Toyotaused carsused vehiclesvehiclesJoseph LazzaroTue, 12 Apr 2011 16:00:00 ESTIs Social Security Safe with the Tea Party in Power?http://www.dailyfinance.com/2011/04/12/social-security-tea-party-gop-republican-benefit-cuts/http://www.dailyfinance.com/2011/04/12/social-security-tea-party-gop-republican-benefit-cuts/http://www.dailyfinance.com/2011/04/12/social-security-tea-party-gop-republican-benefit-cuts/#commentsFiled under: , ,

Is Social Security Safe with the Tea Party in Power?The recently averted shutdown of the U.S. government that seemed almost inevitable last week as Republicans and Democrats battled over the federal budget would have been a serious blow to the country and its economy. But the pain we just avoided is nothing compared to the havoc the nation will face if the Tea Party-led Republicans move forward with their plans to dismantle Social Security.

Haven't heard the Tea Partiers talk about ending your Social Security payment yet? Just wait.

Trust me: Whether you're receiving Social Security now or you expect to in the years ahead, your retirement benefits are not safe if the Republican Party remains in power. Here's why:

The ultra-conservative wing of the Republican Party is dominating its agenda now. That's the main reason House Speaker John Boehner (R-Ohio) was afraid to compromise with President Obama and Senate Democrats, and accept a smaller, more straightforward budget cut to end the stalemate. Nor is there much in the current political climate to suggest that the Tea Party's ability to instill fear in other Republicans and propel its agenda will diminish any time soon.

Rep. Paul Ryan (R-Wisc.), the chairman of the House Budget Committee, has already introduced a sham of a budget for 2012. The vague "budget proposal" is a thinly disguised anti-tax Tea Party manifesto that essentially dismantles Medicare, the nation's health insurance program for senior citizens. Under Ryan's plan, Medicare would be replaced by a voucher system that would, in theory, allow senior citizens to purchase private health insurance. Among the many problematic aspects to Ryan's concoction, the worst is that the vouchers would cover only about one-third the cost of a private insurance plan that provided coverage comparable to Medicare.

If Ryan's proposal becomes law, seniors can kiss Medicare goodbye. And for most of them, that will probably mean kissing any kind of robust health care plan in their retirement years goodbye as well, unless they have the large amount of spare cash available to buy a better policy than will be available for those holding Ryan's inadequate vouchers.

First End Medicare, Then End Social Security

If Ryan and the Tea Party sense they can win and dismantle Medicare, your Social Security payment will be next.

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The proposals are likely to start innocuously enough. The Tea Party's leadership will trot out statements like "Social Security is broke," (which it isn't, really) and "We have to cut payments because there's no other way to 'save' the program."

If retirees today think a little inflation is reducing their purchasing power and a making it hard to live within a budget, wait until they -- and eventually, all of us -- feel the impact of a 10% or even 20% cut in Social Security payments.

Tea Party lawmakers and other conservatives will also probably try to couple the cut in your Social Security payment with a reduction in the amount of income that's subject to the Social Security tax, as that will give their core constituency -- upper-income Americans -- yet another tax cut.

Ryan's 2012 budget plan already recommends decreasing the maximum income tax rate for individuals to 25% from 35%. Now that's what the nation needs: Having people whose annual adjusted gross income is $1 million and up pay 25% in federal income taxes, instead of 35%. It's pure genius: Cutting taxes even further for the wealthy is guaranteed to solve all of our nation's social problems.

Cutting the Social Safety Net

Perhaps you think the Tea Party wouldn't risk the political fallout of proposing cuts to Social Security, which is, after all, an extraordinarily popular program. Think again. The Tea Party hasn't shown much respect so far for programs and policies most Americans favor. In several key states, Tea Party-inspired Republicans have already succeeded in stripping most public employees of their collective bargaining rights -- the primary power workers have to negotiate fair salaries, benefits and working conditions. The Tea Party brought the nation to the brink of a damaging, and clearly unpopular federal government shutdown. And the Tea Party has already announced a plan to end Medicare.

The Tea Party appears determined to dismantle the nation's limited social safety net. It would be naive to assume that Social Security isn't next.

In the months and years ahead, the Tea Party-led GOP, if it's not stopped, will announce its plan to cut Social Security payments. And to save both Medicare and Social Security, there's only one option -- replacing Tea Party extremists in 2012 with lawmakers who will protect the programs that protect the American people.

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]]>BoehnerDemocratshealth care reformhealth care repealhealth insuranceMedicaidMedicareObamaPaul RyanRepublicansretireesretirementretirement incomesafety netsenior citizensSocial SecurityTea PartyvouchersJoseph LazzaroTue, 12 Apr 2011 07:00:00 ESTIn Housing Market's Suspenseful Story, the Tell-Tale Stat Is Inventoryhttp://www.dailyfinance.com/2011/04/07/housing-market-outlook-inventory-prices-buy/http://www.dailyfinance.com/2011/04/07/housing-market-outlook-inventory-prices-buy/http://www.dailyfinance.com/2011/04/07/housing-market-outlook-inventory-prices-buy/#commentsFiled under: , ,

With the U.S. economy continuing to grow, and with the summer "moving season" approaching, many Americans are pondering: Is now a good time to buy a home?

Well, if you've found your dream house and concluded that you simply have to own it, economic statistics and housing market data are unlikely to sway you. However, if you haven't discovered your perfect house, and there are no other factors requiring you to move, you may want to bide your time a bit longer. The housing market continues to show signs of sluggishness, and unless job growth accelerates, prices are likely to remain weak to tepid in many major U.S. metropolitan areas.

And unless U.S. GDP growth revs up substantially, you'll probably get more value for your home-buying dollar in six or nine months than you would today.

Home Inventories Are Still Too High

Although the median sales price of a new home declined 8.9% in February to $202,100, and the median sales price of an existing home dropped 5.2% from a year ago to $156,100, the tell-tale stats for prospective home buyers to watch are the new and existing home inventory numbers. Right now, the pair suggest that prices will stay soft through the third quarter of 2011, and possibly for longer.

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In February, the new home inventory rose to a 9.6 month supply at the current sales pace, up from an 8.9 month supply in January, and existing home inventories rose to an 8.6 month supply at the current sales pace, up from a 7.5 month supply in January.

All other factors being equal, until home inventories drop below five-month levels, the oversupply most likely will continue to weigh on prices. While it's possible (but not likely) for prices to rise in a sustained way as inventories rise, the rule is: Rising inventories, downward pressure on prices; falling inventories, upward pressure on prices.

So in the months and quarters ahead, keep your eye not only on median home prices, but also on home inventories. If inventories are flat or continue to rise through summer, take it as a sign that a sustained housing recovery has not occurred, and that the dreaded double-dip housing recession may have started.

On the other hand, if inventories decline through summer, that will be at minimum a sign of stabilization in the housing sector, or at best, a sign that rising home prices are ahead.

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]]>buy a housebuy a house nowexisting home salesForeclosureshome priceshouse priceshousinghousing sectorinventoriesmedian home pricesmortgagesnew home salesreal estateJoseph LazzaroThu, 07 Apr 2011 16:00:00 ESTThe Frugal Consumer: Three Classic Home Theater Films for Teenshttp://www.dailyfinance.com/2011/04/07/budget-consumer-classic-home-theater-films-for-teens/http://www.dailyfinance.com/2011/04/07/budget-consumer-classic-home-theater-films-for-teens/http://www.dailyfinance.com/2011/04/07/budget-consumer-classic-home-theater-films-for-teens/#commentsFiled under: , ,

The Frugal Consumer: Three Home Theater Films for TeensThe U.S. economy is recovering, but stagnant incomes mean family budgets are tighter, with less money left for entertainment. And if you're a parent of teenagers, you may not have as much discretionary cash as you once did to spot them $30 or $40 every week for a night out at the movies with a date or friends.

