Gas, once again, on the rise

Gas is nearing $2 per gallon -- again.

After the horribly high prices to fill up our Hyundai last summer, I didn't think gas would ever decrease in price again. (Yes, we drive a Hyundai. Thankfully, I had left my SUV back in California.) After all, if people (albeit a smaller amount) were willing to shell out over $4 per gallon, why would gas prices ever drop again? Well, then the whole demand issue came in to play, prices came down, we wiped the stress-induced sweat from our brow and happily drove our Hyundai at half the price.

But gas prices have reversed their downward-to-flat course and are now creeping back up toward $2. It always seems like when you least expect it, you're shelling out $40+ dollars at the pump and lamenting about the "good old days" when gas was only $1.50. Now is an even worse time for these lamentations, what with more people laid off than in recent history and struggling to save what little they can from unemployment.

So will the prices continue to climb? This time of year is generally when oil refineries perform maintenance on their plants, so we should take that into account, as they need to cover their costs, but as gas prices are rising, the price of a barrel of crude oil is sinking -- to the recent tune of about $35/barrel. Why the disparity?

"I think what you're seeing now is a backlash of a period, from the end of the summer until the end of the year, when refiners were selling gas into the consumer market at a discount to crude oil," Ben Brockwell, director of data pricing for OPUS, told CNNMoney.

Brockwell said refineries lost money last year, despite the surge in gas prices. The refineries in the latter half of 2008 were paying top dollar for oil, and then producing gasoline in a low-demand economy, he said. Now, refineries are producing less, driving up prices in even this low-demand economy, while stockpiling discount oil, he said.

The good news is that gas prices probably won't rise to the heights they saw last summer, the bad news is those extra few dollars to funnel into your tank will need to be accounted for in your budget. Here's to cleaner energy.

Why does food cost more these days?

The increase in food prices has been a reoccurring subject I've noticed in many personal finance blogs over the last few months. Some gripe of the exorbitance of the matter and some offer solutions (which I even did recently), but do you know exactly why the cost of food has seen such an uptick?

The answer to that question may conjure up uncomfortable memories of you spacing out at your desk during the dreaded economics classes we were forced to take in the heyday of our youths. As the teacher droned on about something called "supply and demand," many of us had already checked out, hitting our mental "snooze" buttons as we daydreamed of the Jordan Catalano look-alike three seats ahead of us.

I admit, economics is taught all wrong to us in our formative years because it's the farthest thing from boring. In fact, it's downright fascinating -- and this is coming from an English major, people, so that's got to mean something. Consider this a non-boring, hopefully amusing brush-up in Econ 101: Why is the cost of food rising so fast?

The overarching answer lies in biofuels. Fuel, you ask? What does that have to do with food? Well, a certain type of biofuel -- called ethanol -- is a clean-burning fuel made from crops, such as corn. (Corn is a fundamental ingredient in much of the food we eat, but I'll get to that in a minute). Everything so far sounds peachy and green, right? Well, according to the American Coalition for Ethanol, pure ethanol cannot be used as a motor fuel by itself; instead, a percentage of it has to be combined with unleaded gasoline to fuel, say, a car. But greenies everywhere do tout the cleaner-burning gasoline as beneficial to keeping our environment pollution-free, although many studies also argue that it's an "energy neutral" fuel, since it takes much pollution in ethanol factories to make the fuel, but that's another subject unto itself.

The fundamental problem with ethanol is when it comes to the world's food supply. Because it takes crops like corn to make the fuel, that's less food on people's plates to eat and more food being grown to power cars. This makes food more scarce, which makes it more valuable when it's in a grocery store, hence the cost of it rises because it's worth more.

Just how much have food costs risen because of biofuels? According to a confidential World Bank report that was leaked by the Guardian this summer, biofuel was responsible for a 75% rise in food prices, and "has distorted food markets in three main ways:"

1. "By diverting grain away from food for fuel, over a third of U.S. corn is now used to produce ethanol and about half of vegetable oils in [Europe] go toward the production of biodiesel."
2. "Farmers have been encouraged to set land aside for biofuel production." Land that would otherwise be used to grow crops to eat.
   
