Sushi Money

It’s been a busy week, especially with school starting up for the kids.  So much news out it’s hard to keep up, but today all eyes are on tropical storm Gustav strengthening and hitting the Gulf coast (and Sen. McCain’s VP pick as well…which doesn’t look like Gov. Pawlenty.  On a side note, last night Wikipedia had a factual narrative that Gov. Pawlenty would be chosen as Sen. McCain’s VP on August 29th.  Guess what?  Today that narrative is gone.  Will Gov. Palin be McCain’s choice?).  Whoever it is, we’ll know today, but the GOP would be wise to postpone any convention celebrations until after we know what Gustav is doing. 

With the possible hurricane looming, gas prices in our area jumped .20 cents a gallon yesterday on the news.  We sure hope that the storm doesn’t impact the people living along the coast as severely as it has in year’s past.  But many of those folks are preparing for the worst, taking no chances, and either evacuating or stockpiling supplies in case of emergency.

Of course you don’t need to live on the southern U.S. coast to find yourself needing emerency assistance.  We live in the midwest where tornadoes come out of nowhere, but more than that are the thunderstorms that can pass with damaging winds and hail.  This year flooding has been the issue for so many across the midwest and in Florida.  And fires on the west coast have impacted thousands of people. 

Laura Rowley talks about how preparing for a disaster can really pay off over the long term.  You just never know what’s going to happen.  I like to think I’m well prepared for almost anything, but just reading the article made me realize that although I have back-up data for financial information, it’s in the same place as my original data.  So if our house burns down or is blown away by a tornado, we could be out of luck.   Time to go over the details, find a new thumb drive and back up some more stuff.

And how about insurance?  That so important topic that is also so confusing most of us never really know what kind of policies we have, or how well we are covered.   But it’s essential to make sure you are satisified with the type of homeowners insurance you have.

“Meanwhile, make sure you have a replacement insurance that covers the real cost of replacing your home, rather than an “actual cash value,” which covers your belongings after depreciation (i.e., if you have a 12-year-old television, you’ll get an amount equal to the value of a 12-year-old television).”

“The NAIC survey found 43 percent of U.S. adults have replacement policies; 27 percent insured their homes for actual cash value; and 28 percent didn’t know what type of policy they had.”

“Even if you do have replacement coverage, insurers have been narrowing the definition of “replacement,” leaving some homeowners with inadequate coverage. To make sure you’re covered, go to AccuCoverage, enter information about your home, and the site will provide the estimated cost of replacement. Compare this to the amount of coverage in Part A of your policy.”

So it’s time to get our house in order, and verify the type of policies we have.  It may be a good time for an insurance review anyway.  As personal incomes have dropped nationally, people are looking for ways to cut back on expenses.  Insurance is often the first thing we think about, but take a hard look at that before doing anything drastic.I know personally we’re going to modify our auto insurance to try and lower costs. 

With inflation at a 17 year high, and consumer spending fading quickly as the stimulus checks are winding down, people are tightening their belts like never before.  But I’m not going to cut back on insurance for our house.  A home may or may not be your largest investment, but it sure is the most expensive thing that most of us will ever own or maintain.  To try and replace that without insurance?  Nope. I’m not willing to jeopardize our entire retirement on that.  Making sure our home is protected by decent insurance is one of the best things we can do.

Lots of traveling lately, but it’s time to get back to work.  I’ve had a chance to see the economy first-hand from the road.  Gas prices are cheaper, but it’s been an expensive month of traveling. Sure we appreciate that gas prices have come down recently, but will it continue?  In my opinion, not without a firm comittment by our political leadership to reign in excess oil trading and speculation.  Even though gas prices are moderating, don’t expect it to help much with food prices at the grocery store.

So many of us have shaken our heads in amazement that gas prices could rise so fast over the past year.  It just didn’t seem natural, and we wondered how so-called demand could influence the price of barrel of oil so quickly.