But that creates a dilemma: How does a family stay within its budget without having the young adults conclude that their lifestyle is more austere than the that of the Puritans?

Here's one option: Consider bringing the movie home to the teens via a home theater system. If you have a big-screen TV with a decent pair of speakers, you're halfway there.

If your teens balk at the option, ask them to try it for just one night. Odds are, after a test drive, they'll make it a regular event.

But for it to work, you'll need the second half of the equation: A great movie that young adults will like. Unfortunately, this takes a little research, because Hollywood hasn't produced too many gems lately. Don't fret: The research has already been done here. Listed below are three classic movies -- all available on DVD for less than $15 -- that should please the younger crowd.

Three Screen Gems for Teens

American Graffiti (1973). Genre: Romantic/Comedy. Stars: Ron Howard, Richard Dreyfuss. Most teens probably will balk at the thought of watching this film, but recommend it to them, anyway. More than likely, after a few minutes, they'll be 100% engrossed in the movie. Director George Lucas' tribute to his youth in the early 1960s in California's car culture is a masterpiece, combining a brilliant script, issues that teens can identify with (dating, impressing friends, social pressures, growing up), humor, and a classic rock 'n' roll soundtrack. Produced by Francis Ford Coppola, this box office blockbuster redefined how soundtracks are applied to films. Teens who have heard of it but never seen it may dismiss it as "a really old film," but after viewing it, most will probably change their verdict to "I didn't know it was a really good film."

Jaws (1975). Genre: Thriller. Stars: Roy Scheider, Richard Dreyfuss, Robert Shaw. Director Steven Spielberg's adaptation of Peter Benchley's novel is almost certain to keep the teens riveted to the screen. True, the special effects are basic compared to today's technology, but very little else is mediocre in this blockbuster ocean-faring thriller that literally left many Americans scared to swim in the ocean that summer. Jaws has many themes young adults will find appealing: the beach, generational conflict, and the price one pays to do the right thing in the face of social or political pressure. More than likely, your teens will be engrossed from the first few notes of the film's legendary score.

Titanic (1997). Genre: Epic/Romance/Disaster. Stars: Leonardo DiCaprio, Kate Winslet. Director James Cameron combines a love story with social commentary in a fictionalized account of the tragic 1912 ocean liner disaster. The development of the relationship between the supercool DiCaprio and the striking Winslet offers more than enough to interest teens, and the pageantry of the age combined with the film's spectacular visuals should also impress. Note: Given its length (three hours), it's best to schedule an intermission.

OK -- the hard work is done. Now ask your teen to invite their crew over on a Friday or Saturday night, tell them to turn off the smart phones and computers for a couple hours, and enjoy.

Just remember to make a lot of popcorn.

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]]>American GraffitiDVDDVDsentertainmentfamily budgetfilmshollywoodhome entertainmenthome theatreJawsmoviespersonal financeteensTitanicyoung adultsJoseph LazzaroThu, 07 Apr 2011 09:00:00 ESTCar Talk: Do Gasoline-Saving Engine Additives Work?http://www.dailyfinance.com/2011/04/05/car-talk-do-gasoline-saving-engine-additives-work/http://www.dailyfinance.com/2011/04/05/car-talk-do-gasoline-saving-engine-additives-work/http://www.dailyfinance.com/2011/04/05/car-talk-do-gasoline-saving-engine-additives-work/#commentsFiled under: ,

It happens almost like clockwork during every oil price shock. The price of gasoline jumps to stratospheric levels in the states, and the search is on for a wonder engine additive that will substantially increase gas mileage.

While some products on the market make ambitious claims, the bottom line for American drivers is, do any engine additives substantially increase gas mileage, for example by 10% or more?

The short answer is:
no.

Engine additives may lubricate internal engine parts better and provide other operating benefits. However, there has yet to be a controlled study by an independent laboratory such as Consumer Reports that has documented a mass-marketed engine additive -- one that can produce a substantial increase in miles per gallon of 10% or more, across a fleet of vehicles, operating under typical driving conditions.

Listen to What the Market Is Saying

Look at it this way: If an engine additive increased gas mileage by 10%, 15%, or 20% or more -- and if it sold for $10 or even $30 per treatment -- you'd probably know about it. It would be hard to keep secret a product that dramatically decreases gasoline consumption, and, by extension, lowers your monthly gasoline bill. The fact the products out there are not universally used speaks to their inability to substantially increase a vehicle's gas mileage. In other words, if the additives were such big money-savers, everyone would use them, all the time.

Remember, the key term is substantially increase gas mileage -- by 10% or more. Some additives may offer other operational benefits, including prolonging your vehicle's engine life, But if you're buying an engine additive with the expectation it will substantially increase your gas mileage, don't bother: It will not happen.

One Qualified Exception

That said, there is one engine additive that is a qualified, nuanced exception. Tufoil, a lubricant made by Fluoramics, Inc. of Mahwah, N.J. Tufoil coats engine parts. The product can bring about easier engine starts, increased horsepower and acceleration, extended engine life, a cooler engine temperature when running, and -- in some vehicles -- a modest increase in gas mileage. Also, for new cars, Fluoramics recommends that you drive 5,000 to 10,000 miles before using Tufoil.

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My own experience with Tufoil had favorable results -- but gas mileage increase varied over the decades, depending on the type of car driven. The gas mileage of a used car I owned in college, a Buick Century with about 85,000 miles on it, increased about 3%-4% after Tufoil was added. The product's other benefits, including a cooler-running engine and improved acceleration, were also noticeable. I also found each treatment, recommended with every oil change, paid for itself in reduced gas consumption after about 1,500 to 2,000 miles of driving.

I still use an 8 oz. Tufoil treatment after every oil change in the vehicles I own today -- but any increased mileage has been minor in current vehicles, which have fewer miles on them than that Buick Century. However, the improved engine performance characteristics, including improved acceleration and a cooler engine temperature, continue.

Remember an Old Axiom

For the foreseeable future, the bottom line on engine additives and gas mileage is: if it sounds too good to be true, it probably is.

You're much more likely to get the highest gas mileage possible from your vehicle if you follow the manufacturer's maintenance schedule, keep the tires probably inflated, drive conservatively (don't drive at excessive speeds or accelerate fast unless needed), and eliminate seldom-used, weighty items from the cargo area/trunk.

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]]>autoscarsengine additivesfuel efficiencygas mileagegas pricesgasolinemiles per gallonmpgoil pricesSUVsvehiclesJoseph LazzaroTue, 05 Apr 2011 09:30:00 ESTFive Tips That Can Save New Car Buyers a Bundlehttp://www.dailyfinance.com/2011/04/01/five-tips-for-new-car-buyers/http://www.dailyfinance.com/2011/04/01/five-tips-for-new-car-buyers/http://www.dailyfinance.com/2011/04/01/five-tips-for-new-car-buyers/#commentsFiled under: ,

car buyer For many Americans, buying a new car is a stressful experience, and consumers are right to feel that way: The process is expressly designed by car dealers to separate you from as much of your money as possible. And if you don't follow several basic rules, they'll succeed in taking you to the cleaners.

True, there are exceptions to the rule -- those rare dealerships that don't pressure their customers or manipulate the car buying process to get the maximum possible profit from every sale. But you shouldn't plan on being lucky. Instead, be prepared.

The car buying process is one of the most hardball consumer experiences in the United States, hence the sooner you recognize it, the more likely you'll buy a new car for a reasonable price -- not what the dealer wants you to pay.

