Can we expect gas to hit $5.00 per gallon this summer?
With gas prices reaching an all time high, it is likely we will see the trend continue through the summer, threatening America's already fragile economy with prices as high as $5 per gallon, if not worse. While costs skyrocketing during the summer months is nothing the population isn't accustomed to, trends this year suggest prices stand to rise more substantially than in subsequent years.
Though America ranks third in the production of oil, it still has a high reliance on foreign exports. In the past year, The United States has experienced a 3% increase in national drilling, a trend that if continued will help ease the pressures of rising oversea prices. In present, this trend is not seen as enough of a supplement to compete with pressures placed on foreign producers. Given best circumstances, the increase will help keep prices below $5 per gallon, though it is unlikely.
Out of the twenty leading producers of oil, seven countries currently suffer from circumstances that negatively affect their ability to produce, two have raised the price per barrel, and only two countries having circumstances that could reduce the cost of fuel.
Below is a list of the 20 leading countries in oil production, one being the highest producer. If there is no circumstance next to a state's name, there has been no major developments, positive or negative, in the year 2012 regarding prices.
1. Russia- Rise in barrel price ($15 per barrel)
2. Saudi Arabia- Eastern Revolution
3. United States
4. Iran- Trade isolation by U.S. and Japan (lowering supply of oil for U.S.)
5. China
6. Mexico
7. Canada
8. United Arab Emirates -Prices expected to rise to highest record
9. Iraq- Internal conflict
10. Kuwait
11. Venezuela- Raising exports
12. Nigeria- Christian/Muslim conflicts
13. Norway- Drilling less
14. Brazil- Worker strike in Chevron
15. Angola- Plans to increase output
16. Algeria
17. Libya- Civil war
18. Kazakhstan
19. United Kingdom
20. Azerbaijan
International trends don't offer much hope for summer 2012. Relations with Iran only further America's fuel crisis. In response to Iran's nuclear weapon development, the U.S. called for a trade isolation against the state. Japan has also followed suit, slashing Iranian oil consumption by 20%. With Iran sitting at fourth, this lowers the supply of available fuel for the U.S., while increasing the demand placed on other producers. In response, other producers may choose to raise the price per barrel of oil.
Iran offers another obstacle this summer as it threatens to blockade the Strait of Hormuz in response to the United States trade isolation. The Strait serves as a passage for a 20% of transported oil. While military action is planned if Iran follows through, oil prices would suffer until Iran was removed.
America's slowly recovering economy also threatens to raise fuel prices. Progress economically has left consumers with more money to spend and less willingness to save. This has lead to a higher consumption of oil, and as the demand goes up so does the price. However, there are predictions that this trend could reverse itself as fuel prices keep going up. It is estimated that the common consumer will begin to conserve on oil and fuel again to avoid the hefty cost.
America's economic recovery also suggests that more people will be willing to vacation this summer. As demand rises during the traveling months, the price rises with it. However, the cost of fuel prices is expected to hinder its own sale, as families make plans to vacation closer to home, saving on oil-based means of travel. This could lead to a spike downwards in the cost of oil after a spike upwards. With popular tourist locations California, Washington DC, and Hawaii in the top five states with highest gas prices, the economy will suffer should prices not adjust at the lower end of the spectrum.
While the United States stands to gain from the 3% increase in drilling on its own land, another practice becoming more common is a process known as "fracking". Fracking is a means of obtaining oil through hydraulic fracturing. Though the practice is beginning to become more cost efficient, currently it is still more expensive than the typical method of drilling. To make up for losses, the cost of a barrel that is traditionally drilled has risen to match a barrel of fracked oil. If fracking become cheaper by summer, it could be a factor in lowering fuel prices. Until then, the more common fracking becomes, the more expensive oil based fuels will become.
http://bottomline.msnbc.msn.com/_news/2012/02/25/10496561-8-reasons-why-gas-will-hit-5-a-gallon-this-year
http://gasbuddy.com/GB_Price_List.aspx
http://www.huffingtonpost.com/2011/02/22/oil-producers-exporters-t_n_826564.html#s244330&title=1_Russia
More On The Higher Education Bubble
EducationNews.org put together this cool motion graphic video that supports a lot of the points I made in my post on the higher education bubble and its ramifications.