Well as we’re finding out, it wasn’t natural and real end-user demand had little to do with the prices seen in energy markets this year.   There was demand however, just not the kind we think of.  The demand for oil that has driven prices sky high has actually been caused by speculation demand, and the oil markets have effectively been cornered by a few large firms.  David Cho of the Washington Post lays out the arguments pretty clearly:

“…when the Commodity Futures Trading Commission examined Vitol’s books last month, it found that the firm was in fact more of a speculator, holding oil contracts as a profit-making investment rather than a means of lining up the actual delivery of fuel. Even more surprising to the commodities markets was the massive size of Vitol’s portfolio — at one point in July, the firm held 11 percent of all the oil contracts on the regulated New York Mercantile Exchange.”

“The discovery revealed how an individual financial player had gained enormous sway over the oil market without the knowledge of regulators. Other CFTC data showed that a significant amount of trading activity was concentrated in the hands of just a few speculators.”

How does it make you feel that huge investment trading firms can hi-jack the global economy?  Think tighter oil trading regulation doesn’t matter?  Tell that to countless folks at the gas pump who are having a difficult time commuting and putting food on the table.  Or those small gas stations and shops that have closed their business because they couldn’t pay such high prices and attract enough customers.  Tell it to countless small towns across America that lost out on tourism and business because people just couldn’t afford to travel and visit.  Tell it to the airlines, the real estate industry and those of us standing in the grocery store aisle wondering how it came to this. 

“CFTC data show that at the end of July, just four swap dealers held one-third of all NYMEX oil contracts that bet prices would increase. Dealers make trades that forecast prices will either rise or fall. Energy analysts say these data are evidence of the concentration of power in the markets.”

I’ll be honest, this makes me angry.  And disappointed.  I think our country can do so much better, and the political leadership could stand up and say “Enough!” and do whatever it takes to reign in energy market speculation.  We’re still living with the ghosts of Enron. 

“Oh, come on…” I hear some folks saying, “It’s not that bad.”   Well if you have a pretty decent income and no problem paying bills then perhaps it’s not.  But think of all those folks on the margin of poverty and the middle class struggling to take care of their families.   The last year or two have been disastrous for so many families, compounded by and continuing to affect the real estate markets.

The hard truth is that most of the “best and brightest” in this country have argued amongst themselves over the issues while oil prices continued to rise.  Too many have stood by and watched as our economy has been shaken from the inside out, affecting consumers at every level of economic need.  It’s been a runaway energy trading bubble and may continue to be in the future if we don’t change something.  Investigating trading practices is a pretty good start.

Yet even the Commodities Futures Trading Commission can’t admit the role that speculation has played in the energy markets. 

“To date, the CFTC has found that supply and demand fundamentals offer the best explanation for the systematic rise in oil prices,” CFTC spokesman R. David Gary said.

Sure it’s supply and demand… the demand created by excess speculation and trading! The bottom line is Congress must close the Enron Loophole.  We have politicians and civilian leadership that simply cannot separate their understanding of the impacts of energy trading and speculation from legitimate business need in the commodities sectors.  

“For most of the past century, regulators put limits on financial actors to prevent them from dominating commodity exchanges, which were much smaller than the bond or stock markets. Only commercial operations, such as farms, airlines, manufacturers and the middlemen that handle their trading activities, were allowed to buy nearly unlimited quantities. The goal was to allow these businesses to minimize the effect of price swings.”

How do we justify allowing trading organizations to purchase unlimited quantities of “paper oil” that won’t actually be used or delivered?  It makes little sense except to wonder how we allow such sway over energy markets by the major investment firms.

“When the CFTC granted the 1991 hedging exemption to J. Aron (a division of Goldman Sachs), it signaled a major shift that has since allowed investors to accumulate enormous positions for purely speculative purposes,” said Rep. Bart Stupak (D-Mich.) Now, he added, “legitimate businesses that hedge and take physical delivery of oil are being trampled by the speculators who are in the market purely to make profit.”

A second turning point came when Congress passed the Commodity Futures Modernization Act of 2000. The law formally allowed investors to trade energy commodities on private electronic platforms outside the purview of regulators. Critics have called this piece of legislation the “Enron loophole,” saying Enron played a role in crafting it.