The keys to getting a fair price are patience, preparation and perseverance.

1. Be Patient. If you are patient, you're more likely to buy a car for a fair price. This is the most important rule of new car buying, but it's amazing how many adults fail to obey this golden rule. Conversely, if you are not patient, the dealer will win.

Being patient, though, doesn't mean waiting to buy a new car until your used car no longer functions and you desperately need transportation. Better to buy a new car when you don't need one immediately, so you have the freedom to walk away from the dealer's first, second, and even third offers. Negotiate from strength.

2. Know the Right Months. In the new car business, dealer showroom traffic varies seasonally. All other factors being equal, you want to be negotiating for your new car when showroom traffic is low. For this reason, the Christmas shopping period is an excellent time to scout new cars.

If your first response to that idea was "I wouldn't want to look for a new car when I also have to shop for presents, make the rounds of holiday parties, etc.," you've hit on precisely the reason it's such a good time to hit the dealerships. Auto dealers can't stand the period from Thanksgiving to Christmas, when their showrooms tend to get very quiet. Late September is perhaps the second best time start looking for a new car: New model year vehicles arrive, increasing dealer inventories at the same moment as they're hit with a traffic lull from Americans returning to work and school. Dealers are more likely to lower their prices during these periods to generate sales than during high-traffic periods.

In the northern parts of the country, late January is the third best time to car shop. It's the dead of winter, and many Americans considering buying a new car will put off the decision because they are weighed down with winter sluggishness and winter heating bills. That makes it a smart time to visit Mr. Lonely Car Salesman.

3. Know the Right Weeks. Don't set a foot on a dealer lot until the third week of the month. Most auto salespeople make most of their pay from commissions. Hence, early in the month many "go for the jugular" -- play hardball on the price at the risk of losing the sale -- knowing that if they blow three or four leads by being too aggressive, they can make up for it in the second half of the month. You don't want to be there for the aggressive period. You want the lonely, desperate-for-a-few-more-sales-to-have-a-decent-month auto salesperson. Also, never visit a dealership on a Saturday. That's normally a high traffic day of the week.

4. Pay Cash. Obviously, this isn't possible for all prospective car buyers: Financing for 48 months or 60 months often is a necessity. But cash rules. If you can skip the loan, your negotiating power increases substantially.

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Here's a hypothetical example: You're evaluating a 2011 Ford Fusion (non-hybrid edition) (F) on the dealer's lot with a manufacturers' suggested retail price of $26,895. You tell the salesperson on your second visit that you're prepaid to write out a check for $17,000.

The salesperson's likely response will be something on the order of: "You're crazy. You're nuts. What are you talking about? That wouldn't even cover our costs."

At that point, leave your card with a number for him to call you the next day if he reconsiders, and leave.

If that salesperson doesn't call back, start reviewing cars at another dealership in the area.

Odds are, however, that salesperson -- the one who a day earlier implied that you needed psychiatric help -- will call you back, at which point you can start negotiating from your $17,000 cash base. You're much more likely to get that Fusion for $20,000 -- or even less -- by paying cash.

Similarly, the larger your down payment, the stronger your leverage with regard to financing. If, after suggesting a $10,000 deposit on the 2011 Ford Fusion, the dealer offers a financing rate that is high, again, leave your card and number, and move on to the next dealer. Odds are, you'll eventually get a more reasonable auto loan, even if the first dealer doesn't call you back.

5. Be Prepared to Walk Away at Least Twice. Here again, you have to exercise your "no" muscle. The salesperson will tell you: "This is our final offer, our best offer," or "It's as low as we can go, we're losing money on the deal." But know that when they says this, there are one or two lower offers below it. Never accept a salesperson's first or second offer. After you reject the first, the dealership invariably will call you back. If it doesn't, as noted before, move on to the next one. If you don't haggle and negotiate, you're playing in to the dealer's hand.

You're in the Driver's Seat

There are exceptions to the above rules. Vehicles that are in high-demand -- including luxury cars, sports cars, hybrids, and trendy vehicles -- tip some of the power back toward the dealership. Don't expect to negotiate a low or even fair price for a Toyota Prius or a Chevrolet Corvette. But those vehicles are the exceptions.

The new car buying process is harsh, and a stamina test. It's designed to wear you down, get you to panic, and give in to the dealer on price. But for the most part, if you shop with patience, preparation, and perseverance, you can beat the dealership at its own game.



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]]>auto salesbuying a new carcar loanscar salescar sales ripoffcar salespeoplecarsconsumer adviceconsumer tipsdealersdealershipsnegotiatingnew autosnew carsSUVswhen to shop for a carJoseph LazzaroFri, 01 Apr 2011 16:30:00 ESTGOP Is Winning the Budget Battle, but May Lose the Political Warhttp://www.dailyfinance.com/2011/03/21/gop-winning-budget-battle-lose-political-war/http://www.dailyfinance.com/2011/03/21/gop-winning-budget-battle-lose-political-war/http://www.dailyfinance.com/2011/03/21/gop-winning-budget-battle-lose-political-war/#commentsFiled under: ,

GOP Winning the Budget Battle, but May Lose Economic WarAs a result of President Barack Obama's signature Friday on another continuing resolution -- one that will keep the U.S. government funded until April 8 -- the contours of Washington budget battlefield are now visible.

First, the Republicans have won the 2011 battle over discretionary spending: It's going to decline substantially this year. The most recent continuing resolution cuts an additional $6 billion from this year's budget, bringing total cuts to about $10 billion. The stop-gap funding measures have been required because Congress has yet to approve a full budget for the current year, fiscal 2011.

Second, unless the more extreme wings dominate the Republican and Democratic party caucuses -- which isn't likely -- there will not be a federal government shutdown.

Washington's Austerity-Oriented Mood

The only questions remaining for the 2011 budget concern how much the budget will be cut for the full fiscal year, and the fate of "riders" -- policy-based items added to the bill.

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As of Monday, the two parties were about $50 billion apart on the issue of what represents a reasonable cut in discretionary spending for this year. The Republican-controlled House has passed a bill with $61 billion in spending cuts -- a guaranteed non-starter in the Democratic-controlled Senate. The Republicans in the House also passed a stand-alone bill to defund National Public Radio for a savings of around $5 million. That bill faces strong opposition from the Senate and the White House, thehill.com reported.

If the previous two continuing resolutions are any indication, Senate Democrats probably will agree to another $25 billion to $30 billion in cuts, which would bring the total for fiscal 2011 to $35 billion to $40 billion. That's a substantial amount, but nowhere near the roughly $100 billion in budget cuts sought by the Tea Party, the GOP's conservative faction.

But it's hard to image either Senate Democrats or President Obama giving any consideration to Republican-backed riders to block implementation of the health care reform act or to block aid to Planned Parenthood. Senate Minority Leader Harry Reid (D-Nev.) said his reaction to many of the GOP riders was "not only no, but hell no."

GOP: Not the Party of Workers

Although the Republicans may have won more ground in the battle to cut discretionary spending, history suggests this isn't a good time for the GOP to conclude that they now have the eternal loyalty of the American people.

That's because a much bigger problem awaits the Republicans: America's 8.9% unemployment rate. In the past, the Republican Party has shown a remarkable tone deafness to the typical person's struggles -- the plight of workers, the Americans who built and continue to build this country. In 1932, in the depths of the Great Depression, President Herbert Hoover didn't believe public policies could lower the nation's high unemployment rate, and acted accordingly. In 1995, when House Speaker Newt Gingrich (R-Ga.) shut down the federal government, he asserted that few Americans would complain about the disruptions it would cause. In both cases, the people found those positions wanting.