3. "It has sparked financial speculation in grains, driving prices higher." As more grains are being used to produce biofuels, they become more scarce because they are in such high demand. The more in demand a commodity is, the more people will pay for it.
   

The Guardian said the report was suppresed so the Bush administration would avoid embarassment since it had dismissed the impact of biofuels on the rising cost of food. A separate biofuel report conducted by the British government sided with the World Bank's findings and proposed the Brits "put the brakes on its biofuel policy."

Politics aside, it is an inarguable fact that the rise of biofuels has sparked the onslaught of higher food costs because of it's all-consuming need for corn in the production process. Okay, so it makes sense now that the price of any food that includes corn syrup, corn starch or other corn-based products is rising. But what the rising price of things like milk, meat and eggs? Simple! Cows, cattle, livestock, chicken and cattle all eat corn feeds. Think of it as the great "circle of life." (Cue Lion King soundtrack.)

There are also other factors that add to the high-priced plight, such as nasty droughts and floods, an increased global population that demands more food, and higher fuel costs, which make cross-country truck deliveries from the farm lands of California or the Mid-West to your Safeway grocery shelf that much more expensive. According to the USDA Economic Research Service's (ERS) consumer food price index, food prices normally rise 2.5% per year. For year-end 2008, the ERS forecasts prices to rise 5% to 6%, which is obviously a huge jump.

All of these factors -- biofuel production at the helm -- have swirled together and gained speed, like a tornado of disastrous proportions, creating a perfect storm of rising food costs.

For an econ lesson minus the Jordan Catalano-esque eye candy, that wasn't so bad, was it?

For more on the confidential World Bank report, read the Guardian's story.

Learn the lingo: Stagflation

It's been a while since I've done a "Learn the lingo" piece, so what better way to jump back into the mix than with "stagflation?" I know that lately you've all heard the term tossed around with the same frequency that the elusive "Joe the plumber" has been referenced, but do you truly know what stagflation is?

You may not be a whiz at economics or even like the subject very much (I'm the first to admit, the two econ classes I took in college were -- and still may be -- the bane of my existence), but forget any premonitions you have of the subject being too complicated! I know -- it's taught as such a boring, dull and downright tedious thing, but it's actually quite exciting and fabulous once you understand it! Not only that, it's so simple to understand that everyone -- especially us girls -- should have a basic understanding of the broader terms and concepts. Believe me, it doesn't take a finance degree to get any of this!

So what is stagflation, exactly? Simple! When a country experiences high unemployment and slowed economic growth, it's called "stagnation." Growth and jobs essentially become stagnant ... get it? Now toss into that mix a rise in prices (or what many call "inflation"), and you've got a potent cocktail of factors that ultimately create stagflation. I prefer shaken, not stirred.

If you're like me and can't remember what day it is, much less some economic theory, just think of it this way:

Stagnation + Inflation = Stagflation

See? It's as easy as cherry pie! Stagflation is merely when prices are growing but the economy isn't.

But before you cast off the term as one of those monotonous historical things coined a zillion years ago, the word actually hasn't been around forever. In fact, it's a relatively new term, first made up by economists in the 1970s (yes, disco balls, platform shoes and all) to describe the "unprecedented combination of slow economic growth, high unemployment and rising prices" that was occurring at that time, according to Barron's Finance & Investment Handbook.

For some quick background: The 1970s was the last time in U.S. history when a high dose of stagflation was swallowed by the American public. Back then, oil took center stage when the price of it rose globally, which caused extreme inflation in many developed countries, including the United States.

In the 70s, "people began to expect continuous increases in the price of goods, so they bought more. This increased demand, pushed up prices and led to demands for higher wages, which pushed prices higher still in a continuing upward spiral," according to a report by the U.S. Department of State. Then, when unemployment began to occur in higher numbers than usual, the upward spiral descended into what was a terrible recession.

