Sushi Money

Just when we thought the price of oil was finally coming down we get the rug pulled out by OPEC’s decision to reduce oil production by more than 500,000 barrels of oil per day.    Think U.S. dependence on foreign oil doesn’t matter?  It surely does, and gas prices in our area jumped by almost .20 cents yesterday all because these guys want to squeeze us and keep the price of a barrel of oil above $100.  That and maybe Hurrican Ike impacting the petroleum infrastructure.  But OPEC cites a “huge oversupply” of oil based on reduced consumer demand.  Maybe so, but I’m sure all the money we send to the middle east doesn’t bother them either.  

And are Russia and OPEC going to influence world energy markets?  What about Russia working with the Venezualan military?  So let’s see: OPEC, Russia and Venezuela.  Three of the world’s largest oil producers.  Working together.   And the U.S. is dependent on their oil.  Doesn’t sound like a friendly long-term combination if you ask me.  Aside from terrorism, is there a greater threat to U.S. national security than being tied economically to the oil production of these nations?

I’m thinking that the ”Drill Baby, Drill” mantra from the McCain-Palin team sounds pretty good right now.  Sure we won’t see it for a few years, but just making the decision to drill more of our own oil will have a significant psychological, and maybe financial, impact on the world’s oil markets.   With all due respect to the WSJ Environmental Capital blog, when could it ever make more economic sense than right now?! 

And I’m all for alternative energy, but that’s going to take time as well and may have great limitation to satisfying overall demand for U.S. energy needs.  It should not be mutually exclusive- it should all be part of a comprehensive energy plan.  Which we should develop at an Energy Summit.  Just saying. For a long time.  But it just makes absolutely no sense for the U.S. to limit our ability to sustain our own economic well being.  

In other news we find that speculation has indeed played a huge role on influencing the price of oil in energy markets.  And that’s a primary reason for the decline of the price of oil in recent weeks.  Sounds like somebody’s on to the speculators and maybe are finally considering action to limit this kind of volatility.

“An independent study of oil markets concludes that speculation by large investors was a primary reason for the surge in oil prices during the first half of the year and for the more recent price declines.”

“It said investors poured $60 billion into oil futures markets during the first six months of the year as oil prices soared from $95 to $145 a barrel and since then have withdrawn $39 billion from those same markets as prices have retreated.”

“Michael Masters of Masters Capital Management, which did the study, said the flow of money — not major changes in supply and demand — caused the volatile movement of oil prices. The report was released Wednesday by Senate and House sponsors of bills to put additional curbs on oil market speculation.”

Will that induce the Congress to do anything yet?  Time will tell. So far all we see is a lof posturing on both sides of the aisle.  I also filled up propane tank yesterday, or rather had a company come out to fill it.  We use a large propane tank to take care of home heating needs, and much like the little white barbecue propane tank it works just fine.  It’s the alternative to natural gas when you don’t have a gas utility nearby.  Only problem is that the price of propane has just about doubled over the past three years.   Winter heating costs are really going to skyrocket this year, especially for those using oil furnaces and home heating oil, and I suspect we won’t hear much outcry until it becomes painfully expensive.   

Of course by then we’ll have a new President and a new administration.  Will it bring change to our economic fortunes, our national security?  I’m sure it will.  The only problem with change however is what kind?  The kind of change I’m seeking takes care of our future security needs first.

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After a grueling day yesterday, and an equally challenging year, many folks are wondering where the markets are headed.  It’s not fun to watch that retirement portfolio shrink over time, but for value investors the market may offer a strategic long-term opportunity.

The only problem is that most of us don’t have a spare chunk of retirment money sitting around waiting to be invested in strategic opportunities.  Even if we do, and as compelling as valuations are right now, it’s a pretty gutsy move to invest that chunk of change in a wildly volatile and dwindling stock market these days. 

Which makes the argument for dollar-cost-averaging a viable strategy over the long-term.  Dollar-cost-averaging basically means investing money at regular intervals (for example, $100 or $200 every month or $500 every quarter into a mutual fund). Regardless of what the stock market is doing, you simply keep investing money over time. How does this affect your portfolio over the long term?   In essence, you may end up buying more shares when stock prices are low, and fewer shares when prices are higher.  Over time an investor can theoretically accumulate a substantial portfolio with a lower cost-basis than investing a lump-sum otherwise.

Of course this strategy is based on the critical assumption that over the very long term, the equity markets will go higher.  And historically speaking that is true: The stock market has always gone higher over the long term, typically beyond 10 year periods.

