Sometimes They Just Can’t Pay You Enough

Two weeks ago I was assigned a round trip from Atlanta to Oklahoma City and back. It would be the last Delta Connection flight into Oklahoma City and the first one out the next morning, which translated to a five-and-a-half-hour layover. Officially these kinds of trips are called “continuous duty overnights” because we are on-duty the entire time, even when at the hotel. For obvious reasons, their vernacular name is “naps.”

The weather along the route was forecast to contain occasional thunderstorms, but we were able to past them. It was not until we neared Oklahoma City that we found another thunderstorm—with tops at 60,000 feet, spitting hail and 45-knot wind shear at the surface. We were not about to tangle with that. Having insufficient fuel to enter a holding pattern and wait it out, we elected instead to land at nearby Tulsa. There we waited, as did the passengers. Adding to the misery, the FBI and TSA were conducting a practice in the airport and so the passengers were barred from going inside. Only after we were there for an hour and a half did the airport authorities finally cordon off an area inside where the passengers could go. I have to give them credit for being very patient and understanding. Only one man said a word at all, and he elected to rent a car and drive to his destination.

Finally after three hours the coast was clear. In just thirty minutes we were at the gate in Oklahoma City, relieved and exhausted. We would only be there for two hours before departing again for our return flight to Atlanta. We could have stayed on the plane and tried to sleep there, or go to the hotel the company had already arranged and get less but better sleep. We chose the latter. I managed to get an hour-and-a-half that night, and then we were on our way back to the airport.

The return flight went smoothly. No further complications, and in spite of nearly no sleep, I was awake and alert. Thank goodness. Once back in Atlanta I was released to my off days, so instead of going back to my “crash-pad” apartment to, what else, crash, I got on the first flight back to Salt Lake City and slept rather soundly once airborne.

In the end everything worked out, but it was a rough trip. Maybe it was destined to be so. After all, the date was Friday the 13th.

The Real Reasons Why Gas is So Expensive

Gas is expensive. Yes, I have been told that I have a firm grasp of the obvious.

So what do we do about it? I know! Let's go after those evil money grubbing greedy oil companies! Nearly every day I hear something along these lines said by otherwise intelligent people, and being a firstborn, I have an overwhelming innate need for accuracy and truth. So let's talk about reality.

Myth #1: Gas stations are making record profits, gouging consumers.

Reality: Your local gas stations typically makes a 1-5% margin on gasoline, and almost always closer to 1%. When prices rise quickly, sometimes stations will price it at no margin at all. I guarantee that local stations are not happy about the current situation.

Myth #2: Oil companies are making record profits, gouging consumers.

Reality: This is true in terms of dollars earned, but lets look at this a little more closely. First of all, oil companies do not set the price for their product. There is no monopoly. If there were, then the Texas economy would not have tanked int he '80s and '90s when gas prices were so much lower. The fact of the matter is when you're dealing with minerals and natural resources, the exploration and equipment is extraordinarily expensive. When prices go down, you can actually lose money after subtracting the costs from your revenue. And when prices go up, suddenly those expenses are worth it. I have a financial planning client whose family owns a silver mine and did not operate it for years because the price of silver was too low. Guess what--oil is no different.

Currently oil companies are making a 9.7% profit margin. Not bad, but hardly the 25% profit margin that Google makes. Obviously Google is gouging us and we should go after them!

Oil companies also have some pretty nice tax breaks. They could do without some of these, but there are legitimate reasons for others. For example, if you buy a piece of property and construct a building on it, you have improved the property and expect to make a profit, which is taxed. With oil it's the exact opposite. Once you have extracted the oil the property becomes worthless. This is why oil companies can deduct the price of exploration and equipment, since its value will eventually evaporate.

Myth #3: OPEC and other oil producing contries are making record profits and gouging consumers.

Reality: Once again, they just pump it and sell it for whatever the market will bear. OPEC has tried to control the market by reducing production, but when the price is good they all cheat.

So who is gouging consumers? Surprise! No one.

Then why are gas prices going through the roof? A combination of factors, sort of a perfect storm.

