The Dollar Stretcher : gas prices

They're Hiding Something

Gary — Mon, 28 Jul 2008 19:11:00 GMT

Sometimes I can be contentious. At least that's what my wife says. I prefer to think that I stand up for what I believe is true. Even if someone else needs some evidence to be convinced.

Prime example this weekend. It was an argument that I've heard often. It says that the oil and auto companies are buying up inventions that would make travel much cheaper. You know the 200 mpg car. Or the car that runs on water.

I don't find their arguments of a conspiracy very compelling. Even if they know someone who was related to someone who knew the person who sold their patent to a major oil or auto company. Mostly because it doesn't make sense to me.

For instance, suppose that I had invented a device that would make it possible for the average car go to 200 miles on a gallon of gas. First I would patent the device so that no one could steal my idea. Then I'd either begin production of the device or sell it to a car maker. Let's suppose that I sold it to GM. Do you really think that they wouldn't produce the device? Think of how many cars and trucks they could sell if they were getting 10 times the mileage of other car companies. Their sales would sky rocket. So would their profit.

My friend says that the oil companies would buy it up to protect the oil still left in the ground. But the facts don't support that. The Economist magazine pointed out that the true players in oil are the nationalized oil companies.

Yet Big Oil is pretty small next to the industry's true giants: the national oil companies (NOCs) owned or controlled by the governments of oil-rich countries, which manage over 90% of the world's oil, depending on how you count. Of the 20 biggest oil firms, in terms of reserves of oil and gas, 16 are NOCs. Saudi Aramco, the biggest, has more than ten times the reserves that Exxon does.

You can read the rest of the article here.

I suppose that you could argue that I'd sell the secret patent to the Arabs, but I'm pretty sure that there are laws about selling technology overseas. But, even if I could and did sell to the Arabs, do you really think that I could keep it a secret? When Paris Hilton can't go to the grocery store without the whole world knowing how short her shorts were, do you really think that all the investigative reporters would overlook a multi-multi-million dollar deal of this type? Especially one that could save consumers thousands of dollars?

Guess I'm not big on conspiracies. But I do believe in good old fashioned engineering and invention. We saw it with fuel injection. First tried (and failed) in the 1950's, it became standard 20 years ago. Much more efficient than carbureators. Computer controls were another step in improving internal cumbusion engines. We have both power and mileage that would have been impossible a generation ago.

Improvements came gradually. I suspect that will also be true now. Sure, there will be some breakthroughs. But much of the solution to the energy crisis will come a little bit at a time. One year Toyota will come up with something good. The next year GM will have something even better. The year after that ExxonMobil will introduce something that takes advantage of whatever Toyota and GM introduced.

Maybe I'm missing something. I'm often reminded that I'm not perfect (unfortunately true). If you have some compelling argument or (better still) some proof that big companies are buying up inventions so they can't be used, I'd love to hear it. Shoot, at this point I'm sure that the whole world would like to hear it!

Keep on Stretching those Dollars!

Gary

Park My Car?

Gary — Mon, 16 Jun 2008 17:19:00 GMT

I seem to have a problem that to my knowlege has not been addressed: Due to gasolene increases I have been taking the advise of the experts on how to save money at the gas pump. Consequently, I use my car as little as possible, by walking everywhere that I possibly can, using my car only when necessary, about twice per week. Apparently this has been causing me several auto repairs which my auto mechanics attribute to my car not being used enough. The most recent being a $90.00 car battery, which did not last me near as long as the batteries when I was driving more frequently. This situation has me baffled as it appears there is far less cost for me to fill up the tank more often, then to be paying high repair bills.

I would appreciate your imput.

Sincerely,

Joan

I'm not a trained automotive expert, but I am an old car nut and have a '65 Impala in my garage that goes out once or twice a month. So I spend a lot of time with cars and people who love cars.

