What Exactly are Oil Speculators, and What to Do About Them

by Tyler on April 19, 2012

When oil prices rise, you can bet that a certain group of people will come back in to the news: oil speculators. To keep it simple, let’s think of an oil speculator as somebody who isn’t using the oil markets to trade physical oil, but instead, uses it to trade oil contracts just as traders would do in the stock market.

To be fair, that’s not always true. Some of the largest oil speculators are large Wall Street banks and they have been known to park tankers full of oil in the ocean waiting for the right price to hit the market. It’s also important to note that speculators aren’t just people. They can be mutual funds, exchange traded funds, and even countries.

So what’s the problem with oil speculators? Well, here’s how it works, using the analogy of another commodity. Let’s say that you own an orange farm in Florida. It takes a lot of money to tend to your orange trees, hire workers to pick the oranges and keep all of equipment running. Because of that you can sleep a lot easier at night if you know the price you’ll get from your oranges once they’re ready for harvest.

By locking in a contract with a buyer, you can easily budget your expenses. You can also use the market to hedge or insure yourself against losses. What if unseasonably cold weather strikes and you lose the current crop?

Speculators have a different goal. They often buy and sell futures contracts before the delivery of a physical commodity is required. They trade the ups and downs of the contract hoping to profit.

The President’s Efforts

You, as a consumer, want oil prices as low as possible in order to keep gas prices low. When these speculators get involved in driving the price up or down, what you pay at the pump may not truly represent a price based on supply and demand. President Obama wants to change that.

In April of 2012, Obama announced a $52 million plan that has four main parts:

•    Dramatically increase the amount of surveillance and enforcement staff to better supervise commodities trading.
•    Increase technology spending to provide better surveillance of the energy markets.
•    Increase the civil and criminal penalties from $1 million to $10 million.
•    Give the Commodity Futures Trading Commission the authority to increase the amount of real money a trader has to put up in order to trade commodities contracts.

Sounds like a good plan, right? Well, Republicans argue that it’s largely an election year stunt. They point out that Obama already has much of this authority right now, and it doesn’t take an act of Congress to make this happen.

If Obama really wanted to clamp down on this problem he would have already done it and he could greatly increase the supply of North American oil in the U.S. markets by approving the Keystone XL pipeline.

Bottom Line

Although there is no smoking gun that shows that markets are being manipulated, the numbers seem to suggest that it’s happening, but nobody knows to what degree. Like most legislation in an election year, the chances of Obama’s proposal making it through Congress is slim.


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Here’s How to Be a Better Haggler

by Tyler on April 18, 2012

Are you a good haggler? Me neither. Is haggling an important skill to develop? You bet. Even “non-negotiable” items are negotiable. Regardless of what anybody tells you, there’s nothing that has a fixed price. You can haggle your way to a better price on everything.

Well, maybe not everything.

Can you imagine going in to Walmart and trying to negotiate the individual prices on a cart full of groceries? Not only would it be tedious, but each minute you spend haggling is time spent not doing something else, so although everything is negotiable, saving your haggling for large ticket items makes the most sense.

Before you become a great haggler you have to get used to tense situations. Be prepared to hear, “no,” prepare to annoy people sometimes, and prepare to stand your ground and walk away if needed. Good hagglers have a thick skin or at least they act like it.

Here’s what you need to know to become a better haggler:

When It’s Most likely to Work

Look for damaged products, old products that look outdated or even dusty, a price that is higher than other stores in the area, items that are going out of season, or the store seems to be overstocked.

If it looks like something that the store would want to sell even if it means taking less money for it, those are prime haggling products.

Be Respectful

Don’t make it a competition or you’re going to lose. Be complimentary of the store, the product, and the service you’ve received in the past. Also try to find a time when the store isn’t busy and the manager is busy and stressed.

Finally, try to haggle in a discreet location. If a manager says yes to your offer, they don’t want others to hear it and flood him with offers too.

The Haggle

Have you ever met one of those people that emphatically state, “l’ll give you $50 for it.” A good haggler knows that the best way to get the price they want is to be gentle, friendly, and fair. You might say, “I noticed that this item was scratched on the side. Would you take $20 off the price?”

Or, you might say, “I was at another store earlier and they have a lower price on this. I like shopping here and would like to purchase it today if you’ll match their price.” Finally, you might try “I’ve noticed this item sitting here for weeks now. If you can shave 10% off of the price, I’ll be happy to purchase it today.”

If the manager turns down your offer, ask her if she would consider discounting the item at all and if so, how much. If they decline to haggle on the price, politely thank them for their time and walk away.

If they make a counter offer, take a moment to consider the offer and accept it, counter offer, or politely decline. Remember that the art of haggling is about respect. If you make the manager defensive, you will lose.

Bottom Line

Give haggling a try. As they say, practice makes perfect. It may not work out well your first time but your skills will improve. Good luck!