But what about dollar-cost-averaging when the market is falling over a period of years?  Doesn’t that mean we are buying high as the markets keep falling lower over time?   Well it may seem like that, but again based on the assumption of a future rising market, we will still have purchased more lower priced shares when the markets are down.   The average price of the shares purchased is lower over time as markets go down.   It’s correct that dollar-cost-averaging will not keep us from losing money if the market keeps going down.  But the more shares you buy at lower prices, the greater the profit will be when markets do rise and share prices go back up. 

Some of us invest money in larger chunks, less frequently. Could that be a better strategy? It might mean that we can lose even more money in a falling market, or make more money in rising market.  But how do you feel about “market timing”?  Most of us cannot time the market very well at all, and when emotions are brought into the equation we have a prescription for losing money when buying and selling at the wrong times.

That’s another reason dollar-cost-averaging may help the average investor succeed over time:  It removes the decision and emotion from investing at some perceived “right time,” and becomes a routine, automated process that helps us accumulate shares of stocks or mutual funds without worrying about market timing.  We’re doing it for the long-term and building a portfolio for the future.  Dollar-cost-averaging can turn even the most undisciplined spender into a disciplined investor.

But many financial professionals disagree (here, here and here) and see lump sum or other investing styles as better alternatives.  They argue that a lump sum can be allocated more strategically to create an investment portfolio that will outperform dollar-cost-averaging over time.  That may well be true and in that case, maybe it’s more a question of what you invest your money in and/or when you invest your money.

“If you were looking for an easy way to boost your returns over time, dollar-cost averaging probably isn’t it. The stock market generally rises over long periods. That being the case, you’ll usually do better investing all at once, as long as you’re investing for the long run.”

“Dollar-cost averaging typically does best when an investment goes sideways or down for years and then, at the end of a period, suddenly breaks to the upside.”

Sound familiar the past few years?  When the markets do turn around, many dollar-cost-average folks may be quite pleased with their portfolios.  Heck, we’ll all be pleased with our portfolios when the markets turn around.  But we’re not talking about how to invest a spare $20,000 sitting in the bank. We’re talking about saving and investing on a regular basis over one’s working years in order to build a retirement portfolio.   

And what are most people going to do with their paycheck’s allocation for investments anyway?  Put it in a measly money-market or savings account, losing money to inflation in order to accumulate a large “lump sum” and one fine day invest it in the hope that a strategic, well-timed investment will achieve a better return than dollar-cost-averaging? 

Maybe it will.  If I won the lottery tomorrow, I would indeed find a few professional money managers and have that lump sum allocated for both long-term growth and capital preservation in accordance with my personal financial goals.  But for most people, on a regular basis, I believe dollar-cost-averaging works just fine.

What about the economy? Of course many people are still worried about the family economy and the stock market, and we wonder how our retirement portfolio is going to grow.  No one has a crystal ball, and the last decade has been very challenging for investors.  Will it get better?  Will the markets roar back in a few years as the business cycle improves?   

I think the answer to those questions depend much upon your outlook on life and the future of the nation as a whole.   Some of us may be near-blind optimists wearing those rose-colored glasses as we look at the long term.  As such we base our choices (and retirement planning) on assumptions that frame the future with that context.  

Naturally that optimism should be tempered with a realistic assessment of the investment climate over the years, which means there are measured choices about risk tolerance, investment strategies and portfolio allocations.  And regardless of one’s optimism, investing and saving for retirement is a choice.  It’s a choice about how much money to save or invest, and how or where to invest it.   It doesn’t matter if it’s a lump sum or a regular monthly investment: You still have to choose how to do it.  You still need a long-term investing strategy to build that retirement portfolio. 

More importantly I believe we’re making choices that will determine the strength and security our future retirement years.  Am I satisified with my portfolio while watching my investments lose money?  Absolutely not.  But it won’t always be that way.  How many people honestly believe the future of our economy, even our nation’s future, is destined for financial ruin and chaos?   Some people are indeed that negative about our future.   

But without apology, I am not one of those people.  I believe in the strength of this nation, our long term economic prospects and a bright future that is filled with growth and opportunity for our children.  Call it blind optimism if you will.  I call it having a disciplined faith and conviction to succeed based on the courage and strength of generations that have come before.  And I will invest accordingly.  Have a great day.

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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.

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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.

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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. 

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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.  

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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.

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Let’s see, durable goods are way up?  Could that be significant for employment going forward?  Hmmm… maybe that means we’re not really headed deep into recession, but just bouncing off the bottom a bit.  What else does that mean? 