As you're well aware of, consumers (meaning all of you and moi) bear the brunt of the stagflation storm. The price of food, gas and clothing (among other things) goes up, while raises, bonuses and maybe even jobs (for some of us) get harder to come by. Wondering why that burrito bowl at Chipotle is 50 cents more than usual, or why those shoes cost thatmuch more these days? Yup, stagflation is the culprit. On top of the current credit crisis, getting loans in a stagflationary environment is harder because banks may begin to restrict credit to fight the feared "s" word, which is extremely hard to correct due to its contradictory nature.

So now you know exactly what stagflation is and what causes it. No stuffy finance degree required! (Thank God.) For an excellent and very easy-to-read article about potential solutions to stagflation, read Fortune Magazine's piece published in May of this year.

Be "in the know" as a girl on the go

The last few days have been hectic at work, but a good hectic ... for me at least. While everyone is freaking out about the state of the economy, I feel some (sick?) pleasure from the tanking. Wait though, before you disregard me as loco, understand that it's only because I feel like we're watching history being made.

Don't get me wrong, I think it's awful what's happened and we will all shoulder the burden as the economy gains its footing in the next few years (yes, I said years), but it's truly history in the making ... something our kids are going to ask us about as they begin weaving their way through the maze of credit cards, car loans and college tuition. It's kind of like if you're an aspiring fashion journalist and you get a big break covering fashion week in Paris, sitting front and center next to Anna Wintour at the Oscar de la Renta show. Okay ... maybe it's not that cool, but I guess in some twisted way the markets plunging makes me feel like there is an urgent importance to my job. The last time stocks headed south to this magnitude was when I was a wee brunette on a budget, striding into my kindergarten class carrying a tin Strawberry Shortcake lunchbox and wearing the season's hottest fashion trend: Punky Brewster sneakers.

So even though I reported the market's happenings last week, that was before Friday's bailout plan was passed, which illustrated a whole other set of problems at hand. I think it's important for everyone to have a solid grasp on what's going on with the U.S. economy and international stock markets, so without further ado, here's all you need to know about the state of the economy, in one minute or less (courtesy of an amalgamation of news sites I read):

• Stocks declined "may-juhly" (as Posh would say) on Monday, starting out the week in much the same fashion as things ended last week. The U.S. walked right into a global storm, with European stocks sinking some 5% into the open, on the heels of steep declines throughout Asia." Sounded like someone had a case of the Mondays ...


• "During the start of trading on Monday, Japan was down 4.9%, Hong Kong off nearly 5%, China down 5.1%, Taiwan down 4.1%, Australia off 3.3%, Singapore down 5.6%, South Korea off 4.2% and India down 5.7%."


• "Stock market trading in Russia was halted three times as their stocks tumbled over 18% during the session. Trading halts were also executed in Brazil, as the world’s sixth-largest country saw stocks sink 15%. In Peru, trading was also stopped as the market slumped 7%. It was the worst one-day carnage in 10 years for Latin American stocks."


• "Many Latin American economies are heavily dependent on commodity exports (such as oil) and it was a brutal day for oil, as fears of a global recession dealt a powerful blow." On Monday crude oil, for example, was down 6% to eight-month lows. Why? Because much of the price of oil is speculation, and not what it's actually worth. When investors get nervous about the state of the economy, they pull their money out of the market (which includes oil) to shield it elsewhere. It plays out much like a domino effect.


• "The Federal Reserve knew it was going to be a difficult day; right off the bat it pumped billions into the market. At the same time, central banks around the world were also busy trying to flood the market with cash to ease clogged credit lines."


• Goldman Sachs said Friday that “The recession we have been forecasting now looks likely to be deeper and longer, taking the unemployment rate to 8% by late 2009 and pushing the Fed to cut interest rates to 1% or lower.”


• Goldman Sachs also noted that real consumer spending is on course to post its first quarterly decline since 1991, that manufacturing activity is in a slump and that a rapid contraction in the labor market is underway — all at the same time that financial market distress has intensified.