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How to Find an EMP-Proof Bug Out Vehicle

by Tyler on April 3, 2012

Modern cars and trucks are highly dependent on an array of computers, control modules, and other electronics. This trend started to develop in the late 1970s, and vehicles have become increasingly computerized over the intervening decades. Computerization has led to benefits like increased fuel efficiency, but it has also created a massive vulnerability in our transportation system.

In the event of a large-scale EMP attack, it’s highly likely that the roads will be clogged with broken down vehicles. If you want to circumvent that issue, you need to make sure that your bug out vehicle isn’t vulnerable to an EMP attack.

What is an EMP?

EMP stands for electromagnetic pulse, and in terms of SHTF scenarios this type of attack is one of the most frightening. A high-altitude nuclear detonation over our country would send intense magnetic fields screaming into our atmosphere with enough charge to melt power lines, and fry basically anything with a computer chip. Try to name one single electronic device these days that is without a chip. Imagine all the things that would fail immediately – cars, planes, computers, cell phones, pacemakers, power grids…the list goes on and on.

While it is impossible to be completely EMP-proof, or to harden all of your devices against an attack, there is one important step you can take with regard to protecting your ability to move about after an EMP:  Find an EMP-proof bug out vehicle.

Solid State Electronics

Any vehicle that uses solid state electronics is vulnerable to an EMP attack. Transistors, microchips, and integrated circuits are all examples of solid state electronics. Modern vehicles use these components in complicated computer units and control modules, but they are also found in voltage regulators, ignition modules, and other components. In the best case scenario, these components will be temporarily shorted out by an EMP attack. Heavier exposure to an EMP will fry the components altogether, which will leave many vehicles unable to run.

Finding a Bug Out Vehicle

When it comes to bug out vehicles that are resistant to EMP attacks, old is better than new. The major vehicle manufacturers didn’t all introduce computerized control modules at the same time, so there is no single cutoff year. You should focus on models that were built prior to 1980, but it’s crucial to verify that your bug out vehicle isn’t computerized.

Engine, transmission, and body control modules are all vulnerable to EMP attacks, but many other components also use solid state electronics. If you can find a bug out vehicle that was built during the 1960s or early 1970s, the alternator will typically be less vulnerable to EMP attacks. That’s because most vehicles from that era used mechanical voltage regulators that can’t be damaged by an EMP. You should also look for a vehicle that has a mechanical ignition system, because electronic ignition systems rely on vulnerable ignition control modules.

Gasoline or Diesel

There are differing opinions on whether to choose a bug out vehicle with a gas or diesel engine. Diesel vehicles can run on a wider range of fuels, but gasoline may be easier to find and siphon from broken down cars and trucks. Newer diesel vehicles have to be modified if you want to run anything but petrodiesel in them, but that won’t be an issue if you buy an older model. The choice ultimately comes down to whether you’re more comfortable with a gas vehicle or a diesel vehicle.

Price Ranges

The best thing about buying a bug out vehicle that’s resistant to EMP attacks is that it probably won’t break the bank. Since you’ll be looking at older vehicles, most of your potential choices will have depreciated in value long ago.

According to NADA, the average retail price for a 1980 Ford F-350 is less than $4,000. The low-end retail price for that same vehicle is less than $2,000. The exact price of your bug out vehicle will depend on the model you choose, the condition it’s in, and where you live, but there are a lot of older cars and trucks out there that are priced to sell.

Maintaining an Older Bug Out Vehicle

The maintenance needs of your bug out vehicle will depend on whether or not you drive it regularly. If you just leave it parked next to your house, you’ll need to start it up and run it every few weeks. It’s also a good idea to drain the fuel tank or add a stabilizer, because varnished gas can clog up a carburetor. You should also consider purchasing a carburetor rebuild kit, points for your distributor, and other small components that can wear out over time.

Hardening an Existing Vehicle

If you just can’t fit a dedicated bug out vehicle into your budget, you may be able to prepare your existing car or truck for an attack. The key is to identify all of the vulnerable electronics and then purchase replacements. Many of these components can be bought from wrecking yards, which can keep the costs down.

You’ll then have to build a small Faraday cage to hold the components. If your vehicle fails to start after an EMP attack, you can simply swap out the control modules and other electronics.


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One Trillion Dollars in Student Loan Debt: An Albatross Around Economic Recovery’s Neck

by Tyler on March 22, 2012

It was just a few months ago that we learned our collective student loan debt was nearing one trillion dollars. That’s a “1″ with 12 zeros behind it. As bad as it sounded then, today we learn it is even worse.

According to a Wall Street Journal article, student loan debt has actually already surpassed the one trillion dollar mark. Is it any wonder this economic recovery is so sluggish?

People buried to their nostrils in student loan debt won’t be buying homes any time soon. They also won’t likely be investing in new businesses, or investing in any other businesses. Aside from paying rent, food and utilities, most of their earnings will be going towards repaying student loans for many, many years.