Could the market be forming a base here?  All this government bailout stuff and an election year too (although why is one of our candidates campaigning in Europe?!).  Housing’s still way off from a bottom though, and banks are still tightening credit it seems.  But oil’s come down quite a bit the past couple of weeks, about $22 per barrel less than before.  Was that the top? 

The Treasury Secretary and FDIC folks see the current events as a “challenging environment” for consumers and financial firms.  No kidding.   But with all that money flowing out of the government, it’s got to go somewhere.  Eventually it’s going to make it’s way to consumers, and maybe show up in the way of inflation?  Which means the Fed may be raising rates over the next year.  Could be why mortgage rates have headed up too.

I don’t have a clue where the markets are headed, but I’m staying in the game.  There are some hopeful signs for economic growth and a continued recovery.  So how do I see it?  I’m focusing on safe places to put money and not taking any big risks.  But I’m not parking the money in the mattress either.  But safe is a relative term that means different things to different people.

If you’re 77 years old and have $65,000 of life savings, you want to feel that the money is safe in the bank savings account or a CD to use when you might need it.  And if you’re a young family, working hard to pay your bills and feed your children, it’s important to make sure that the $3500 you have in the savings account is safe.   And with almost every bank across the nation, that money is safe. That’s why they’re FDIC insured for up to $100,000 for most accounts.

But what’s the word safe mean to a family making over $100,000 a year, with three kids and one heading to college, and a modest 401(k) and retirement savings of $200,000?   Maybe that family is doing just fine at home and handling the economic challenges without any hardship on a monthly basis.  But are their investments and retirement savings in a safe place, especially when considered against a spectrum of 20-30 years?  Maybe not.

And that’s where a professional financial planner or advisor can help to structure your diversification and asset allocation based on what you believe is safe and appropriate to your age, your family situation and your financial goals.   Eventually the tide is going to turn, and you want to be ready to take advantage of positive economic change, while minimizing economic challenge.

What are the core values from my perspective?  Staying invested for the long term, staying patient, paying down debt and building up that emergency fund in the bank.  Not necessarily in that order!

I does feel good to save for a cushion in case we need it, and yes, there’s still many good places out there to park your money.   Folks are jumping at the chance to open a 4.0% CD with Bank of America while the company extends their business hours this weekend.  That’s not bad at all.  And there are other FDIC insured places to save such as with ING Direct’s High Yield Savings account offering a 3.00% annual percentage yield.

But here’s a question: Is the American Dream dead?  Is it too hard anymore to get an education, a decent paying job, find a home and raise a family?   Are there really hoards of “Empty ATM’s and Desperate Boomers” out there?

Maybe for some folks, but for the nation as a whole?  No way.  I don’t buy that for a minute, and I refuse to believe that the dream so many of us have for a better future has fallen by the wayside just because we’re facing economic challenge in many ways.   We’ve been through this before, and we’ll face it again.  But we’ll get through it.

No matter what I read, and all the negative hype about financial markets and the credit crisis, what the economy really is about is what we do at home.  If you’re the one struggling right now my thoughts and best wishes are with you.  But no matter what, don’t give up, keep the faith and stay hopeful.  This country has been through some pretty hard times in the past, and we’ll move forward from here just as well. 

* On a sad but inspirational note, Randy Pausch who gave us The Last Lecture has passed away today, July 25th, 2008.  I posted a Wall Street Journal video about Randy in September 2007.  He truly showed us what living is all about.  Here’s the link to his full 76 minute Last Lecture on YouTube.  And Randy’s personal site is worth visiting.  God Bless Randy, and to your family.

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The dynamics we’re seeing in capital markets is astounding considering how confident we are of the economic fundamentals underlying the complex structures of finance throughout the world today.  And for all our knowledge and expertise, we have politicians, economists and business leaders grappling with the same questions over what to do next. 

And it’s amazing the difference a week makes in the price of oil.  Is it due to Senator McCain’s implication that President Bush’s lifting of the executive ban on oil drilling influenced world markets?   Or just weaker U.S. demand?  Here’s a thought:  Could it be related to hedge funds exiting long positions becasue of the SEC’s rule-making and investigative actions?  Or the Senate’s votes that may require the Commodoties Futures Trading Commission (CFTC) to implement oil trading rules for hedge funds and other large investors?

Can the SEC (or a few hedge funds) even influence a market so large and complex such as oil?  Possibly.  Based on initial data for example, the SEC’s recent rules stopping naked shorting of select financial firms has led to a 90% drop of shorting in key financial stocks.  Maybe it’s time to take profits in oil before the herd moves in that direction.