First, you have the increase in worldwide demand. China and India get mentioned a lot. However, demand has not doubled in the last two years, so this is hardly the full reason, but it definitely contributes. OPEC itself has done several studies and determined that current demand should price oil at about $60 per barrel. So something more is afoot.

Second, the strength of the dollar is falling. This sounds like a bad thing, but what it really means is that U.S. products are less expensive for foreign consumers to purchase, boosting our exports. However, if you are an investor you don't want to see your purchasing power shrink, so keeping your money in dollars is a losing proposition until it levels out. So where to put that money? Ah, I know! Something that keeps its value (at least in the current market--see first point): oil (and gold and other commodities). And with more investors wanting to buy oil futures (more on these below) to protect their money's purchasing power, the price goes up.

Third, there are concerns about oil supplies. Of course, there are always concerns, since the majority of oil is pumped in less than stable parts of the world. So instability in far flung places like Iraq, Iran, Nigeria, Venezuela, etc. scares investors into thinking that oil may become scarcer. So they buy oil futues to ensure that they can buy oil at a given price, regardless of the actual price. Think of it like a pre-payment plan. (Of course, if oil goes down its a real bummer for these investors.)

You may also have heard about "peak oil." This theory essentially says that we have now extracted more than half of all oil on earth and so it's only going to get scarcer going forward. Whether true or false, it scares people, making them willing to pay more for it.

So will gas stay at its current price? Will it only get worse? The law of supply and demand still exists. With prices as high as they are other sources like oil shale, etc. become cost effective, as do alternative fuels. Within 10 years we will probably be awash in energy. Hopefully prices will come down long before then, but they will come down, probably within the next 12 months. How low? I can't even guess, but for my job's sake I hope it's much lower and soon. But for now whenever you hear someone complain and say we should go after the oil companies, just roll your eyes. You now know the truth.

The Dark Side of the Internet: Web Hoaxes!

The internet is an amazing resource. At my fingertips I can find information on virtually any topic. As an undergraduate I remember spending hours at the library just to have access to encyclopedias, magazines, academic journals, out-of-state phonebooks, etc. Then just before I graduated the World Wide Web came online, and the world hasn't been the same since.

Of course, there is the darker side of the internet. Yes, I'm talking about internet hoaxes and urban legends! I can't count how many emails I've received about how rich Microsoft's new email-tracking beta can make me or how spiders lurking under toilet seats were a terrible threat.

Several months ago I received one amusing one alleging that the Quran contained a prophecy (in chapter 9 verse 11, no less) stating that when Islam turned to fight against the Eagle its wrath would be felt throughout the lands of Allah. Never mind that this presupposes that the Quran contains true prophecies, something most Christians would be loathe to admit. Since I actually know something about the Quranand Islam, I knew the claim was ludicrous, so I looked up the actual verse and passed it back to my well-meaning sender with a polite reminder to not believe everything you are told.

In fact, I do this somewhat regularly. And the internet makes it all possible. I type in a few key words from whatever hoax has found its way to my mailbox into Google and out pops the real story. There are great sites like Truth or Fiction and Snopes, just to name a few, which are the Mythbusters of the web.

Well, apparently in spite of my cynicism for incredible claims I too am fallible. Last week I received a newsletter in the mail (regular, old fashioned snail mail, so my guard was down) from my mortgage broker. One of the columns offered seemingly helpful hints on how to maximize your money when pumping gas. With gas flirting with $4 a gallon, I was all ears (or eyes, as it were). So yesterday, as my wife and I stopped to fill up with gas I shared my newfound wisdom with her and she dared to disbelieve it. I told her I would "check my sources" and if wrong, I would put it in my blog.

So here I am, eating crow. The information is here. Technically, some of the tips might save money, but we're talking about pennies. Over time. Pennies are good things, but not enough to go seriously out of my way. Similarly I'm not going to drive six inches behind a semi in order to cut down my car's drag. Dollars I can get excited about. But not pennies. So Honey, you were right, and I was . . . er. . . mistaken. (We're both first-borns, so admitting this is a real sacrifice.)