This realization is actually quite sad, because I believe in many ways astronomical levels of student loan debt is quite avoidable. Sure, some professions, like medicine or law, requiring additional years of post-graduate work will cause graduates to naturally accumulate much higher student loan balances than others.

But for the vast majority of us, we should be able to graduate with no debt, or a modest amount that can easily be repaid within the first couple years of graduation. Of course, that is in a perfect world, and we live in one far from perfect.

What has been perfect is the financial storm spawned in 2008 by a deep recession and the election of an administration hell-bent on creating an ever-larger dependent class. With the passage of health care reform came the nationalization of the student loan industry (that’s right; most people forget student loan reform was included in the same bill).

If you want to attend college, and cannot afford it, you are now exclusively applying to the federal government for assistance, unless you go the personal loan route at much higher interest rates. May I highly recommend avoiding enslaving yourself to the federal government in the name of obtaining a college degree.

Instead, consider the following options, which if undertaken by a majority of future college attendees just might reduce the amount of student loans required in this country. And that would be a very good thing, freeing up new-graduate capital to invest in real estate, and the market, and unleash a born-again entrepreneurial spirit made dormant by years of being bogged down in debt.

Four Alternative to Student Loans

Attend a local/in-state school. Most in-state tuition is but a fraction of its out-of-state counterpart, and most state universities are comparable in terms of academic opportunities, extra-curricular activities, etc. You have to ask yourself what’s most important – attending a great party school, or a school with a great football team, or having an Ivy League degree hanging in your office one day, or graduating debt free. Give me freedom!

Work. I’m not sure when it became fashionable to consider work punishment. Kids should be encouraged to work, to have some skin in the game, when it comes to saving for and funding their education.

Parents should save for their kids’ education. I often hear financial gurus reminding parents to save for their retirement because you can get a loan to send your kid to school, but your retirement cannot be financed. Great advice; if you want your kids to graduate owing $40,000 to the federal government. Parents should do all they can to take care of their retirement needs and put away enough to help their kids with school. Kids should do their part as well.

Consider military service. If I were a teenager considering college with no savings and parents in a poor financial situation, I would strongly consider military service as an alternative to accumulating student loans, or farting around my parents house for four years after graduating high school. While in the military, you will likely learn more life skills than in four years of college, which will serve you well once you join the private sector later.

Obviously, it is tough to account for every scenario. I’m sure many of you reading this believe your situation is so unique that the only remaining alternative is to borrow money to go to school. For a few of you, that may even be true. But for the rest of us, borrowing money to attend college should be a very last resort, not a forgone conclusion.


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One Critical Financial Housekeeping Task Everyone Should Do Yesterday

by Tyler on March 19, 2012

Raise your hand if you conduct most of your financial business online. Me too. The invention of online banking has made what used to be the laborious, time-consuming chore of financial reconciliation fairly easy. In fact, there exists a number of tools, such as Mint.com, that practically automate the task altogether.

Privacy issues aside, this reliance on technology has left us with a very big risk – the risk of losing financial data in a SHTF scenario. It is not difficult to imagine such an event that may take down the electrical grid and the financial services sector along with it. Remember the scenes from 9/11 when thousands of financial statements and paperwork rained down in the aftermath of the attack on the World Trade Center? Imagine the loss of servers, data centers, backup tapes and electronically stored data in that single event alone.

To mitigate the risk losing our financial history presents there is one bit of financial housekeeping everyone should practice, and tax season provides the perfect opportunity.

Print two copies of all of your current financial accounts to paper, and save one copy electronically to a ruggedized thumb drive.

Be sure to include your most recent mortgage statement, loan statements, all bank and brokerage accounts, recent tax returns, and any insurance declarations and coverage confirmations.

One copy should be stored in a fireproof safe at home, or a safety deposit box or similar area protected from theft, fire and water. If you currently have a place designated to store and secure life insurance policies, deeds, titles and other important paperwork, make a little room for these backup copies of your financial accounts.

The second paper copy, along with the ruggedized memory key with electronic copies, should be placed in a Ziploc bag and stored in a water proof container to go with you in the event of a sudden bugout. If you had to suddenly bug out of your home for an extended period you may return to find things looted, and much of your financial documentation may be missing. The copies you took with you may be your only remaining proof of your household financial statement.

Of course, a devastating EMP attack isn’t the only thing that could cause a loss of financial data. An Information Age article from October 2010 cited a study of financial data loss which indicated that “on average, businesses lost $1.7 million to fraud for every billion dollars of revenue they earned.” That is a little too alarmingly frequent for me. The same article goes on to point out that from 2009 to 2010 data loss doubled in the financial services sector.

This year, as you finalize taxes for 2011, skip your favorite television show and take an hour to print your current statements for all of your financial accounts. Then scan, or save digitally, the same documentation to a ruggedized thumb drive for easy access later. Make a note on your calendar to update these documents at the end of each quarter, so the worst possible case if a loss of three months of financial history, not an entire lifetime.


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