• Today's headline news is all about commercial paper (such as certificates of deposit). "The Federal Reserve, invoking Depression-era emergency powers, will buy commercial paper, a short-term financing mechanism that many companies rely on to finance their day-to-day operations, such as purchasing supplies or making payrolls."


• "In more normal times, about $100 billion of these short-term IOUs were outstanding at any given time, but this market has virtually dried up as investors have become too jittery to buy paper for longer than overnight or a couple days."


• "That has made it increasingly difficult and expensive for companies to raise money to fund their operations and has left them vulnerable. Commercial paper is a way for companies to borrow money for short periods, typically ranging from overnight to less than a week."


• The Fed’s announcement on commercial paper is noteworthy because it could help unclog credit lines. (Clogged credit lines is the overwhelming reason why we're in this mess.) The Fed said that the notion under the plan is for the government to provide a "backstop" that would give companies a new place to get cash.


• This action makes the Fed (now along with commercial banks and investment firms) an imperative source of credit for nonfinancial businesses.


• The commercial paper plan could take some of the edge off the calls for an emergency rate cut.

Now you're all caught up in the financial news arena, and it only took 30 seconds, right?

Hype over the hybrid

Let's get one thing straight: I love our planet. I like clean air and I don't want to die some slow, painful death, choking on thick carbon fumes that lay blanketed within our atmosphere.

And so it's in this way that I have no problem with hybrid cars. Okay, I may have a couple problems with the whole affair -- such as the body design of the Prius (ick), and the fact that the production and recycling of hybrid batteries is rumored to be wretched for the environment. Yet, all in all, I think the idea of hybrid cars is great.

But I've recently heard many people proudly brag about how much money they're saving by driving a hybrid vehicle. These staunch purveyors of a greener tomorrow may feel like they're saving behind the wheel of one of these bad boys, but are they really? What is the total cost of ownership of said hybrid versus an older, used car? I read somewhere the other day that the price of gas has risen 250% in the last 10 years! Obviously any savvy saver would want to lessen gas' rising blow to the wallet, but environmental impact aside (this is a personal finance blog, after all, and not a green one!), how much do you truly save by shunning the automobiles of yesterday in favor of sleek new hybrids that purr down the freeway at 45 mpg?

Well first you have to look at the actual costs of the vehicles themselves. While hybrids tend to hold their value better than their gas-guzzling brethren, the initial cost of the hybrid is pretty high (think in the upper $20,000s). And that doesn't include all the interest that you'll have to pay back on the large car loan you'd have to take out. For comparison's sake, Love and I spent about $4,000 cash (including taxes) on our 2000 Hyundai Accent that gets about 30 mpg. In a nutshell, the longer you hold on to your hybrid, the more money you recoup on the overall cost of the car in the first place.

And so, chickadees, if you're in the mood to hop on the hybrid boat, consider how long you plan to hold on to your eco vessel. Many people I know tend to hold on to their cars for about 5 to 6 years, which doesn't necessarily recoup all the money you plopped down for the price of the auto in the first place. This problem is magnified by reports that the gas mileage posted by the EPA (Environmental Protection Agency) on many hybrids is more inflated than what it truly is. The New York Times, Wired Magazine, and Consumer Reports, among others, have said that hybrid mileage is actually 30% to 50% lower than what's generally promised, and to add metaphorical fuel to the fire, it's been reported by these same outlets that many hybrid versions of cars get almost the same mileage as their purely gasoline-sipping counterparts.

So a bit of false advertising may be the culprit, but as I said earlier, hybrids do tend to hold their value well, so even if you don't recoup the overall cost in the form of gas, at least you can take a smaller loss on the vehicle once you're ready to bid adieu.