So far, there's nothing to suggest that today's Tea Party-led Republican have changed their view regarding the plight of workers from what it was 15 or even 80 years ago. If the GOP doesn't adapt rapidly, and the problem of unemployment worsens, the 2009 Democratic-backed economic reforms will, in retrospect, look very minor. And the GOP wins of 2010 could look very temporary.

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]]>Boehnerbudgetbudget cutsbudget deficitDemocratsdiscretionary spendingfederal budgetfederal debtFederal deficitGOPgovernment shutdownHerbert Hooverjob growthjobsnewt gingrichObamaRepublicansTea PartyunemploymentunempoymentworkersJoseph LazzaroMon, 21 Mar 2011 17:00:00 ESTWhy Gas Prices Rise Quickly but Fall Slowlyhttp://www.dailyfinance.com/2011/03/18/why-gas-prices-rise-quickly-but-fall-slowly/http://www.dailyfinance.com/2011/03/18/why-gas-prices-rise-quickly-but-fall-slowly/http://www.dailyfinance.com/2011/03/18/why-gas-prices-rise-quickly-but-fall-slowly/#commentsFiled under: , ,

gas pricesIt's a well-known law of physics that everything falls at the same rate. But as frustrated motorists have had reason to notice lately, that law doesn't apply to gas prices. You aren't imagining it: Usually, the price of gas rises much faster than it falls.

This phenomenon has held true for decades, and recent price trends have been no exception. On Thursday, the retail price for regular unleaded averaged $3.52 per gallon in the U.S., up a massive 37 cents in just one month -- and a whopping 60 cents, or 20%, since December. Several different factors have contributed to this trend.

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In many cases, gas price hikes are tied to wholesale prices. Many gas stations have contracts that require them to raise their prices as soon as their suppliers -- often oil companies -- raise theirs. Some gas stations also anticipate higher wholesale prices and hike their prices in advance to make up for the expected gap.

Here's an example: If the price of oil increases $5 a barrel, it will typically cost an additional 10 to 12 cents per gallon -- in wholesale prices -- for the retailer's next delivery. Gas station operators know this, and often will immediately increase the pump price of gasoline 10 to 12 cents in response. When they do this, retailers are essentially basing their prices on the cost of replacing the gasoline that's being used, rather than on the price they originally paid for that gas, to help even out their cash flow.

Smoothing the Cash Flow

The opposite happens when gas prices are dropping, leading to slower decreases as gas station operators hold off on lowering their prices in order to cover the earlier costs of buying more expensive gas. Here's a simplified version of what happens (excluding taxes and the cost of environmental regulations that also affect gas prices): Say you're a gas station owner who buys 10,000 gallons of regular unleaded gasoline -- a month's worth -- at Wednesday's wholesale price of $2.85 per gallon. Your bill comes to $28,500.

Imagine that you sell 9,000 gallons over the next three weeks, but then the price of oil drops, bringing the wholesale price for gas down 10 cents to $2.75 per gallon. You'll be able to buy your next 10,000 gallons at the lower price and cut your pump price by 10 cents per gallon as a result, but if you reduce your prices right away, you wouldn't cover the cost of the remaining 1,000 gallons of gasoline that you already bought at the higher price. Most likely, you'd wait until you'd sold those 1,000 gallons before cutting your price.

In this way, as retailers wait to cover the costs of the higher-priced gas still in their tanks, gas prices decline more slowly than they rise.

Maximizing Profits

Other factors also play a role in this phenomenon, however. One of these can be considered either "profit maximization" or greed on the part of station operators, depending on your perspective.

Sometimes, even after a station has sold all of its expensive gas at that higher price ($2.85 per gallon in our scenario), it will keep pump prices high and pocket an extra 10-cent-per-gallon profit on the cheaper $2.75 per gallon gas. As station operators squeeze an extra dime, nickel or even pennies out of each gallon of cheaper gas, for as long as possible, that lengthens the amount of time it takes for pump prices to fall.

If stations are all inclined to keep prices high, what persuades them to cut them? Competition, of course. If an area contains multiple gas stations, all of which want to boost their market share, one or two will inevitably lower their prices by a penny or two (or more) in the hope of increasing sales. Others will respond by cutting their prices too, until the pump prices finally reflect the reductions in the wholesale price.

Gas stations equipped with convenience stores, which generally earn more money from store sales than gas sales, typically can afford to lower their prices first. Meanwhile, some stations keep their prices high for other reasons -- they might not have much competition, for instance, and might not be concerned about losing a few customers -- but in general, the rule of competition applies.

The Power of Customers

And that means that customers do, in fact, have an impact on prices. To start prices on their slow journey downward, you need to shop around.

That said, customers' control over prices is limited. The largest factor in gasoline's price is still the price of oil, which has remained above $60 per barrel for the last 20 months. Oil prices have been rising -- albeit with volatility -- since December 2008, when they hit a low of about $35 per barrel during the financial crisis.

Given the current global trends in oil supplies and demand, it appears that the best way to cut your gasoline bill for the foreseeable future is to drive less, such as by carpooling more, using mass transit or buying a more fuel-efficient vehicle.

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]]>autoautomobileautoscarsCommutingDrivingEnergyfuelfuel economyfuel efficiencyfuel pricesgasgas pricesgas stationgas stationsGasolinegasoline pricesoiloil priceoil pricesoil shockpump pricesretailretail gas pricesvehiclesJoseph LazzaroFri, 18 Mar 2011 11:00:00 ESTHealth Care Reform: How Benefits Portability Will Strengthen the Economyhttp://www.dailyfinance.com/2011/03/17/health-care-reform-how-benefits-portability-economy/http://www.dailyfinance.com/2011/03/17/health-care-reform-how-benefits-portability-economy/http://www.dailyfinance.com/2011/03/17/health-care-reform-how-benefits-portability-economy/#commentsFiled under: , ,

Considering all the spin on the subject coming from the newly-elected Republican majority in the House of Representatives, and other conservatives, it might surprise many people to learn that the health care reform act of 2010 will actually increase the freedom of the typical American, and strengthen the U.S. economy.

But unless one of the conservatives' unlikely last-ditch efforts to de-fund the law or otherwise prevent its implementation succeeds, three key health reforms will take effect on Jan. 1, 2014, that will benefit individuals and the economy alike:

1. Subsidies, in the form of refundable tax credits, will cap maximum "out of pocket" expenses for lower income Americans.
2. Health plans will no longer be able to exclude people due to pre-existing conditions.
3. State health insurance exchanges for small businesses and individuals will open.

If the health care law is not undermined, it will remain the biggest social policy advance in the United States since the passage of Medicare in 1965, and it would rank third behind the latter and the establishment of Social Security of 1935 in terms of social safety net significance.

Will Benefits Portability Advance Careers?

Those three reforms alone will clearly help many individuals, but what may be less obvious is how they will boost the economy as a whole. That's because its easy to overlook the impact health care reform will have on job mobility via benefits portability.

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Right now, millions of people are remaining in their jobs, not because they really want to, but because of their health care coverage. In some cases, their plans provide vital health care for a spouse or dependent. In others, employees know that changing jobs could jeopardize their own coverage and benefits. So they stay put.

True, mobility also declines cyclically during recessions -- and that's especially been the case during the Great Recession, which increased the nation's job shortage from 7 million jobs to about 14.8 million. But the health care insurance factor has been an impediment to job mobility in the United States for decades.

The new health care law eliminates a great deal of the "coverage risk." Exit health care impediment. Enter increased job mobility. Employees seeking promotions, career changes, or better work environments will be able to make those changes more easily, instead of remaining in their current companies simply to retain health benefits. And that will lead to a more efficient allocation of talent in the U.S. economy.