There's no reason that you should have to use your car more than once or twice a week. A modern battery and charging system should work fine under these circumstances. Most replacement batteries specify an expected life (i.e. 60 month, 72 month, etc). If you get much less than that there's probably something wrong with the charging system (alternator, voltage regulator) or a slow drain on the system. If all of your trips are very, very short you can buy a 'trickle charger' that will keep your battery charged. They run about $50 and are very easy to use. But, even that shouldn't be necessary if the car is being driven a couple of times a week.

As to the rest of the car, a twice a week drive shouldn't cause any problems. Generally a car needs to sit for months before gaskets and seals will give you trouble. Gasoline should be good in your tank for 6 months or more.

Perhaps your mechanic knows something that I don't, but I hang around people who use their collector cars infrequently. And, how to store cars that aren't used is a common topic for discussion. My guess is that he's just using that as an excuse for things that were going to go bad anyway due to age.

I'd go back to walking and see what happens.

Keep on Stretching those Dollars!

Gary

Unintended Consequences

Gary — Mon, 09 Jun 2008 20:27:00 GMT

I bet that you like low interest rates. I do, too! They make it much easier for people to borrow and repay loans. That's something that both borrowers and lenders like. Making it easier to repay loans!

Not only are low interest rates good for borrowers and lenders, they can also spur the economy in two ways. First, domestically. If you can afford the mortgage on a new house then I get to build it. Good for the economy!

Plus it makes it easier for people to refinance those nasty adjustable mortgages that are getting all the headlines. Congress, the mortgage lenders and homeowners all like that.

It's also good internationally. Lower interest rates makes American goods cheaper in the world market. That means that we're able to see more 'made in America' product in places like Europe and Asia. Great for the American worker!

So how do we get lower interest rates? Well, when you cut through all the fancy economics talk, the bottom line is that you print more money! Yep, it's that simple. Just crank up those presses a notch or two and dollars are plentiful for all of us.

Sounds pretty good. That's why the Federal Reserve is holding interest rates down and Congress doesn't mind spending money that the government doesn't have. Whirrr! You can just hear those presses run.

And it would be good except for a couple of little problems that need to be worked out. The first is that it makes imported goods more expensive for us. So those Nike's that Junior wants or the (gasp!) gasoline that you put in your tank will cost more. The Saudis know a falling dollar when they see one.

Yes, those cheaper dollars won't buy as much of all the foreign goods that we like so much. We're importing a little over $200 billion a month. So it's not just gasoline and sneakers that will cost more.

Looks like the small problems with cheaper dollars aren't really so little. In fact, at $4 a gallon for gas, it looks like those cheaper dollars could turn out to be very expensive.

So what's the average consumer to do? Be prepared to see imported items (like oil and sneakers) cost more. Don't believe any politician who claims that they can pass a bill and make those things cheaper. They can't (and if they were honest they'd admit it).

Anything that they try to do will only make it worse. If you don't believe it read about the Smoot-Hawley Tarriff Act that was a major cause of the depression of the 1930's. That time they were trying to protect the American worker from low cost foreign goods. It didn't work out too well.

What else can you do? Change your habits to reflect the new prices. Find a way to drive less. Carpool. Switch your workweek to 4 ten hour days. Shift your day so you can commute before or after 'rush hour'. Find some way to reduce the amount of gas that you must buy.

If you have any extra money it's a good time to pay down any variable debt. The higher prices (think inflation) will almost certainly cause higher interest rates some time soon. And, that means that any debt that's tied to interest rates will cost you more. So pay it off now. Make it a priority. The last time that we choked off inflation with higher interest rates unemployment went up. It's much easier for you and I to pay off debts when we have a job.

Have a variable home loan? You'll want to convert it over to a fixed loan. You might even want to pay off your credit cards and add that to the new loan. (a caution: this will only work if you have the discipline to pay off your entire credit card bill each month from now on)

Finally, don't sit back and wait for someone to solve the problem for you. The same people who brought you the problem aren't likely to solve it.

