Random observations and comments about investing, the market and the economy.

Gasoline Prices and the Cost of Energy
8 May, 2008

In the town where I live, gasoline prices are approaching $4 a gallon. Certain politicians, most notably two candidates running for president, are touting their plans to help consumers/drivers with a Federal gas tax holiday for the summer season.

I pulled out my trusty HP 12C calculator and did some quick calculation. The average driver puts on 12,000 miles a year; that's 1,000 miles per month. Assuming the average car gets 20 miles per gallon, that translates to 50 gallons of gasoline a month. The federal gas tax that the politicians are talking about is 18.4 cents per gallon. So, simple arithmetic tells me that this gas tax holiday could save the average driver a whopping $9.20 per month. Wow, I thought, that is really........stupid!

It is estimated that this gas tax holiday, if implemented, will cost the federal highway system nearly $9 billion in lost revenue, all for the sake of saving the average driver $9.20 a month. Is it worth it? I think not.

If we want to put the $9 billion to better use, it would be more beneficial in the long run to invest it in alternative energy research. It'll go a longer way toward reducing our dependence on fossil fuel-based energy than allowing me to buy two cups of coffee at my local Starbucks.

Drunken Sailor Suffers Hangover
2 Jan., 2008

Last week, there was this headline in a local newspaper: "U.S. Home Prices Plunge".

The article says that U.S. home prices fell a record 6.7% in October compared with 2006, according to the S&P/Case-Shiller home price index.

In the article is this chart:

Source: The Detroit Free Press

I guess the purpose of the chart is to illustrate the point that things have not been this bad since the 1990/1991 timeframe, when home prices also declined from the prior year.

But, has anyone noticed what had happened in the eight or so years prior to 2007? Seems to me, since about 2000, home prices have consistently been up between 10% and 20% from the prior year. Does any serious person think that such a pace is really sustainable? Or is it necessarily a good thing for home prices to increase 10% to 20% a year?

In spite of the popular media's lament about how terrible it is that home prices are actually falling, it's been a long time coming. It's happened before and it'll happen again. The only surprise is that it took so long for the chicken to come home to roost.

The reference to the drunken sailor was not the headline. But it may as well be.

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