Welcome To Josh's Blog O' Thoughts: Finance

Last year, I started a web project that I thought was a killer idea. The site, Pantoozle.com was a repository of ratings and reviews of businesses and service providers that could be localized to your city/metro area. The project was conceived because I noticed the people I worked with were always looking for recommendations or advice on where to purchase a particular item, who had the best services, what doctors were best, etc. I wrote several reviews for businesses in my local area, as did some other people. Unfortunately, I didn't have the time to keep at it, and the site has been very slow over the past six months. I'd like to revive it again as I still think it could be a really useful tool for people.

The website is completely free, but does require registration to post a review (to cut down on spam posting).

If you have a review that you can post about a local business or service provider, head over to Pantoozle.com and post away!

I thought I'd share a link to a site that I've found particularly useful for a while now. The author goes by Mr. Electricity and the site can be found at http://michaelbluejay.com/electricity/.

Mr. Electricity used to take questions from readers, but has discontinued this option. However, this site still has tons of great information on how electricity is used in your home, how you can reduce your usage, and ultimately how you can save on your electric bill.

Electric usage is very simple when you look at the math. Watts = Volts x Amps. Volts and amps are listed on most electrical devices. You can then calculate the wattage for that particular device. Electric companies charge you by the kilowatt-hour (kWh) which is the number of kilowatts of electricity used on an hourly basis. So if you have a 1,000 watt device running for 1 hour, you just racked up 1 kWh. Or if you leave a 60 watt light bulb on for 2 hours, you’ve used 0.12 kWh. If you multiply that by your electric rate (displayed on your bill), you will be able to calculate the actual cost to run that device for that amount of time. I have used this site to help calculate my usage increase in December due to Christmas lights.

The site also goes into several electricity myths such as leaving the AC on all day is more efficient than leaving it off and then turning it on when you get home. It is conventional wisdom that this is true. People believe that it is more efficient to keep a house cooled to 75 degrees all day than it is to let it heat up and then cool it to 75 all in one shot. As Mr. Electricity explains, this is false because the house can only get so hot. If you leave your AC off, the house will reach a peak temperature. If you cool all day, the A/C will continually bring the temperature down, the house will reheat, and the AC will have to cool again. So, his point is that cooling the house to 75 degrees once is more efficient than doing it many times during the day.

Finally, another of my favorite sections of this site is the chart that gives you an approximate value on the electric usage of common household devices. Not surprisingly, anything that heats or cools (electric heat, oven, clothes dryer, central air) are high on the list. But you may be surprised to find out that your little coffee maker is using more electricity than your refrigerator. Or you might be surprised that: Running your AC 12 hours a day for three weeks uses more energy than leaving the refrigerator door open 24 hours a day for a whole year.

Have fun learning about electricity usage, and hopefully finding some ways to help reduce your own usage (and your bills).

In a recent story, it was reported that some employers are going to begin implementing programs which will charge overweight employees a higher insurance premium. This move is hopefully an inventive for these people to lose weight and lead a healthier life thereby reducing health care costs in the long run. Other companies are going to use programs which give incentives to healthy people.

I doubt that this will have much effect, unless the penalties are VERY steep. One thing I learned in the book Freakonomics is that incentives or disincentives have to be very high in order to cause change in behavior. Without this, people will likely continue their behavior and pay the fine, because the cost of the fine is outweighed by their enjoyment of their current lifestyle.

Anyway, it's an interesting idea. We'll see how much people complain about the companies infringing upon their rights.

I just finished reading a very good book called Freakonomics. The authors shed some light on some unknown correlations between everyday information. This is all done through the perspective of economics, but is written in a easily understood, yet informative way. I would highly recommend this book to anyone.

Among the correlations and conclusions drawn is the apparent cheating of school teachers for pay incentives, the correlation between legalized abortion and lower crime rates, nature versus nurture in regards to a child's school test scores, and the importance of having the 'right' name. These topics bring to light some interesting correlations while putting others to rest as myths. For instance, children who watch more television do NOT do worse in school than children who do not watch a lot of television. There is no correlation between the two.

Now then, I'd like to relate some of this to my own blog entries. If you've been here before, you know that I have taken issue with the rising price of gas. So a good economic question to ask is "Are gas prices too high?". The answer, surprisingly, is No. From an economic stand point, price points are set based on the balance of supply and demand. Since the price point of gasoline has been increasing with no major change in demand, it can be said that gas prices are not too high, and that gas was, in fact, under priced before. If people are able and willing to pay $3.00 a gallon, the laws of economics would say that this is an appropriate price point.

This, however, contradicts posts that I have made griping about these rising costs. But, in my view, just because the laws of economics say that these are fair price points, doesn't mean I can't complain about them.

I have noticed a pricing trend at the local Road Ranger gas stations. When there is an across the board hike in gas prices (especially if it is a bigger one), the Road Ranger gas stations will not raise the first day of the hike. Instead, the Road Ranger will bring their prices down approximately 2 cents for the first day making them cheaper than the other gas stations. The NEXT day, however, they will SPIKE their prices up to 30-35 cents which puts them much higher than . Finally, on the third day of the increase, the Road Ranger stations will bring prices down 10-15 cents which will once again put them in proximity to their competitors.

I'm not sure who is in charge of the pricing at these stations, but I think this is absolutely ridiculous. I'm not a fan of Road Ranger at all. The local Road Rangers all used to be QuickTrips. I liked the QuickTrip. They were consistently 1-2 cents cheaper than the competition (about the same as Wal-Mart), and they never had such wildly variable fluctuations.