Your best bet is to recognize the change in prices today and make changes to the way you live. Prepare for the changes in interest rates to come. No one is saying that the future will be easy. But, it will be easier if you start making changes now.

Keep on Stretching those Dollars!

Gary Foreman

Gas Crisis???

Gary — Mon, 12 May 2008 15:10:00 GMT

Just finished an interesting week. I drove across the state for a conference. The conference was about online financial news. Many of the discussions included comments about how higher gas prices were causing big problems for consumers. (BTW, I agree that higher gas prices are causing problems for consumers. But, as you'll see in a moment, I'm a bit confused as to how consumers are reacting to the problem).

The first thing I noticed was that people were traveling a little slower on the highway. I couldn't ask them, but I suspect that they were trying to save a little gas. According to http://www.fueleconomy.gov/feg/driveHabits.shtml gas mileage decreases dramatically when you go faster than 60 mph. Until recently here in Florida the interstate moved along at about 80 mph. This trip it seemed to be closer to 75 mph. I usually try to stay with traffic, so I managed to save myself a few dollars this trip.

But, the signals were mixed. Yesterday was Mother's Day. Mama didn't want to cook and didn't want to eat what I volunteered to cook. She wanted to do takeout from one of those national chain restaurants. At this one, you call ahead and just pull into a special section of the parking lot. A server comes out to your car. They'll go back and forth until your transaction is complete. At 6:15 on Mother's Day you'd assume that they'd be busy. And, they were. What struck me as odd, was that I was the only one who shut off the engine and rolled down the windows. Granted the temperature was in the upper 80's. But, if gas is too expensive, how can I justify sitting in a parking lot for 10 minutes with the engine running? (maybe not everyone is concerned with gas prices)

Next, I refilled my tank. While I'm pumping gas the fellow on the other side of the island comments "guess it'll be $4 the next time we fill up". I have no way of knowing whether that's true or not. Even the experts at the conference couldn't tell for sure. But, I am convinced that if we want to have low energy prices we'll need to address both the supply and the demand side of the issue. That means taking steps to conserve the energy we have. But, it also means using the resources we have to produce more energy. We may choose to buy an SUV to go to the mall. We can decide not to make our homes more energy efficient. We can vote not to drill for oil or build refineries. We can say no to windmills and nuclear plants near us. We can put all of hopes on tomorrow's technologies being clean and abundant. We have that right. But, let's not kid ourselves into thinking that those decisions don't have costs. They do.

Finally, a way that you can reduce your cost of gasoline. Just by buying and using a tire gauge monthly, you'll get about 10% better gas mileage (if you're the typical driver). An investment of less than $5 and ten minutes a month could save you many dollars. Along with driving slower, it's the easiest way to reduce your fuel bill. You'll find more on the subject here.

Keep on Stretching those dollars!

Gary

Gas Boycott

Gary — Thu, 27 Mar 2008 15:28:00 GMT

This just in:

Now that the oil companies and the OPEC nations have conditioned us to think that the cost of a gallon of gas is CHEAP at $1.50 - $1.75, we need to take aggressive action to teach them that BUYERS control the marketplace..not sellers.

With the price of gasoline going up more each day, we consumers need to take action. The only way we are going to see the price of gas come down is if we hit someone in the pocketbook by not purchasing their gas! And, we can do that WITHOUT hurting ourselves. How? Since we all rely on our cars, we can't just stop buying gas. But we CAN have an impact on gas prices if we all act together to force a price war.

Here's the idea: For the rest of this year, DON'T purchase ANY gasoline from the two biggest companies (which now are one), EXXON and MOBIL. If they are not selling any gas, they will be inclined to reduce their prices. If they reduce their prices, the other companies will have to follow suit.

I received this email just recently. The sender had included me on a list of people that they thought should see this message. Presumably to encourage me to join the fight. Maybe they even hoped that I'd put it in the newsletter. I'm not going to do that. And, I'll tell you why. There are a number of good reasons.

