gas prices

[muldoon]

The fed come out yesterday morning and basically told the world not to expect more rate cuts, that inflation in commodities was a factor affecting the economy as a whole and the direction was to take a stand against it.  One also could say that the market demand for safety has raised the 13week IRX bill to a rate that is close to the federal target of 2% and is about to cross thus indicating that for the fed to follow the debt market they would need to hold or raise rates.  This fed follows the debt market has held true for about 2 decades now and seems to hold some water and it can explain some of the odd choices they have made in the past.  Either way you explain it, the dollar loved the news and did some much needed rebounding yesterday which had a part to play in lowering the cost of oil and gasoline futures over the last two days.  Anyway, I thought I would pass on the good news that in the coming week to two you should expect to see a dip in gasoline prices in your area, if you can hold off a few days it might be worth it.

Which leads me to the second thing I wanted to talk about, a quick primer about interpreting gasoline
futures and how they affect us in the real world.  (generally).  This is a hobby of mine, just passing on an observation that may help others plan their fillup patterns. 

For short term predictions, start with the gas futures ticker.  Go to www.bloomberg.com/energy and look for NYMEX RBOB Gasoline futures.  Right now this raw price of unrefined unleaded is at 319.49 in cents per gallon or 3.19490 wholesale.  It is down 16 cents today and 3.8 cents yesterday from 339 in cents per gallon or 3.39 on Monday, a nice 22 cent per gallon decline.  This a long way from pump price, we'll get there in a minute.  Sometimes it takes time to get from wholesale changes to pump changes, depends on what direction and force of the changes.

Next, add in the states and federal gasoline tax.  Go here to find your rates:
http://www.gaspricewatch.com/usgastaxes.asp
I am in Texas, mine is 20 cents per gallon.
The federal tax is 18.4 cents.

So add them up, 3.1949 + Federal tax(0.184) + State Tax(.20) = 3.579.
Thats the base price your retailer pays.  On top of that some states require more expensive blends,
California is more strict than Texas so your price is higher.

Next comes profit margin, this is the part that the gas station and oil company keeps, roughly 4% to
7%   ouch!  (it used to be higher, its slipped as the are trying to be more competitive).  This generally equates to what you will see at the pump in the next 5-20 days.
3.579 * 1.04 = 3.72 a gallon, which it seems silly to be happy about - but its better than the 3.90 sign I passed this morning.   

Thats whats coming in the next week or so.  For me, it's worth it to wait to fill up.  Hope this information helps others. 

[peternap]

Interesting hobby Muldoon!

Did you watch the roller coaster do the loop d loop today?

[glenn kangiser]

We will see -- I don't like paying $5.19 per gallon for diesel.

[peternap]

We will see -- I don't like paying $5.19 per gallon for diesel.

Yep, I might open one of those 4.00 a gallon drums I stockpiled and see if it comes down.

[StinkerBell]

The rate cut is a joke. Bank Mortgage rates are the same as a year ago. I asked why that is? According to the bank even thought rates are lower our area is not as hard hit, therefore they can ask the current rate. Once again, they are making big bucks imo.

[muldoon]

The rate cut is a joke. Bank Mortgage rates are the same as a year ago. I asked why that is? According to the bank even thought rates are lower our area is not as hard hit, therefore they can ask the current rate. Once again, they are making big bucks imo.

The banks are not making big bucks.  The banks are dead.  Their so far underwater it's scary.



Thats the non-borrowed reserves of all depository institutions in the US (the banks).  When you put money in a bank, they keep some of it (in reserve) and lend the rest out.  If they take losses they should still have the money they kept in reserve.  It's not all of your money (because not everyone will take their money out at once), its maybe 10 percent.  So if you have 100 in, they keep 10 bucks onhand in case you come in to claim some of it.  With the other 90 they invest - make loans, buy stocks, mortgages, etc.  They have lost soo much money not only did they lose the investing side, they lost the money they had in reserves.  That negative number is the amount on borrow from the federal reserve to stay afloat.  They are not making tons of money right now.  That chart is also from April-1, the new number is -110b instead of -91 but the affect is the same. 

The fed target rate is not a consumer loan rate.  It is the cost of debt on the credit markets; generally associated with the amount of interest used by banks for overnight loans.  Given the huge losses, and very serious risk associated with writing loans in todays market it is an absolute surprise that rates are the same as they were a year ago.  As the percentage of risk increases, the premiuim to underwrite that risk usually goes up.  As home prices decline, those loans get riskier.  You can still get a 3% down, 97% financed mortgage today - given our declines from Jan of this year you will be underwater on that loan in 4 months!!   That has nothing to do with subprime, your credit score, or adjustable rates.  The interest rates are being held artificially low now by the fed (which spurs inflation) in hopes that the banks will pull themselves up and stand alone so to speak.  This newly created inflation is not being dispersed evenly - no money going into new construction, new jobs, or growth as they intended.  It's going into commodities; food and oil.  Look at that chart above, it tells the story of nothing but absolute deflation.  Go look on realtor.com, put in detroit MI, look for housing from $1000 - $2000 -- I would stay away from those 3 bedrooms selling for $400, they have serious problems.  Yes that deflation, thats the direction of what they are trying to avoid. 

The fed has some serious problems, and I am a fierce critic of them.  But also recognize they have such a doozy of a problem that it certainly calls for some serious actions on their part. 

[ScottA]

Interesting chart muldoon. One thing that never ever get mentioned is all the billions the bankers took in profits and bonuses during the boom years. Rather than reinvesting or holding profits in reserve for hard times they cashed in every penny. I have 0 simpathy for them. Hard times hit and they go begging to fed and the taxpayers to bail them out instead of digging in their own over-stuffed pockets to make up the shortfall. In short all this the banks are dead business is their own greedy fault.

[muldoon]

I wont argue that the problem was created by the same greedy bastards that are now in trouble.  I have no sympathy for them either.  However, many of the banks were caught with their pants down because those profits kept going back and feeding the same perpetual motion machine that created them.  The majority of the money was never real in the first place, it was expansion of credit or sale and resale of debt.  It was a house of cards, each layer more shaky than the level before it.  I am not defending the choices made, the fraud, the incompetence at all.  I think a good number of them should be indicted and jailed. 

But here we are, what do we do now?  I simply cannot see a politician anywhere getting on tv saying "well - the old model is broken so were going to just pack our bags and go home.  It's over."  I mean, they have to try to keep this thing on the rails somehow. 

It infuriates me that laws like Glass Seagal were repealed that would have stopped alot of this non-sense.  Glass Seagal was written in 1933-34 to stop this very exact problem from occuring, it was repealed in 1999.  damn, just realised I cant even blame bush for that one. 

[glenn kangiser]

The rate cut is a joke. Bank Mortgage rates are the same as a year ago. I asked why that is? According to the bank even thought rates are lower our area is not as hard hit, therefore they can ask the current rate. Once again, they are making big bucks imo.

Did he at least give you a kiss after he told you that? hmm