Benefits Portability: Good for Employees, Economy

Further, the new system will stimulate business formation, innovation, and U.S. GDP growth. Consider these hypothetical (but realistic) examples:

o. An advertising account executive wants to start a new Internet marketing solutions company, but he doesn't, for fear that the shift will prevent his wife, who has a serious pre-existing condition, from continuing to receive health insurance. Under the reformed health care system, he'll be able to start that new company, because he'll be able to purchase insurance for his wife under whatever plan he chooses. The law will require it. Add another job-generating small business to the economy.

o. A 20-something wants to head back to graduate school to earn an advanced engineering degree, but she doesn't, due to concerns about obtaining affordable health insurance while she's unemployed. As a result of the new health care law, she'll be able to enter grad school confident in the knowledge that, thanks to federal subsidies, she'll be able to obtain affordable health care coverage. Add another highly-skilled scientist to America's innovation machine.

o. A married auto mechanic likes working for his current employer, a large auto repair shop near a big city, 45 miles from his home. But he thinks a better fit for him would be a smaller repair shop nearer to his small home town, and the shorter commute would give him more time with his family. However, he doesn't accept a job offer at the smaller shop because he's concerned about its ability to maintain health insurance. Thanks to the new health care law, he'll be able to take the job closer to home, because health care costs will be more affordable for small businesses under the new system. His quality of life goes up, and the money he spends on gas for his commute goes down.

Health Care Insurance: A Factor in U.S. Job Search

Obviously, health care insurance isn't the only factor people consider when making career decisions, but it can be a major one.
The U.S. is far behind Europe on benefits portability, and any time portability increases, it enhances the ability of talent to seek its best use.

Business formation. Innovation. Americans going back to school to increase their skills or enter a field they believe is their calling. Talent seeking its highest and best use. All of these are good things from an economic value-added standpoint and add to GDP growth, which makes the new health care law good news for investors.

The downside, of course, is that it will take until 2014 until benefits portability really starts to rev up. That's a considerable time away, and one reason many progressive public policy analysts view the 2010 health care law as too modest. That's my view as well: The 2010 act didn't go far enough. Congress did not create a single-payer system, nor something even more revolutionary, like a system in which the health care people receive is determined by how sick they are, not by whether or not they have insurance.

But this isn't France or Sweden -- you're living in the United States, and, to paraphrase Sen. Bernie Sanders (I-Vt.), when the votes aren't there, you take what you can get.

And what we got, imperfect though it may be, will provide real benefits to the U.S. economy.

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]]>2010 health care reform actaffordable care actbenefits portabilityGreat Recessionhealth carehealth care insurancehealth insurancehighest and best useinsurance exchangesjob lockjob mobilityjobsobamapre-existing conditionssubsidiessubsidizedJoseph LazzaroThu, 17 Mar 2011 09:00:00 ESTCan the Tea Party's Platform Reduce Unemployment?http://www.dailyfinance.com/2011/03/15/tea-party-platform-unemployment-globalization-economic-recovery/http://www.dailyfinance.com/2011/03/15/tea-party-platform-unemployment-globalization-economic-recovery/http://www.dailyfinance.com/2011/03/15/tea-party-platform-unemployment-globalization-economic-recovery/#commentsFiled under: ,

Can the Tea Party's Platform Reduce Unemployment? On Saturday evening in my native New York City, I attended a dinner party at which the topic of globalization dominated the cocktail period.

The consensus among the couples in attendance was that globalization -- the adoption of free markets around the world, the expansion of international trade, and the transfer of jobs to lower-cost production centers -- has been a net-negative for the United States, at least through its recently concluded first two decades.

Yes, globalization has had its upsides for the U.S.: strong international sales for U.S. corporations, especially in emerging markets; adequate-to-good quarterly earnings growth; and lower prices for many products for U.S. consumers.

The downsides for the United States, though, have been more profound: massive job losses to overseas markets, especially in manufacturing; and stagnant incomes.

And now, we're experiencing a third negative side effect, one that had been predicted for certain product categories, but that wasn't supposed to permeate the whole economy: rising prices and costs. Globalization's decree of lower wages for many job segments was supposed to be more than offset by lower prices and costs. In the United States, it hasn't worked out that way.

While some products now sell at lower prices, for others, prices and costs have actually increased. Oil, the world's most vital commodity, as well as food commodities and any number of raw materials are prime examples. Believers in supply-side economics and other conservatives blame the federal government's fiscal and monetary stimulus for the price increases, but the bigger driver of costs is the rising demand for these commodities in emerging markets -- a rise triggered by globalization.

As the era of globalization enters its third decade, its result for many Americans has been reduced earning power, a lower standard of living, and an enormous shortage of jobs.

Social Safety Net: Necessary or Irrelevant?

Problems like these are the sort that citizens of a democracy expect their politicians to address. And today, the most energetic political movement in the United States is the Tea Party. So it's worth asking what solutions the Tea Party has to offer for the painful side effects of globalization.

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Unfortunately, the Tea Party platform, instead of mitigating the economic and social problems triggered by globalization, is more likely to magnify them. The consensus of my fellow dinner guests was that in troubled times like these, the United States needs to bolster its new universal health care program, offer more generous unemployment insurance, and expand worker retraining programs for those whose jobs have been lost to globalization. The Tea Party-led Republicans and other conservatives propose the reverse.

Tea Partiers argue that decreased government spending, and lower income taxes, especially on upper-income groups and the mega-rich, will lead to job growth. And they suggest that by shrinking the social safety net, both the U.S. economic system and society will be strengthened. But there seems to be little logic to this argument: High unemployment, plus a smaller social safety net, plus reduced government spending (and therefore still more layoffs) leads to ... a healthy economy? It doesn't add up.

Whichever policy path the United States takes -- either addressing globalization's downside or magnifying it -- one thing is certain: If the U.S. economy is to recover, strong job growth must resume. The fundamental underpinnings of the American economic system -- the two main reasons many people tolerate its relative harshness -- are profits and jobs. Take either one away and a systemic adjustment usually follows. A lack of job growth for a long period puts major pressure on our society -- and in the past, those periods have been when the biggest economic reforms have occurred.

It goes without saying that the country is experiencing those pressures at critical levels now, just as it did in the early 1930s. And, just as the reforms President Franklin D. Roosevelt implemented under the New Deal provided a safety valve then, President Obama and the Democrats, guided by Keynesian economics, are attempting to relieve that pressure now.

The Tea Party's far-right ideology is hot right now. They'd better hope that the U.S. unemployment rate declines sharply after their policies are enacted. If it doesn't, the period of reforms that began in 2009 will resume. And those additional reforms will not be coming from the conservative movement.

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]]>conservativesconsumer spendingDemocratsFalling WagesFDRglobalizationGOPhealth careincomejob growthjobsKeynesKeynesianKeynesianslayoffsliberalsmedian incomesObamaoutsourcingRepublicanssalariessupply side economicstax cuts for the wealthyTea Partyunemploymentunemployment insuranceunemployment ratewagesJoseph LazzaroTue, 15 Mar 2011 08:30:00 ESTConsumer Sentiment Plunges as Gas Prices Surgehttp://www.dailyfinance.com/2011/03/11/consumer-sentiment-plunges-as-gas-prices-surge/http://www.dailyfinance.com/2011/03/11/consumer-sentiment-plunges-as-gas-prices-surge/http://www.dailyfinance.com/2011/03/11/consumer-sentiment-plunges-as-gas-prices-surge/#commentsFiled under:

In a decidedly downbeat week for the markets, the U.S. trade deficit and jobless claims rose, and the consumer sentiment index plunged 9.3 points to a far worse than expected 68.2 in March (preliminary), as surging gas prices weighed on Americans' mood.