First, variations on this idea are sent around via email every time gas prices spike upward. If the idea was workable, it would have done it's magic years ago.

Second, it will do nothing to change the economics of gasoline. Ultimately, what we pay for gasoline is most affected by the amount of gasoline available and the total amount of gasoline produced.

We can stop buying from Exxon. But if we buy from Hess, Texaco or anyone else we haven't changed the total demand for gasoline or the total amount produced.

Now if the email suggested that everyone drive 10% less or that they encourage the oil companies to build additional refineries that would change the supply and/or demand for gasoline. (if I recall correctly no new refineries have been built in the last 20 years - every one is basically running at full capacity now) I know that means some inconvenience (driving less) or doing something that we might not want to do (allow oil refineries to be built).

Third, Exxon won't be hurt, Mom and Pop Smith who own the local gas station will be. There is very little retail mark-up on gasoline.

"Most gas stations today double as convenience stores, and although they generate more than two-thirds of sales from gas, two-thirds of profit comes from in-store sales of cigarettes, drinks and food, according to the convenience store association." ">Wall St. Journal

Yes, some stations are owned by the big oil companies. And, if you quit buying gas from them you might force them to lower their price. But the mom and pop stations that compete with them won't be ABLE to drop their price. Right now with oil prices going up they have a very small mark-up on gasoline. They can't afford to lose money on gasoline to bring you to their convenience store.

In fact, if they did drop their price the result will be to drive them out of business. That means LESS competition. And according to my old college economics textbook, less competition means higher prices. Not a winning strategy for the consumer.

So to the extent the strategy causes a 'gas war' it only does so temporarily and then makes the problem worse.

Fourth, none of this has any effect on the real problem. Demand has increased. Supply hasn't kept pace and could be interrupted by political events.

"With real gross domestic product growing at a rate of 8-10% a year, China's need for energy is projected to increase by 150 percent by 2020. to sustain its growth China requires increasing amounts of oil. Its oil consumption grows by 7.5% per year, seven times faster than the U.S." Institute for the Analysis of Global Security

"Worldwide oil consumption increased by a cumulative 11.4 percent from 2001 to 2006 (2.3 percent per annum). The United States is the world’s largest petroleum consumer, at 20.6 million barrels per day (mbd). But while U.S. oil consumption has increased by 1 percent annually over the past five years, consumption in other nations, particularly China and India, has grown much faster due to their rapid output growth. Over the past 25 years, China’s annual GDP growth—about 9.5 percent—has averaged more than three times that of the United States, while India’s has averaged almost 6 percent, nearly double that of the United States. Federal Reserve Bank of St. Louis

In other words, China and Indea are consuming more and more oil. And, they will continue to do so.

OK, so what can the poor consumer do to fight higher gasoline prices? First, recognize that we can make a difference.

We can start by using less gasoline. Check your tire's air pressure once a month. Replace your air filter on schedule. Drive slower. Don't buy a bigger vehicle than you really need. Carpool if you can. Group trips to reduce the amount of miles you drive.

We can recognize that gasoline is only one part of a bigger problem. Even with conservation, worldwide demand for energy is going to continue to increase. Unless we expect millions of people worldwide to continue to live in abject poverty, we're going to have to make affordable energy available to them.

So we need to get busy exploring ALL possible ways of producing clean, cost-efficient energy. I won't get into specifics. No need to set off a political firestorm on a blog devoted to personal finances. But I admit to getting fed up with some of the politicians and political activists. It seems that there's no type of energy that acceptable to some of them. Not oil, not natural gas, not coal, not nuclear, not solar, not windpower, not...well, you get the idea.

If we continue to block all types of energy production we can expect higher prices for energy. It's really that simple. Maybe they're right. Maybe none of those methods are acceptable. Maybe some amazing new technology will save us. But, if it doesn't let's not pretend to be shocked when prices increase. Let's be honest enough to admit that we made choices that caused them to go up.

Keep on Stretching those dollars!

Gary