I’m not an oil conspiracy fanatic, but it seems as if too many politicians and civilian leaders are unwilling to admit to the damaging role that investment firms play with regard to affecting commodity prices and ultimately their impact on the economy.  Sure they also play a vital role in providing capital and smooth functioning of commodities markets.  But greed can do a lot of harm over time.  Just like the nation had to break the monopoly over oil markets a century ago, we have a new monopoly.  It’s not just the oil companies this time, it’s also the investment banks across the globe.   

Do I think we need to drill more for oil at home?  Absolutely, even knowing that it will take years to change the status quo.  We’ve also got to continue the push to alternative energy.  I think we can do both, and I think John McCain’s got it right when he says we need to stop sending billions of dollars overseas and get Congress back in their seats to hash out the debate.  

But McCain’s got it very wrong if he’s going to defend the Enron Loophole.  We need to overhaul commodities trading regulations both at home and abroad.  It’s time to take America back and chart our own energy future.  And it’s time for change and real leadership. I believe we’re going to get there.  But it won’t happen unless we continue to make the case, and tell the politicians what we think.  Let’s hope the economy hangs in there while we wait.

It’s no surprise to many of us that consumer price inflation has risen at the fastest rate in 17 years.  We see that with each trip to the grocery store or gas station.  It raises questions about interest rates.and a lot of other issues in our future. Per Bloomberg:

“The report may intensify the debate between those Fed policy makers that forecast inflation will slow and those concerned that price pressures will accelerate. Increases beyond food and fuel, including gains in clothing, airline fares and education, make it less likely that central bankers will be able to keep interest rates unchanged for long.”

So far this year the government’s CPI shows inflation running at over 5 %.  

“There is “a tremendous amount of cost pressure here that is affecting many, many industries,” William Poole, the former St. Louis Fed president, said in an interview with Bloomberg Television. Today’s report “raises the general trajectory” of interest rates, reducing the chance of cuts and bringing forward the likelihood of increases, he said.  ”

Imagine if inflation stayed at that rate for several years or even increased more?  If we’re not earning at least that much in interest on our savings or investments over time, then we’re actually losing money.  

The Fed must walk a fine line between keeping rates low due to our current economic challenges and raising rates based on the threat of inflation.  So far they’ve held the line and most believe will continue to do so this year.  But real estate is clawing for traction while foreclosures are still high.  Yet Alan Greenspan sees a potential housing bottom in 2009.  That doesn’t mean housing recovers quickly however.

Greenspan cautioned that even at a bottom “prices could continue to drift lower through 2009 and beyond.”  An end to the decline in house prices, he explained, matters not only to American homeowners but is a necessary condition for an end to the current global financial crisis.

“Stable home prices will clarify the level of equity in homes, the ultimate collateral support for much of the financial world’s mortgage-backed securities,” he said. “We won’t really know the market value of the asset side of the banking system’s balance sheet — and hence banks’ capital — until then,” he said.

And that’s the question:  When is Then?   I’ve believed housing would begin to recover in 2009, and we may indeed see that.  But based on the credit and banking issues the nation (world) is facing, we’re going to see a slowly drawn out recovery.  It may be 3-4 years before we really see stability in both housing and lending, or the economy.

But the economy may recover more quickly in terms of jobs and growth if we can get a handle on energy and defense spending.  Also not something that may happen for a couple years or more, but I believe it will come.  Yet that belief is simply an opinion, one of thousands. We don’t know what the nation will face economically in a few years, or the challenges we’ll see at home.

For that reason, there’s little choice but to keep improving the “family bottom line.”  That means we’re still saving, working off debt and investing for our future.   To get to that future, we must embrace our vital role in creation of a financial structure that supports our needs and choices.  Retirement is something we all dream of, but it’s not something that, ideally, just happens when we reach a magical age.  It could, but most of us would like to plan ahead a little more. 

Walter Updegrave hits on the retirement planning issue when asked by a couple how they can determine how much money they’ll have when they retire at age 65.  He says instead to determine how much money we’ll need to support the lifestyle we want, and then we can decide when to retire.  

“I mean, it™s not as if we get a comfortable and secure retirement just because we reach a certain age. The real issue in determining when you can retire is whether you™ve got enough in savings and other resources so you can leave your job yet still live the lifestyle you want, or at least one that™s acceptable to you.”