The consensus of economists surveyed by Bloomberg had been that the preliminary March consumer sentiment reading would dip to 76.5 from 77.5 in February, after rising from 74.2 in January, 74.5 in December, 71.6 in November, and 67.7 in October. in December 2007, at the start of the Great Recession, the index stood at 88.9, and it hit a recent low of 55.3 in November 2008, during the acute stage of the financial crisis.

The consumer sentiment report closed out a disappointing week for the economy. Consumer credit did rise $5 billion in January, but the U.S. trade deficit surged by $6 billion to $46.3 billion in January, pushed up by a higher imported oil bill. Meanwhile, initial jobless claims rose a worse than expected 26,000 to 397,000.

Labor Market, Inflation Trends

Mike Englund, chief economist for Action Economics in Boulder, Colo., said even though jobless claims rose this week, he sees good things for job seekers in the longer-term downward trend in claims that pushed the metric below the psychologically significant 400,000 level this winter.

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"We're just giving back the distortions from the holiday in the prior week," Englund told Bloomberg News. "It does appear that tightening in the labor market gained a little steam."

Returning to the consumer sentiment report, the current economic conditions component declined to 83.6 in March from 86.9 in February. In addition, the consumer expectations component plunged to 58.3 from 71.6 in February -- its lowest level since March 2009.

Consumers' outlook on inflation grew more pessimistic in March. The 1-year inflation outlook jumped to 4.6% from 3.4% in February; the 5-year inflation outlook rose to 3.2% from 2.9%.

Economists, business executives, and policy makers monitor consumer sentiment because, historically, consumer attitudes have been correlated with consumer decisions to spend. In general, rising consumer sentiment leads to increases in consumer spending, or the maintenance of a level of spending, while falling consumer sentiment presages a drop in spending. And historically, consumer spending has accounted for 65% to 70% of U.S. GDP.

High Oil Prices Sour Sentiment

In general, consumers are feeling better about the economy than they were a year ago, largely due to signs that the major period of layoffs appears to be over, and also due to reports of continued, better than expected corporate quarterly earnings.

However, as the March sentiment survey indicated, the sharp rise in gasoline prices to more than $3.52 per gallon for regular unleaded has put Americans in a more subdued mood as spring approaches. The reason is obvious enough: High gas prices reduce consumers' disposable income and also increase businesses' operating costs -- two key components of the U.S. economy.

However, while the oil and gas price spikes are large, investors shouldn't overact. If the price of oil, currently about $101 per barrel, moderates to $85 to $90, the negative impact on the U.S. economy will be modest, perhaps as small as a 0.1 or 0.2 percentage point decline in GDP for 2011.

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]]>consumer confidenceconsumer sentimentConsumer Sentiment Indexconsumer spendinggas priceshiringhiring outlookimported oilinflationinitial jobless claimsjobless claimslayoffsoil pricesTrade DeficitJoseph LazzaroFri, 11 Mar 2011 11:40:00 ESTCan U.S. Services Growth Outweigh High Oil Prices?http://www.dailyfinance.com/2011/03/10/can-u-s-services-growth-outweigh-high-oil-prices/http://www.dailyfinance.com/2011/03/10/can-u-s-services-growth-outweigh-high-oil-prices/http://www.dailyfinance.com/2011/03/10/can-u-s-services-growth-outweigh-high-oil-prices/#commentsFiled under: ,

High oil prices have investors running scared, but all other signs indicate the economy is improving -- especially in the services sector, including software and other technology companies.The political uprising in Libya that has pushed oil above $100 understandably has dominated the headlines lately. But amid all the concern about oil and instability in the Middle East, investors shouldn't lose sight of the improving economic fundamentals in the U.S.'s manufacturing sector and, equally significantly, in its services sector.

Services, which account for 65% to 70% of the country's GDP, expanded for the 15th consecutive month in February, according to the Institute for Supply Management's survey. That month, the institute's nonmanufacturing index rose to 59.7, its highest level in about five years, from 59.4 in January. Readings above 50 signal an expansion; below 50, a contraction.

And every key component in the services index is pointing to continued growth.

The new-orders component -- a gauge of future business demand -- did dip to 64.4 in February from 64.9 in January, but the number still indicates that demand is increasing. What's more, new orders are increasing faster than inventories. The inventories measurement rose to 55.5 in February from 49 in January, which suggests that commercial activity is likely to keep services firms -- such as software and technology companies -- busy.

Services-Sector Jobs on the Rise

All of that increased activity has created a need for more service employees. The ISM survey's services employment index rose to 55.6 in February from 54.5 in January, marking its six straight monthly rise.

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ADP's (ADP) February private payroll report confirmed that hiring trend, finding that 202,000 services sector jobs were added last month. The ADP survey also estimates that employment in the services sector has increased by 779,000 since September 2010, or roughly 129,800 new jobs per month.

In an emailed research note to clients, IHS Global Insight's Chief U.S Financial Economist Brian Bethune says he expects good news on the job-market front. "These recent consecutive gains in the ISM employment gauges point in the direction of a fairly significant improvement in the labor market," Bethune wrote.

All this activity presents policymakers -- particularly U.S. Federal Reserve officials -- with perhaps their most challenging question since the acute stage of the financial crisis in the fall of 2008 and winter of 2009: Does the economy have enough demand in it to grow without monetary stimulus?

One Stat That Could End the Recovery

On the one hand, most economic fundamentals are positive. Led by export demand, the manufacturing sector is humming and services-sector activity is growing at a good clip. Also, initial jobless claims have declined, job growth has improved in the past five months and consumers -- more confident that the period of large job layoffs is over -- have started spending a little more. Meanwhile, lean corporations well positioned for economic growth continue to register adequate-to-good quarterly earnings growth.

On the other hand, one variable largely beyond the control of U.S. policymakers could negate almost all of that positive momentum, and that's the price of oil. Oil, which traded up 0.34% to $104,75 per barrel Wednesday, has grown more than 40% in five months. And prices posted at U.S. gas stations' entrances are rising almost as fast as an altimeter in an F-16 fighter jet.

Rising oil prices slow the U.S. economy by decreasing consumers' disposable income and by increasing businesses' operating costs. They also can increase inflation, as fuel costs raise the cost of making petroleum-based goods, of transporting goods and of travel.

True, the U.S. economy has grown more fuel efficient, making it less vulnerable to high oil prices now than it was during previous oil shocks in 1973-74 and 1979-80. But economists generally agree that sustained prices of more than $120 per barrel would slow the economy substantially, while prices over $150 would tip the economy back into a recession.

Right now, the bulk of the economic data -- including manufacturing, services, employment, consumer spending -- points to a self-sustaining expansion up ahead, and probably a winding down of the Fed's QE2 stimulus later this year. But investors can rest assured that the Fed also is keeping an eye on oil prices and will take them into account.

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]]>bond buyingbond buying programeconomic crisiseconomic dataeconomic growtheconomic recoveryeconomic stimuluseconomyemploymentFedFederal Reservegasoline pricesGDPjob growthjobsnonmanufacturingoiloil pricesoil shockOilPricesQE2qualitative easingserviceservicesservices sectorsoftwareU.S. Federal ReserveJoseph LazzaroThu, 10 Mar 2011 11:00:00 ESTFive Oil Stocks That Could Offset Your Pain at the Pumphttp://www.dailyfinance.com/2011/03/09/five-oil-stocks-to-offset-pain-at-the-pump/http://www.dailyfinance.com/2011/03/09/five-oil-stocks-to-offset-pain-at-the-pump/http://www.dailyfinance.com/2011/03/09/five-oil-stocks-to-offset-pain-at-the-pump/#commentsFiled under: , , ,

ConocoPhillips signMost U.S. motorists know what's probably coming this summer to a gas station near them: scorchingly high gas prices.