Many experts continue to argue about the SEC’s actions, but if naked shorting is technically illegal anyway, why does the SEC allow it in the broader markets?  Maybe the party is winding down for key hedge funds in securities markets, and many believe it’s about time.  The idea of equity firms profiting through naked shorting, or conducting bear raids on U.S. companies during challenging economic times doesn’t sit well with a lot of Americans.

And naked shorting doesn’t sit well with Cramer either.

It’s become common — even though it’s illegal — for traders to sell stock short without first locating shares for the transaction. This gives power players such as hedge funds virtual free reign to bring down a company’s share price.

“The regulators, frankly, are very naive about what really goes on,” Cramer said.

Cramer also criticized the SEC’s repeal of the uptick rule, which requires a trader to wait for an increase in a stock’s share price, an uptick, before he can sell it short. Cox said he only implemented the rule after rigorous analysis, but Cramer questioned the validity of that study.

“It was done during the greatest bull market in history,” Cramer said. “Perhaps we ought to reevaluate it in the greatest bear market in 25 years.”

This “laissez–faire” approach to regulation allows hedge funds to create “a level of fear that you can create a panic” because they can sell short and damage a stock with impunity. And it wasn’t until the near death of Fannie Mae and Freddie Mac that the Bush administration felt it necessary to step in.

While the SEC wrestles with market dynamics, the price of oil has continued to fall.  Whatever the reason for the oil price drop, it may not be that way for long.  Without expanded supplies for U.S. demand, the price of oil will be subject to shocks in the system in the form of hurricanes and other supply interruptions such as refinery outages  Even famed oilman T. Boone Pickens has said the price of oil may reach $300 per barrel within 10 years if the U.S. does not increase domestic oil production. 

“We have walked into a trap and we are the ones that put ourselves there,” he said. “I’m not pointing the finger at anybody because it isn’t going to help, but we have to work together to get out of it.”

The nation imports nearly 70% of its oil, Pickens said, spending $700 billion a year on those imports. Many of the countries supplying that oil are “not friendly” to the United States, he added.

“I am convinced that we are paying for both sides of the Iraqi war,” Pickens testified.

If the nation fails to adapt to the changing energy landscape the crisis will only worsen, he added.

“If we continue to drift the way we have been, you’re going to be importing 80% of your oil and it’s going to be $300 a barrel,” over the next 10 years, Pickens told [Senator] Lieberman.

 Yet Pickens sees increased oil production as only part of the plan, and advocates a greatly expanded alternative energy plan that involves wind farms throughout the country, especially in Texas and the southwest.

Wind energy can be used as a replacement for energy derived from natural gas, which is currently used for heating purposes, Pickens said.

The plight of the economy has become the defining issue for the election this year, and perhaps for a generation or more of middle class Americans. Not since the 1970’s, and some say 1930’s, have we seen such economic challenges.

But while the journey to economic growth may seem far off, some experts see opportunity in bear markets.  

…do not fall into despair. Bear markets last on average less than two years. The recovery is often very abrupt. This one will end, too.

If you have the money to buy, now is the time to buy the broad indexes (links associated with the top ETF for each index) - the S&P 500 (SPY), the Dow Jones Industrial Average (DIA), the MSCI Emerging Markets Index (EEM) and the MSCI EAFE Index (EFA) for developed foreign markets.

Don’t denude yourself of cash, but if you can spare it, buy now and in ten years you will be glad you did. The sun will come out tomorrow. It always does. And as the saying goes, “the darkest hour is just before dawn.”

Other experts advocate treading carefully with your nest egg, especially for those close to or living in retirement. 

While we undergo the gyrations of the markets from day-to-day, some think it’s time to challenge many of the beliefs we hold as economic realities.  Economists and legislators will certainly re-examine many of the economic ideas and practices that have been implemented in recent years. 

Regardless of the news, the reality is that we are adrift on this great economic ship, and we’re hoping we don’t become grounded for long before getting underway again.   

But how do we get underway again on the journey toward economic growth?  That is perhaps the central question that many of us will ask ourselves as we decide who is better positioned to lead the nation in the years ahead.

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A dynamic week thus far with the market rallying off lows, and the SEC cracking down on short sellers in the financial sector.   Although markets may struggle today as tech bellwethers Microsoft, Google and IBM are giving analysts concern over the sector.  Technology shares have remained strong overall but Google is raising a few eyebrows with second quarter revenue jumping only 35% and paid clicks 19% compared to 20% a year ago.  Microsft’s profit leaped 42% but that may not be quite good enough as the earnings dipped below estimates as well.  And Citigroup posts a $2.5 billion loss but beats estimates? 