“What™s more, this sort of assessment isn™t something that you should be leaving to the eve of your expected retirement date. You should ideally keep tabs over the course of your career on your progress toward a comfortable retirement. And at the very least once you hit the home stretch – that is, when you™re within 10 or so years of when you hope to retire – you should be doing a fairly rigorous analysis every year or so to confirm whether you™re still on track to achieve your target retirement date and, if not, re-assess your plan.”

The article cites many other considerations such as social security and a retirement budget.  If the discussion looks somewhat redundant to many people, that’s because there are so many people asking these questions. 

I don’t know about you, but I find new things to learn every day.  A smooth upward track toward a financially secure future would be nice.  But along the way our financial fortunes fluctuate and change.   Keeping up with those changes is part of the game, and planning for how to get to retirement means we re-visit a few things along the way.  I’m still working on the financial structure that will support the future I want.  And I’ve embraced my role in helping create it.  It would be nice if the economy and markets would help out a little more, but there’s no time to wait. 

The energy debate has sparked many emotions and new ideas for how the U.S. can become more independent from foreign sources of oil.  There are no easy solutions and it’s becoming more challenging for consumers when we read that that for the 2008-2009 U.S. winter heating season, the government’s Energy Information Administration (EIA) is forecasting that heating oil costs will rise 31% and natural gas costs will rise 22% compared to last year.  Those numbers are staggering.  For someone paying $250 a month for heating oil or gas, their bill will increase $77 and $55 per month this winter, respectively.   Some are calling the Northeast “heating oil hell” based on cost estimates for the coming winter.   And some oil suppliers may have a difficult time staying in business. 

The higher costs of using heating oil has prompted many consumers to switch to natural gas heating systems.  Making the switch can be expensive, but if you’re going to be in the home for a few years or more, it may well be worth the investment.   But get in line because dealers are already swamped with back-logged customers. 

What we’re really seeing across the nation are consumers rushing to find cheaper ways to pay for winter energy costs.  And what’s the big focus this year?  Wood heat.  Good ‘ole firewood, wood pellets and other alternative ways to produce heat at home.  I can tell you first hand that heating with wood is a very satisfying way to keep the house warm in winter. There’s something about a nice warm fire in a wood stove that feels secure, and knowing that if the power goes out you still have some heat in the house.  At least with a traditional wood stove or insert.  Pellet stoves are great too, but usually need electricity for the components to work. 

And we even found out that our wood stove served as a back-up plan for heat during an ice storm a couple winter’s ago, with a few financial analogies to go with it.  Of course you need to have a supply of wood or pellets on hand to have that heat, and a community that allows burning of wood.  Most communities do so it’s not an issue.  But finding a good supply of wood products is something you want to do earlier in the year, like right now for example.  As the WSJ article above cites, suppliers are in a mad rush to fill orders for stoves and equipment that consumers want.  And firewood demand in some regions is at an all-time high.

For electric power it would be great to have a small (quiet!) home wind generator near the house generating power day and night.  But you need land, wind and a community that supports the installation of the wind turbine.  Most of us live where those needs are not easily accomodated.

Our primary heat sources at home are electric and propane. In years past, propane (like natural gas) was the cheaper alternative to electric heating.  Now electric heating costs less overall but is still becoming more expensive.  We have a significant cold season, and in recent years have begun heating more with wood to supplement the electric and propane heating.  Supplmenting our traditional heating needs has reduced the monthly cost of our energy bill significantly.

When we see the alternative energy debate in the media, wind power is rapidly becoming a favored approach in regions that can support it.  We don’t hear as much about solar because it’s arguably so expensive (and complex) to install for most consumers.  But it’s getting simpler, and when it becomes affordable enough a lot of us will have solar panels on our rooftops to help defray the costs of electricty.  That’s something most of us cannot do with wind power. 

So is wind power a viable long-term alternative? It probably depends upon where you live, and how it’s developed.  ABC news has examined how wind power is changing energy use in the Great Plains, or the “Wind Belt” as some name the region.  