Intensifying civil war in Libya has already cut that nation's oil exports to about 25% of capacity, pushing crude prices above $105 per barrel -- triggering a quick 40-cent increase in the average U.S. price for regular unleaded to $3.50 per gallon.

However, that price may look low for the rest of 2011, for two reasons: 1) the risk premium that institutional investors are paying on oil futures because of concern that the unrest could spread to Saudi Arabia or Iran; 2) the U.S. summer driving season, during which gasoline demand rises, enabling both oil companies and local gas stations to raise prices without risking a decline in customer traffic.

So, until political stability returns to the Middle East, this summer's average U.S. gas price will likely exceed the record near $4.15 per gallon set in the summer of 2008. And in higher-cost metropolitan areas such as Los Angeles, San Francisco, New York and Boston, gasoline could approach $5 per gallon for super unleaded by the Fourth of July.

If popular uprisings seeking regime change hit the major oil exporters of Saudi Arabia or Iran, let's just say U.S. gasoline prices are going to hit truly head-spinning levels.

If You Can't Beat 'em, Profit From Them

How can U.S. motorists cope? You can wait for Congress to pass an energy policy that encourages fuel efficiency and that weans the nation off oil. But don't hold your breath: Any such bill is a nonstarter with the Republican Party controlling the House. (The GOP may, however, favor a temporary suspension of the 18.4-cent federal gas tax -- a modest money-saver, but every reduction helps.)

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If you haven't already made the switch, now may be a good time to consider a higher-MPG car or SUV, even if it's a used vehicle. All other factors being equal, a switch to 25-mpg vehicle from an 18-mpg vehicle will reduce your gas consumption by about 30%.

Here's another way: Consider investing in an oil play.

If you can't tolerate the higher risk associated with owning individual stocks, go for an oil-industry-related mutual fund or exchange-traded fund, as DailyFinance's Matthew Scott has outlined. However, if you can tolerate such risk, you may fare better with some individual stocks.

For example If you use 10 gallons of gasoline per week, or about 500 gallons per year, a $1 rise in gasoline prices means you'll need to offset that with about $500 in oil/oil services stock capital gains, excluding tax treatment.

If you're not a very experienced investor, it's probably not prudent to dabble in oil futures, which are influenced by many fundamental and technical variables. Unless you're prepared to lose up to $300 to $500 a day, you're probably going to be at a trading disadvantage. Ditto for gasoline futures.

While hardly safe, oil-related individual stocks are far more straightforward. Here are five, from least to most risk.

ConocoPhillips (COP). Recent price: $78. P/E 11.4. An integrated oil giant, COP looks cheap based on Thomson Reuters First Call fiscal 2011-2012 forecast earnings per share of $6.78 to $7.84, which are likely to be revised higher due to substantially higher oil and gasoline prices. Assuming an $89 share price by the end of 2011, you'll need to buy about 50 shares to offset a $1 gas price increase.

Chevron (CVX). Recent price: $103.51. P/E 9.5. It seems unlikely that a stock over $100 could be undervalued, but Chevron is, based on Thomson Reuters First Call fiscal 2011-2012 forecast earnings per share of $10.67 to $11.64. Chevron will likely trade at or near $115 by the end of 2011, and again 50 shares should ease the pain at the pump.

Valero Energy (VLO). Recent price: $27.30. P/E 9.4. Valero, the largest oil refiner in North America, has made it through the gasoline market's recession in decent shape, and it's likely to benefit from larger refining margins in 2011. The bulk of Valero's operation involves refining the more profitable heavy/sour crude oil, and margins will likely rise in 2011 as U.S. gasoline demand continues to recover. That should push Valero to about $35 a share by the end of 2011. A 75-share purchase would likely offset a $1 rise in gasoline prices.

Core Laboratories (CLB). Recent price: $101.90. P/E 27.7. Core Labs is a leading reservoir optimizer, providing an impressive array of proprietary products and services for the energy sector. And in an oil-hungry world, Core's products and services are likely to continue being in demand. What's more, as oil fields age and conventional fields become harder to find, oil firms will look to CLB to extract more out of existing fields. Thomson Reuters First Call fiscal 2011-2012 forecast earnings per share for CLB of $3.65 to $4.46 looks low. A 50-share purchase would likely offset a $1 rise in gasoline prices.

Suncor Energy (SU). Recent price: $45.30 per share. P/E 17.4. Oil priced above $90 per barrel means there's unlikely to be an interruption of Suncor's high-cost oil sands operations, and a double-digit production increase is likely in 2011. Suncor should approach $60 a share by the end of 2011. So, a 75-share purchase would likely compensate for a $1 increase in gasoline prices.

Safest Pick: ConocoPhillips.

Preferred Pick (highest risk): Suncor.

Of course, if oil plummets to $70 per barrel or lower, these shares will probably fall as well, most likely canceling out any money you would save from declining pump prices. Also, you could end up losing money on a net basis, if the stock falls more than 20%. But you get pretty old waiting for oil prices to plunge to $70 again.


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]]>gasoline priceslibya protestsoiloil pricesoil sector playsoil shockoil stocksrefineriesrefinerssummer drivingsummer driving seasonvacationsJoseph LazzaroWed, 09 Mar 2011 09:00:00 ESTFive Ways the Government Could Make Oil Prices Fallhttp://www.dailyfinance.com/2011/03/08/five-ways-the-government-could-make-oil-prices-fall/http://www.dailyfinance.com/2011/03/08/five-ways-the-government-could-make-oil-prices-fall/http://www.dailyfinance.com/2011/03/08/five-ways-the-government-could-make-oil-prices-fall/#commentsFiled under: ,

Gasoline pumpOil's surge to more than $105 per barrel -- which has caused the average price of unleaded regular to jump more than 40 cents in less than a month to about $3.50 per gallon -- is rooted more in psychology than in fundamentals.

Globally, there's no shortage of oil, nor any lack of gasoline in the U.S., but traders' fears that the civil unrest in minor oil exporter Libya may spread to major oil exporters Saudi Arabia or Iran has led an oil price spike, led by market speculators and large end users of oil.

However, the U.S. government is not powerless: It can help take some pressure off oil's price -- if it addresses both market psychology and oil's fundamentals. Here's how:

1. Random Releases From the Strategic Petroleum Reserve

Previous draw-downs from the SPR, which currently holds 727 million barrels of oil, in 1990-91 (Desert Storm, 17 million barrels), 1996-97 (deficit reduction, 28 million barrels), and 2005 (Hurricane Katrina supply disruption, 11 million barrels) did cause prices to decline somewhat. Another sale in 2011 might do an even better job, if properly structured.

For example, if Washington announced that it plans to release, at random times, an unspecified amount of oil from the SPR, that would immediately create more downside price risk and scare some of the speculative net long positions -- for oil traders who don't take delivery of oil -- out of the market. This psychological component -- not the actual amount sold -- is the SPR's primary price weapon.

Next, on the day of SPR sales, the government could without prior notice announce that it's releasing 3 million, or 5 million, or even 20 million barrels of oil. This second "supply shock wave" would further depress oil prices, and trigger stop-loss sales by an additional speculative "net longs." After seeing their trades stopped-out due to unpredictable oil dumping from the SPR, which could cause oil to suddenly drop $3 or $4 in minutes, many more speculators would no doubt exit the market and likely lower prices even more. Subsequent surprise sales would enhance the impact.

Savings: About $15 per barrel, or about 37.5 cents per gallon of gasoline.