Check it out here: http://www.educationnews.org/higher-education-bubble
When Obama Wins, Thank a Republican
by Brendan Delaney
According to Joe Scarborough on Meet The Press this morning, Newt Gingrich’s recent Republican Primary win in South Carolina was not so much a victory for Newt Gingrich as it was a primal scream by Republican voters against the Republican Party establishment.
Newt Gingrich wins South Carolina Primary
As a former Republican myself, I can identify with those who are so frustrated with their own party that, in order to send a message of contempt to their party leaders, they would be willing to nominate a completely unelectable candidate like Newt Gingrich. I sent my own message to the Republican party in 2007, when it came time for me to renew my drivers’ license. At that time, when given the opportunity to change my political affiliation, I opted to become a Democrat. I did this because I didn’t want to be associated with a party that I felt no longer represented the best interests of anyone I knew. I was also highly disillusioned by the way they so cynically rammed through a candidate as unqualified, and unintelligent, as George W. Bush (whom I did not vote for, btw). The election of George W. Bush allowed the Republican Party to take care of their cronies in corporate America, and also set in motion many of the policies that led to the dismal state of our economy today. And while they may have secured the White House in 2000 and 2004, they sacrificed the allegiance of people like me - people who believed in the Republican party and its ideals, before the Republican party cast aside those ideals in favor of catering to the wealthiest 1% of Americans.
So now I am a Democrat, but it hasn’t exactly been a match made in heaven. I’m a big fan of American business, and I’m not a huge fan of unions. These are two qualities that put me at odds with a lot of card-carrying Democrats. While I’ll concede that unions are great, if you happen to be in one, they also drive up prices for the rest of us, which leaves less money in our pockets, less money for spending, and ultimately, less jobs in the economy. Business, particularly small business, is the lifeblood of our economy. It creates 80% of the jobs, and generates tax revenues that fund many of the government programs that so many Democrats are fond of. The lifeblood of our economy is not big corporate America, which, in cahoots with the financial sector, seems increasingly intent on sucking the wealth out of the middle class, hollowing out our country from within, and lining their pockets with ill-gotten gains. They have done this with the blessing of the Republican Party, which has assisted them by channeling their political donations and lobbying efforts.
So when I left the Republican Party in 2007, it was because I came to realize what many Republican Party members are just now learning - that the Republican Party doesn’t represent the best interest of the bulk of Republicans. Instead, they are controlled by, and work in the best interest of, large corporations and the big banks in the financial sector. Republican Party leaders cynically cloak their true motives with messages of “freedom” and “job creation.” And they perpetuate the notion that it’s more American to be a Republican. Unfortunately, a lot of Republican Party members believe just that. But, as the South Carolina Primary has proven, a lot of them are starting to wise up.
If Joe Scarborough is correct, then the “primal scream” heard in South Carolina is, in effect, a protest by Republicans against the Republican Party establishment. And it’s not the first Republican protest we have seen from within the ranks of the party. To date, there have been three Republican primaries, and there have been three separate winners. And the very existence of Ron Paul as a semi-viable (though ultimately doomed) candidate is a form of protest as well. His enduring success, despite the best efforts of mainstream media to ignore his existence (a topic itself worthy of a lengthy blog post), only further serves to demonstrate that Republicans are in the throes of an internal revolution. And revolutions, as Republicans know, are never good for business.
At the end of the day, what we have learned (the net-net, in business-speak) is that the Republicans have shot themselves in the foot, and it's potentially fatal. In 2012, Republicans have a tremendous opportunity to take back the White House, and they are squandering it. They sold out their own party, and created an environment that is ripe for exactly what they are hoping to avoid - a two-term Democratic president. As a result, the Democrats aren’t going to win the election in 2012, the Republicans are going to lose it. So, for all you Democrats out there, when you’re dancing in the streets in November after Obama is re-elected president, be sure stop for a moment and thank those who made that victory possible - the powers that be in the Republican Party.
Pictures from Wall St Protests
My company recently moved to the financial district, so I have a front row seat to the "Occupy Wall St" protests.
Why I’m Sold on Gold
The price of gold has reached record highs over the past few weeks and this steady climb has left many potential investors wondering if this rise is just another economic bubble or if now is a good time to jump on the gold train. While
we have seen many investment bubbles float upward and burst in the past, the reasons behind the meteoric rise of gold reveal that it has much more room to climb before the price begins to fall. The price will steady eventually, but those days are still far off leaving time for many more investors to join this modern day gold rush.