But what is the real cost versus benefit? Let's say you're trying to decide whether to buy a new Honda Civic hybrid (sticker price: $26,000), or a used 2001 Honda Civic (about $7,000). You're okay with the high cost of the hybrid because you're sure you'll be able to justify it with all that gas money you'll be saving, right? Well if you drove 12,000 miles per year on $4 per gallon gas (the current national average), you'd pay about $88 per month in gas driving the 45-mpg hybrid. With the standard Civic you'd pay about $114 per month in gas. This all sounds fabulous until you realize that you just spent an extra $18,600 on the hybrid model to save you $312 per year on gas. In order to recoup the total cost of the hybrid in gas savings would take you about 59 years to justify the purchase. I don't know about you, but I like my cars like I like my heels -- meaning I get my use out of them and move on after a few years. (With the exception of this marvelous pair of Coach heels I own. I'd keep those for 59 years, but that's a different matter). Don't forget if you do decide to keep your hybrid that long, about every 10 years you'd also need to replace the battery, which I imagine would get pretty costly.

Air conditioning can also take its toll on the fuel economy of a hybrid vehicle, decreasing miles per gallon by 15% to 27%, according to the Idaho National Labroatory, operated under the Department of Energy.

Aside from the intrinsic resale value of hybrids (that is, until fully electric cars make their debut, which shouldn't be too far off on the horizon), there are also other perks that can save you money by investing in a green goliath. Some credit lenders offer special car loan rates for hybrid purchasers, and insurance companies such as Geico say they offer discounted car insurance. There was a time when the federal government was also offering savvy tax credits of up to $3,400 for hybrids, but unfortunately that only pertained to the first 60,000 of them made (i.e., Toyota and Honda buyers don't get the credit).

In the grand scheme of budgeters, though, recycling is always a good idea ... in many cases it can save you loads of money. Say one of your friends subscribes to Vogue and passes each issue on to you when she's finished. That saves you about $5 in newsstand charges to get your read recycled, right? Well the same logic applies to cars. Instead of buying a brand new car (hybrid or not) fresh off a factory line in a polluted area like Guangdong, buying a small used vehicle will not only ensure that its overall environmental footprint is lessened, it will also ensure that you'll be saving more money in the long run by buying a car with a cheaper upfront cost and comparable mpg.

I know many don't solely analyze the issue on a cost versus benefit basis alone. In fact many buy hybrids purely for the environmental benefits, which is great. But remember that just because you may feel like you are saving money, says Mark Shead at Productivity501.com, it may not always mean you are saving money. "Feelings are what marketing is about. What really matters is if you are saving money. Recognize that how you feel about something is probably a poor indication of its actual benefit."

Baby, you can drive my car

With gas prices up $4 a gallon, what's a girl-on-the-go to do? First off, kiss those $1.50-a-gallon days aurevoir, because they are never coming back. 

Now that we've taken a sip of that reality, have you planned how you will accomodate the dramatic increase? Back home I had two cars: a Land Rover and a Miata (since moving out here, my parents have sold the Miata, boo!). Now that I've come to grips with how I'll miss toodling around town in my Miata (I'm a convertible kind of gal), I'm left with the CA option of the Land Rover, a 2-ton behemoth that drinks about $100+ per fill and gets 13 miles to the gallon. 

We all know the obvious ways of saving on gas, such as carpooling, or walking when a car isn't needed. (Us fashionistas have been guilty on more than one occasion of opting to drive across a shopping center parking lot instead of walk because we've been in stilettos all day.) But what about not-so-obvious gas-saving ways? For instance, did you know that by leaving your windows open while speeding down the freeway, you reduce your gas mileage by 10% because of the air drag? To break that down in dollar signs, if it costs you $60 to fill your gas tank now, that would be $6 you literally throw out the window! To be a Brunette on a Budget is to drive on a budget, too, so try these tricks next time you're at the wheel to get the most out of your gas tank:

• In this day and age, there is no need to allow your engine to warm up. Cars in the last couple of decades have been built to run shortly after they're started.
• Try to consolidate how many stops you make when you're out and about. Stopping and starting the engine continually is a dreadful waste.
• Yes, the car next to you at the light may look like it wants to race, as it revs its engine, but this isn't Meet the Parents, and in the end, you'll have the last laugh when the light hits green and they blast off with their pedal to the medal. Both engine revving and "jack-rabbit starts" are sure fire ways to drain your wallet. For all you smooth operators out there, remember to accelerate slowly from a dead stop and don't press the pedal down more than 1/4 of the distance between it and the floor.
• Believe it or not, what time of day you buy your gas can affect how much you spend. When you buy gas during the coolest time of the day (either in the early morning or late evening), you'll be buying it when it's at its densest; because pumps measures volumes (and not densities), you'll be getting more for your money.
• If you see a hill coming up, step on it sistah! You save gas by accelerating before you're on the hill rather than when you're climbing it.
• If you're one of those drivers who fancies huge, deep tread tires on your vehicle, beware! Not only is it lacking in lady-like demeanor, but the deep tread creates a sure-fire way of wasting gas.
• The faster you drive, the more gas you burn. I've heard that driving above 40 mph forces your ride to overcome much wind resistance. Of course, we can't always drive 40 mph everywhere, but remember this gem when you're going 60, 70, or even 80 mph. Driving 55 mph, for instance, saves you 21% in mileage over going 65 to 75 mph. (If you're going to follow this rule, though, please drive in the far right lane -- no one likes a slowpoke!)
• While you're driving, rest your perfectly pedicured tootsies on the ground, not the pedals! Apparently even the slightest amount of pressure puts a mechanical drag on your car's inner workings, which not only wears them down, but demands more fuel usage overall.
• Why take the rough road when you can take the smooth one? Dirt and gravel roads steal away as much as 30% of your mileage. Stylish girls should never be driving on dirt back roads, anyway.
• If it's been days since you cleaned out your trunk last, now is the perfect time to start. Nix any old rubbish in back, since extra weight wastes gas, especially when driving up hills. I have to admit I'm guilty of this. My trunk is replete with a random Emeril Lagassi 40-lb CAST-IRON SKILLET (it was a wedding present; I love making fajitas!), along with pairs shoes and heavy car tools Love uses for fixing our ride.

Moral of the story is gas is on it's way up, kiddies, so buckle up and save smartly!

A pain in the pump

As I'm sure you're well aware of, crude oil prices are on an ever-rising ascent with no drop in sight, which means gas is quickly becoming a pain in the pump. Forget being offered coupons these days: with the average price of gas across the country rising to rest slightly above $4 per gallon today, it looks like oil is becoming the new currency -- in the form of gas cards -- that companies are using to lure consumers into their web.

Hotels.com is rewarding guests who book a minimum three nights through them with a $50 gas card; many smaller banks are offering the same deal to customers opening checking accounts with them. Is golf your thing? If you buy certain drivers from Callaway Golf Co., it's likely that you'll be rewarded with a $100 gas card for choosing them. "Free gas" is becoming the new benchmark for giveaway goodies that companies, well, give away.

I'm all for it! With all the talk of hybrid cars and their ilk, most of the country (including my Hyundai) runs on good old-fashioned gasoline, so when companies offer to essentially fill up for you, I say lap up the offers -- but with one caveat.

Don't get lured into buying more than you normally spend just because your purchase comes with something "free." It's an easy trap to fall into, but just ask yourself, as you're handing over your check card or cash, "Do I really need this? Or am I just buying it because it comes with perks?" Those incessant Borders Rewards coupons that continually flood my inbox are a perfect example of this mentality of buying. Do you really need that dvd box set of every season of Seinfeld right now, or are you just impulse-buying it because you've got a 30% off coupon in your back pocket? (By the way, try Amazon.com, I guarantee it's cheaper.)

That being said, if you are in the market for a new set of clubs, or need to find a hotel to stay in, let the wooing of the free gas cards begin! If you have to spend the money, you may as well earn some back -- especially when these offers probably won't be around for the long term. According to Carnegie Mellon University marketing professor Baohong Sun, the free gas card trend should fade by the end of summer.