2. Double Margin Requirements for Oil Speculators

Oil speculators aren't the only factor in today's $100-plus-per-barrel prices, but they're playing a role, and DailyFinance's Peter Cohan has a idea that will complement random SPR sales: The New York Mercantile Exchange and Intercontinental Exchange (ICE) should double their margin requirements for oil contracts, currently $6,075 and $5,200, respectively. Cohan points out that if regulators did so, it would decrease speculators' ability to gamble with borrowed money -- something that would lower oil prices.

Savings: $15 per barrel of oil, or 37.5 cents per gallon of gasoline.


3. Temporary Moratorium on Federal and State Gas Taxes

The U.S. government and the states can also suspend their gasoline taxes for a specified period of time. The federal tax is 18.4 cents per gallon, and the states tack on an average tax of 48.1 cents per gallon (high: California, 64.2 cents; low: New Jersey, 32.9 cents). That would drop gas prices by an average of 64.5 cents per gallon.

If states can't afford a full, temporary suspension, perhaps they can opt to cut them in half -- still a significant price reduction for motorists.

Savings: An average of 64.5 cents per gallon for a full moratorium, about 32 cents for a 50% moratorium.


4. Temporarily Suspend Winter/Summer Gasoline Formula Laws

Every summer, the Environmental Protection Agency requires that many states, including California and New York, use a special summer gasoline formula that's less likely to evaporate during warmer weather, reducing harmful emissions.

However, the summer blend costs more to make, and it also raises refiners' costs by requiring them to tailor gasoline types for different states. So, a temporary suspension of the summer gasoline requirement would lower prices at the pump slightly.

True, the air wouldn't be as clean in those states in the summer, but if a temporary suspension could lower gasoline prices by 10 cents or 15 cents a gallon, the trade-off would be worth it, at least in the short term.

Savings: 10 to 15 cents per gallon of gasoline.


5. Strictly Enforce 55-MPH Speed Limit

Many motorists probably won't like this tactic, but it would lower gas prices. Most vehicles get much better gas mileage at 55 mph than at 65 or 70. If the U.S. government provided cash incentives for the states to strictly enforce the 55-mph speed limit, gas consumption would drop substantially, and it would lower prices, or at least limit increases.

The key is getting universal or near-universal compliance with the 55-mph limit to create the largest drop in gasoline demand possible.

First imposed during the 1973-74 energy crisis -- the world's first oil shock -- the 55-mph limit saved not only gas, but lives. The U.S. had an average of 4,000 fewer traffic-related deaths per year until the law was repealed.

Savings: About 10% of fuel consumed, or about 35 cents per gallon.


If All Five Steps Are Taken: Total savings of $1.52 to $1.89 per gallon.

Of course, most of these measures would face significant resistance. States with tight budgets would balk at any attempt to decrease their gas-tax revenue. Inducing nationwide compliance with a 55-mph speed limit would be even harder. But even if only a few of these steps were taken, and gas prices fell by a lower amount -- for example, 70 cents to 90 cents -- that would still represent a substantial savings for most motorists.

That price reduction would help propel the U.S. economic expansion forward by increasing consumers' disposable income and reducing businesses' transportation costs.

But these are just short-term measures. Long-term, the U.S. needs to increase vehicle efficiency in a big way and to wean itself first off imported oil, then off oil in general, with a national policy to increase energy efficiency across society. It's in the country's best interests not to be held hostage to the volatile and economically damaging effects of reliance on oil.


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]]>1973-74 oil shock55 mile per hour speed limit55 mphegyptgasgas tax moratoriumgasoline pricesgasoline taxesIntercontinental ExchangeIranLibyamargin requirementNew York Mercantile Exchangeoil futuresoil pricesoil speculatorsOPECSaudi ArabiaspeculationSpeculative Bubblespeculatorsspeed limitSPRStrategic Petroleum Reservesummer blendJoseph LazzaroTue, 08 Mar 2011 14:50:00 ESTWhy Weekly Jobless Claims Below 400,000 Is So Importanthttp://www.dailyfinance.com/2011/03/07/why-weekly-jobless-claims-below-400-000-is-so-important/http://www.dailyfinance.com/2011/03/07/why-weekly-jobless-claims-below-400-000-is-so-important/http://www.dailyfinance.com/2011/03/07/why-weekly-jobless-claims-below-400-000-is-so-important/#commentsFiled under: , , ,

new jobless claimsIn today's economy, still dealing with the aftereffects of the financial crisis and Great Recession, you have to stay especially tuned to subtle, and sometimes obscure, changes that can signal better times are ahead.

One such bit of news last week was that initial jobless claims remained below the 400,000 level for the second consecutive week, falling 20,000 to a seasonally adjusted 368,000 -- the lowest level in almost three years. However, while we often hear economists and business news anchors referring to the "psychologically significant 400,000-level," hardly do they ever bother to explain why the 400,000 level is so important.

So, here's the lowdown:

Most investors know that even during times of strong economic growth, job losses occur. Some companies shed workers because they're not performing as well as competitors, firms merge and require fewer employees, new technologies displace workers, companies transfer jobs overseas and so on. Layoffs occur for dozens of reasons -- and they occur even in the best of times.

Similarly, most investors know that layoffs -- and therefore new jobless claims -- rise during recessions.

The Historical Trends

Since the mid-1970s, when U.S. GDP hit $1.5 trillion -- about $6.7 trillion in 2011 dollars -- it's been hard for weekly new jobless claims to fall below 400,000, and even more rarely to fall below 370,000.

Given the size of the U.S. workforce, if jobless claims stay below 400,000, it suggests that companies are seeing sufficient demand to retain employees, with many likely to add jobs, provided the economy continues to grow.

The two recent U.S. economic expansions provide good examples:
  • During the 2002-2007 expansion, jobless claims fell below 400,000 beginning in late summer 2003, then remained below 370,000 for about four-and-a-half years, from fall 2003 to spring 2008. Jobless claims started rising in December 2007, which we now know marked the start of the Great Recession.
  • During the Roaring '90s, a period of enormous technological innovation, business formation, corporate earnings growth and massive job creation (more than 22 million new jobs), jobless claims basically remained below 350,000 for five years, from spring of 1996 to winter of 2001. During this period, the U.S. unemployment rate fell from 5.6% to 3.9%.
Conversely, sustained rises in jobless claims above 400,000 are viewed as a danger sign that economic growth is slowing, or even worse, falling into a recession. During the 2001-2002 slump, jobless claims flirted with the 400,000-level in mid-2001, then remained at or near that level until the fall 2003.

The Direction Is Clear

And, of course, during the financial crisis-magnified 2007-2009 Great Recession, jobless claims started to rise in the second half of 2007, pushed above 400,000 in the summer 2008, then soared above the truly ghastly 600,000 level during the crisis's acute stage in the winter 2009.

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Since those scary months, progress in lowering jobless claims has been arduous, but the trend is clear: They've fallen from a high above 640,000 to last week's 368,000.

And February's nonfarm payroll report, which indicated that the U.S. economy added 192,000 jobs in the month, up from a revised 152,000 in January and 63,000 in December, provides additional evidence that the job market continues to heal and that the U.S. economy is progressing to a self-sustaining expansion.

Investors -- and job-seekers -- can use those two stats to get a quick read on the U.S. economy's health. If the nation keeps adding 200,000 to 300,000 jobs per month (or more) and if jobless claims remain below that significant 400,000 level, better times are ahead for job-hunters, corporate earnings and the world's largest economy.

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]]>000JoblessClaims400economic growthemploymentemployment statisticsGDPGreat Recessioninitial jobless claimsjobless claimsjobsunemploymentunemployment rateUS GDPweekly jobless claimsJoseph LazzaroMon, 07 Mar 2011 10:30:00 EST