Today, the biggest source of electricity is coal, accounting for nearly half of all power generation in 2006, according to the Department of Energy. Natural gas and nuclear power each accounted for another 20 percent, and hydroelectric another 7 percent. All forms of renewable energy — that includes wind, solar and biomass — accounted for just 2 percent of all electricity production. Compare that to Denmark, where wind makes up nearly 20 percent of country’s power needs.

Wind is the fastest-growing form of energy. Thanks to projects like the one in Trimont, the amount of wind power in the United States nearly tripled between 2003 and 2007.

What are the benefits of wind power for communities in these areas?   In the article cited, 50 farmers in Minnesota signed on for 67 wind turbines over more than 8,000 acres, and receive thousands of dollars per year in leasing and operations fees for joining the project.   Those turbines can power almost 3o,000 homes and provide a source of tax revenue for the community, schools, etc.  In some areas, electric bills have been frozen for a decade or more.  But they are a unique agricultural community in a higher wind area, next to power transmission lines and with an energy company that was looking for a project of this type.

Wind power is not for everyone and won’t answer most of our energy needs.  Of course harnessing a little of that “hot air” out of Washington D.C. might not be a bad idea either!   Realistically, where and how a wind turbine is installed depends on state and local laws, and not everyone is in favor of having a giant metal propellor spinning 24 hours of day in their backyard.  The debate also involves questions about people becoming sick from wind turbine noise pollution and other effects, something scientists are trying to understand more clearly.  So along with the positive aspects of almost “free energy” there are other land-use issues to consider.  To learn more about wind power and consumer options, the American Wind Energy Association provides a wealth of information.

So the search for alternatives continues.  Many people do not have the choice or opportunity to heat with wood or other alternative means during the winter.  If you have an electric or oil-based furnace or heat with natural gas, that may be the only way your home can be kept warm.  But if you live in an area where you can use a wood burning stove or fireplace insert, and can afford the costs of a new system and purchase a supply of wood, it may be well worth it over the long run.

Otherwise,  it’s important to budget now for the much higher energy bills coming this winter.  I’ve estimated we’re going to pay $200 to $400 more for our energy costs this year.   Do you have any idea how much more you’ll be paying, and have you looked at that with the budget?

It’s a question we all must examine, especially if oil prices stay high through the end of the year.  Even if prices for oil continue to drop, worldwide demand is only going to increase.  And from an investment viewpoint, even Barron’s believes oil stocks are undervalued with a rebound coming soon.  

This past week I’ve been traveling with little opportunity to post, but what a dynamic week it has been.  Markets have been volatile and subject to the usual economic whims, but especially of the oil trades and the weather.  And two candidates, like ‘em or not, debate the energy issues with very different views for the nation’s future. 

I’ve had the chance to drive almost 2,000 miles throughout the central and northern U.S. the past week, and I can say firsthand that people are frustrated, dismayed, upset and bewildered by how fuel prices have skyrocketed so far this year.   So many families are hurting, and the higher costs of fuel take that money away from the family budget.  It’s real, it’s painful, and it’s changing how we live and drive in this nation.  I’ve seen dozens of small gas stations and other shops closed in smaller towns because they didn’t recieve enough business to pay the bills.  Tourism is way down in so many areas, and the locals are struggling.  I’ve paid for fuel from the high $3.90’s up to well past $4.25 per gallon on the trip, and never cease to find someone else at the pump groaning.  Do most of these people think alternative energy is the way to go?  Yes, if we can afford it and it doesn’t hurt the economy.   Right now, that’s not the case.

Most of these same people seem to wonder why we don’t simply produce more oil at home, and do more to get oil prices down.  It’s as simple as that.   Why are we sending trillions of American dollars to nations in Latin America and the Middle East? 

Personally I think the only way ahead for the nation to become energy independent without crippling the American family and economy further over the next 10 years is to robustly drill for more oil at home, and find new ways to generate power without using oil from foreign sources.   Senator McCain cites nuclear energy as one solution in addition to drilling more here at home.   That’s fine with me.   Senator Obama says we can end oil dependence in our lifetimes.  That’s fine with me too.  But are we going to destroy the American family and economy while keeping that smiling Green face on?   I really wish our political leaders would work harder to find a way ahead.  Until then, we still need that Energy Summit.