While most economic bubbles are formed by investors looking to make a quick capital gain, the rise in the price of gold has been driven mainly by people seeking to guard their wealth against inflation. These investors are utilizing gold as a hedge against inflation as the precious metal has a way of retaining its value despite fluctuations in markets and commerce. This prudent move is being taken by citizens of the world and not simply western nations as in the past. The booming populations of India and China have begun using the time tested value of gold to protect themselves against the possibility of drastically devalued currencies. In fact, the Chinese government has recently begun directing citizens to invest in precious metals, bringing widespread demand to what was once a fairly small market.
As more and more people awaken to the falling value of the dollar, they too will be turning to gold to protect themselves and their savings against the ravages of inflation. Currently, only a small part of the populace has begun to do this but this portion will increase as the average person begins to feel the impact of rising food and fuel costs. As more paper money is printed to plug the holes of economic crisis, the chances of inflation begin to increase, making the move to gold even wiser. Gold will likely continue to break records in a cycle that has repeated itself throughout history, when governments fail to protect their citizens from the devaluation of fiat currency.
The Higher Education Bubble and its Ramifications
Higher education may be a valuable investment, but it is hardly a priceless one. On the contrary, millions of Americans are finding out every day that the price of getting an education at a four year college or university is getting higher and higher. What once was a merely an expensive cost for students and their parents has now become an insurmountable
barrier to higher education that many students struggle to overcome. As a result, even if they are able to obtain an education from their four year education, many of America's college students will never see the return on their investment that justifies the amount of money they spent on that education.
In colleges and universities today, private college tuition can easily cost students more than $40,000 per year. And the tuition is only the beginning of the costs associated with attending college. Adding living expenses like room and board and fees, books and other costs, and annual tuition can exceed more than $50,000 per year. Although many colleges offer their students financial aid in the form of grants, most students are only able to afford their undergraduate education because they have signed promissory notes for enormous student loans.
These student loans, regardless of whether they are held through a federal lender like Sallie Mae or a private lender, like a bank or another creditor, are the financial equivalent of owning a mortgage. This is a fair comparison, because for many students, they will have to choose between having a college education or owning a house. They won't be able to afford both. Clearly, for many, combining these huge debts with students' lack of financial experience is a recipe for financial disaster.
The financial ramifications are realized when these debt-ridden students graduate from college and enter the workforce. Though they are now equipped with college degrees, they are so weighed down with debt that, after they make their monthly payments, they are unable to save any money to eventually put toward a down payment on their first homes. This leaves the housing market stagnant and unmoving, at a time when it needs the stimulus from new first-time home buyers the most.
As a result, not only do young adults fail to realize the return on their investment in higher education, but the ripple effect stymies the rest of the economy. It's not difficult to foresee that college students in the future will have to rethink whether the cost of attending a a four-year university worth it. And with the rise of the online schools with the ability to communicate the exact same information that a traditional school would offer, and with opportunities for student gatherings organized on sites such as Meetup.com, it's clear that the college education landscape in ten years will be significantly different than what we see today. Our young minds are our country's greatest asset, and to saddle them with a huge debt load does them a disservice that hinders the economic recovery. The future of our nation rests on the ability of our youth to succeed. And they can't succeed if they are expected to support a bloated educational system that hurts their chances more than it helps.
Is the Stock Market Rigged?
Today, when Standard & Poor's changed their ratings outlook on U.S. Treasury bonds from "stable" to "negative", they also announced that they would consider a downgrade in the U.S. government's credit rating within the next two years. This, as one would expect, sparked a sell-off in the stock market. All three market indexes were down by over 1% by the end of the trading session on April 18, 2011. (1)
The agency made it's announcement soon after the markets opened, and shortly thereafter the DOW dropped closed to 2%. But then a curious, though somewhat familiar, pattern emerged. Despite the sell-off, with the Dow Jones Industrial Averages down over 200 points, the market indexes showed some buying pressure later in the day. By the end of the session, the buying pressure was enough to recoup a significant portion of the earlier losses. If history is our guide, we will likely see 100% of the losses in the DOW recouped by tomorrow afternoon.
Is it Rigged?