So, if you have a Road Ranger gas station near you and you see their price dip 1-2 cents, you might want to fill up. Definitely don't fill up the next day. By the third day, it doesn't really matter as they will be similarly priced to other stations.

Well, my last house-building-related post said that we were still waiting for a bid from our contractor. We got it and he was 13% over our budget. Granted, he was estimating on the high side for a lot of things to make sure we were covered, but 13% is still a lot. We worked with him to cut this down a little bit. We've had to save some things for another time (like the deck off the back).

When it was all said and done, we got our second revision of the bid which was still 5% higher than our original target. We were pretty happy with it, but we weren't sure how the bank would respond to approving us for 5% more. Additionally, the interest rates had gone up .625% since I was originally pre-approved. Well I went back with my new number and the higher interest rates and had a new pre-approval letter the next day! Now that's service.

I think a HUGE key to getting financed near your debt-income ratio maximum, is the amount of down payment you are making. In our case, we are making a 20% down payment which also allows us to avoid the Private Mortgage Insurance (PMI), and allows us to skip the escrow account. We want to scrip the escrow account so we have a little more control over our tax and insurance payments.

Anyway, I fully expect to interest rates to come down the second half of the year here. Actually, I've already seen a little bit of a dip. And if my theory about interest rates and gas prices is correct, we should see further drops in rates corresponding with the recent gas price drops.

Since we are in the process of Building Our House, I have had a keen interest in mortgage rates as of late. When we first started this whole process, the rates in my area for a 30 year fixed mortgage were hovering around 5.625%. Recently, however, the rates are up to 6.25%. That's a substantial increase in the past 3 months. Knowing that the Federal Reserve Board did not raise rates at their last meeting, I thought back over the past three months to determine the culprit.

What has changed over the last three months? One major thing that I can think of is a major spike in gas prices. Could there possibly be a correlation between the two? As costs of gas goes up, the consumer price index (a major indicator of inflation) goes up as well. This is because gas and transportation costs are built in to a lot of products. When inflation goes up, financial institutions (usually in response to the Federal Reserve Board) raise rates which put strain on people's spending. By decreasing spending, inflation can be held in check or reversed. Sounds like gas and mortgage rates could be linked right?

I took a look at a graph of gas prices over the past 3 months and a graph of mortgage rates over the same time period. Low and behold, they go up in unison.

This may or may not be correlation. Or it may be a weak correlation. More study would be required to determine if the two are linked, but for my very basic examination, there appears that there could be something there.

The media has been reporting that the recent uptick in gas prices is due to a rash of refinery problems across the country. The fact that the country has a shortage of oil refineries and that the ones that are still operating are old and decrepid is the supposed reason that we are seeing 5% increases in a single day.

However, if oil refineries are really the problem, then shouldn't all other petroleum based products be increasing in price as well? I don't see petroleum jelly skyrocketing. Or what about everything made out of plastic such as plastic grocery bags. I recently found out that a local mid-sized grocery chain uses 5.8 million plastic bags per week! That's an insane amount of plastic to be giving away; especially if prices are rising.

Also, if refineries are not operating at normal capacity, but crude production is, we are basically building up a surplus in crude because we are extracting more than we are processing. If this is the case, we should see big reductions in price when the refineries come back online. Somehow though, I doubt that this will happen.

Therefore, I'm still under the impression that something else is the cause in this instance. I saw on the news that there was talks of beginning anti-trust investigations on some of the oil and gas companies. Maybe they are suspecting a lack of competition is drawing prices upward.

Whatever it is, I hope it reverses soon.

Many of you have probably seen the e-mails floating around lately trying to get everyone to "boycott" buying gas on a specific day. Well, yesterday was that day. Did you skip buying gas? Did it have any effect?

The answer to that last one is no it did not have any effect.

There's no way that a single day boycott, even if EVERYONE were involved, would be enough to effect the gas companies. It's just not enough impact. It will only cause people to buy more gas the day before or the day after. To have any sort of impact, you'd have to boycott for days or weeks. At that point it wouldn't work because people would start to 'need' gas again. Also, if we were successful in lasting long enough to actually cause a price decrease (even just a couple cents), there would be plenty of people that would jump ship right away to get the new low price. This would just cause prices to go back to their normal state.

So, at this point, it's unlikely that we'll see any successful gas boycott. Our whole society needs to change its mindset before anything like this could ever work.

Postage for a standard first class letter went up to 41 cents today. Many people like to argue that postage increases, which appear to be frequent these days, are a result of email being so heavily used in place of the postal service. However, a quick look at historical postal rates show that this might not be completely true.

Prior to the 1970's, there hadn't been much more than a 1 or 2 cent increase per decade. But during the 70's there was a total increase of 9 cents, another 10 cent increase during the 1980's, 8 cents during the 90's, and 8 cents so far this decade. It appears that rate increases have been pretty rapid for the past 35 years.

I will agree that email is taking the place of many things that might have once been mailed via the post office. However, the data suggests that email may not be the primary driver to this increase. While some primitive versions of email emerged during the 1960's there was no massively connected network (i.e. the Internet) for people to use. So even though some high-tech people may have had some access to email, the concept of using this was completely foreign to "normal" people.

Obviously, email is HUGE these days, but perhaps it is taking away from the postal service less than we think. For me, it's not uncommon to send 10-20 emails a day. If there were no email, I would not be sending 10-20 letters via the post office no matter what the rates were. The reason is speed. Emails may only be 1-2 sentences long and the sender may expect an immediate reply. If using the postal service, you have to spend some more time thinking about everything you want communicated because a back-and-forth type of communication is unrealistic due to speed.

So what has driven the postal rates upward for 35 years? I'm not sure, but it seems likely that there is some primary driver other than email.