Meanwhile Al Gore is telling Congress not to let anyone drill for oil and that we need to shift faster to renewable energy, but T. Boone Pickens probably has a lot of better ideas Al.  Besides, why not do both?   While the energy debate heats up, the price of oil has been falling.  Is this the top for oil and energy?   Probably not. 

And all the world’s a stage this week as Senator Obama heads out on a “fact-finding trip” around the world to meet Middle Eastern and European leaders.  And the media is “going gaga” with three network anchors taking the trip with him.  Wow, with coverage like that who needs advertising?! But he will meet a host of world leaders and discuss many critical issues. 

The McCain camp calls it a political stunt… Politics? In an election year? Yep.  Interesting that McCain’s been to Iraq eight times and Afghanistan four times over the years, but Obama just once to Iraq in 2006, and never to Afghanistan.  And yet Obama’s media coverage will be non-stop, much to the consternation of the Republicans.  No time like the present however, especially with the Democratic convention next month?  If Obama wins the election, my guess is this trip will have been a pivotal event.  But you never know, sometimes people get the wrong idea.   With the New Yorker fiasco a lot of folks seem to think the Obama’s are off limits to satire.

But after the takeover of IndyMac Bank, many people are wondering if their investments and savings are safe.  If a leading national bank can become overextended, and then taken over by federal regulators in order to prevent a total collapse, what does that say about the other banks and institutions we use?  Can it happen with other banks?  Do we need to worry about our money?

The simple truth is that any bank, and any investment, can fail.  There are few guarantees in life, and getting a return on your money isn’t one of them.  Most banks however will be just fine.  We live in an amazing country regardless of the current economic challenges, and if we invest patiently and wisely, our money should grow over time.  If we put our money in reputable banking institutions, then we should feel secure in the knowledge that the money will be there when we need it.

Saving money is different than investing money however. Savings accounts are like emergency funds, and if you don’t have an emergency fund, then that’s priority #1.  The emergency fund should hold enough cash to fund 3-12 months of living expenses, depending upon your career and personal desires.  Most folks shoot for 3-6 months living expenses, and most Americans don’t even come close.  But it’s important as a safeguard for uplanned or emergency expenses, and in scary economic times, the emergency fund is one of the best things we can do to prepare.

By the way, to reiterate basic banking fundamentals, it’s important to remember that the FDIC only insures or guarantees banking funds for individual amounts normally up to $100,000. More may be insured if the account is joint, or meets other criteria. But as an individual, if you are keeping more than $100,000 in cash, CD’s or money market accounts within the same banking institution, then your money may not be protected in case your bank fails. 

What can you do?   Quite simply, move some of that money to a different bank, or several different banks.  Some folks don’t realize this.  You can have $300,000 for example, divided in $100,000 accounts at three different institutions, and all those accounts will be guaranteed and insured by the FDIC.  That’s a whole lot better than wondering if you’ll get your money back (in excess of $100,000) after the bank fails, as some with IndyMac Bank are doing.

Here’s a good look at the IndyMac Bank problems and a few questions and answers from Dave Ramsey:

If you have further questions about FDIC insurance and your account coverage status, take a look at the FDIC website. 

I’ve said it before, but investing means you don’t need the money for 3-5 years, preferably closer to 10 or beyond. You are investing the money for the future, not for a car you want to buy or a down payment for a house in 2 years. Of course the “patient” part of it is as difficult as the “wisely” part of it. It’s difficult enough to keep ourselves investing over time, but even harder to be successful by ourselves.

I’m a big believer in holding low-cost mutual funds over time, and putting together a diversified allocation of assets that will grow over decades.  If you can afford professional help, then get it. If not, then maximzie that 401(k) and IRA each year, and look at the options available within the plans. Don’t just stick with company stock.  Most companies do not limit the options you have within the 401(k) or retirement account, but sometimes you have to ask to learn more about your choices. For your IRA a solid company such as Vanguard can really help you manage retirement and investment accounts.

In other news it’s shocking, but not surprising, to read about U.S citizens hiding trillions of dollars in swiss bank accounts.  Holy cow, there’s some rich pickings for the IRS, and it looks like they’ve finally started enforcing the law.  And if you’re worried about where to get your next cup of Starbuck’s coffee, you can check out the list of store closings by state.  That’s an amazing about face for the flagship coffee company, and with competition from McDonalds and dozens of other coffee shop startups they’re probably trying to hold it all together.  Time to get another morning cup myself…

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