Since the stock market turn-around in March 2009, speculation about the stock market being rigged has been rampant. Credible investors and market watchers began accusing the Treasury and the Federal Reserve of rigging the market. And Sprott Asset Management, an investment management company, accused the government of running a Ponzi scheme in 2009.
The most credible accusation so far has come from Charles Biderman of TrimTabs Investment Research. (2) Mr. Biderman published a report in 2009 showing that money was flowing out of the equities markets at an astounding rate. He also noted how rapidly the stock market rallied. Mr. Biderman speculated that the Federal Reserve had started to buy S&P 500 futures contracts, which drove up the index and hence the market.
Mr. Biderman noted that he had no evidence that the Federal Reserve was actually purchasing stock futures. However, he stuck by his claim and relied on the data showing massive outflows among all traditional investor categories, from retail investors to foreign firms. Mr. Biderman has reiterated his claim since publishing the initial report.
The market action after the S&P ratings announcement has market watchers wondering if Mr. Biderman was correct. Obviously, the government has a vested interest in maintaining the appearance of an economic recovery. Does this extend to rigging the stock market?
Mainstream market watchers answer in the negative, pointing to previous post-crash rallies. However, the analyst John Williams of Shadow Government Statistics (3) points out the Greenspan Fed was rumored to have purchased stock futures to encourage the rally. Hard evidence is scarce, but analysis of prior rallies definitely points to something strange happening. And if true, we can expect the confidence of investors to be shaken to the core, severely undermining the chance of any economic recovery.
References
(1) http://www.marketwatch.com/Story/story/print?guid=7F633610-69BD-11E0-8CAB-00212804637C
(2) http://www.marketwatch.com/story/fund-flows-firm-suggests-government-bought-stocks-2010-01-05
(3) http://www.shadowstats.com/article/economic-and-systemic-crises
How to Hedge Against a Collapse in the U.S. Dollar?
Inflation has seemingly returned to the United States. Oil prices have resumed their upward march, and gasoline prices are following close behind. The prices of commodities and food are also increasing at an alarming rate. The price of meat, corn, wheat and other foodstuffs has gone up, decreasing the purchasing power of consumers. Inflation represents a real threat to the financial stability of the U.S.
Inflation decreases the relative value of a currency, in this case, the U.S. dollar. A falling dollar results in rising prices. It must be made very clear that this is not a sustainable situation. A currency cannot constantly fall. Eventually, it will either collapse entirely or stabilize and stop falling. When a currency collapses, the result is usually hyperinflation. In hyperinflation, prices increase so rapidly that the currency quickly becomes worthless. It is impossible to buy or sell using the hyperinflated currency, so the economy suffering from hyperinflation quickly devolves into a barter economy.
Hyperinflation may be coming to the United States. Presently, the U.S. dollar continues to fall in value relative to other currencies. Investors and consumers concerned about inflation naturally seek out the best hedges. During the high inflation of the 1970s, the best assets to hold were real estate, commodities, stocks with small market capitalizations and debt. Mortgage borrowers experienced tremendous benefits in the 1970s. Every year, the value of the debt they owed decreased significantly.
In today's environment, there is considerable debate whether or not commodities like gold and silver are in a bubble. Gold climbs ever higher, recently closing at a record $1,476 per ounce on Friday, April 8, 2011. Silver closed at a record $40.93 per ounce.
Looking forward to the future, investors and current or future retirees would do well to consider diversifying away from the dollar. If commodities seem too risky, and short-term price volatility would bear this out, consider investing in stable foreign currencies. Foreign currencies offer immediate protection against a collapsing U.S. dollar. If the unthinkable happens and the dollar completely collapses into a hyperinflationary frenzy, investors who have their wealth in foreign currencies will be protected. Importantly, they will be in a position to move their assets back into whatever currency replaces the dollar after it collapses.
The most stable foreign currencies thus far are the Norwegian kroner, the Swiss franc, and the New Zealand dollar. All three currencies are from politically and economically stable countries. Switzerland, in particular, has a reputation for financial stability that is centuries old. There are several ways to invest in foreign currencies. Several exchange-traded funds or ETFs exist that deal exclusively in assets denominated in foreign currencies. The simplest way is to open a bank account denominated in a foreign currency, but this is often impractical for the average investor.
The biggest risk in owning foreign currencies is that the exchange rate between the dollar and the currency will change. This could result in losses to the investor. Since the currency is a hedge against the dollar, this is an acceptable risk.