Nancy B. King

Mon, 22 Sep 2008 02:38:45 GMT

L's favorite cousin, the one he hadn't seen for 50+ years, was in town for a week. Bruce was giving lectures at UAF, UAA, and UASE. We did the usual Anchorage area things---down to Portage visitor center and the small Wildlife Park that is in that area, a drive through the railroad tunnel to Whittier to take the 27 Glacier Cruise (cancelled due to high winds), and dinner at Seven Glaciers at Alyeska. The next day it was a day around town and the Garrison Keillor performance. The following day they took the train to Seward and the Kenai Fjords tour; we drove down and met them for dinner at Ray's and stayed all night at WindSong lodge. Friday morning we toured the SeaLife Center, drove back to Anchorage and ended the visit with dinner at the Crow's Nest. Our visiting cousins saw more raindrops than anything else. We had 11 straight days of rain. However, Bruce, who travels extensively, was able to add two new items to his lifetime-of-travel experiences---driving on a shared railroad bed through a railroad tunnel and seeing a glacier that comes down to the water and watching it calf. So, it wasn't all rain drops! It was nice for L and Bruce to get reacquainted and I enjoyed getting to know Jane. She grew up in the center of Manhattan---oh, wow what a difference.

Mon, 08 Sep 2008 16:21:00 GMT

Still waiting for that call from Greta---oops, Central Casting Fox News/On the Record with Greta live broadcasts from Alaska tonight.

From Hockey Mom, to Political Power Player. . . Who is the real Sarah Palin? Greta investigates.

Okay, so if no one calls for an indepth interview today, there is always ABC News Thursday and Friday when Charlie Gibson is here interviewing Sarah.

Sat, 06 Sep 2008 21:14:50 GMT

The Wild Salmon Fish Fry and Buy It was a fun evening at the Anchorage Concert Association's table at the Wild Salmon Auction. The Association was one of the three recipients of the auction proceeds. I didn't purchase any Wild Salmon, but I did some bidding to drive up the price. This one was my favorite. The detailed art on the map was incredible. I would like to have purchased it, but It went for $3,000 or $4,000--- I'm not sure which. Here are pictures of all of them. Once again I thought I would take the walking tour this summer and take my own pictures. However, once again I didn't make it.

Thu, 04 Sep 2008 15:59:14 GMT

Back to Investing: ETFs This is a short article (explanation) about ETFs I wrote for the Alaska Chapter of Better Investing annual newsletter. It also updates my mutual fund lecture---class starts the 23rd. ETFs ETFs are growing in number and diversity. Advertisements for them are bombarding us from all directions. "So, what are they?" Exchange Traded Funds (ETF) are a hybrid. They combine features of a mutual fund with those of an individual stock. An ETF looks like a mutual fund but trades like an individual stock. Like a Mutual Fund

An ETF is a basket of either individual stocks or bonds or commodities or real estate trusts that comprise a specific index.
You own shares of the ETF, not shares of the individual stocks in the ETF.
It has an expense ratio, usually much lower than that of a mutual fund.

Like an Individual Stock

You can buy and sell shares throughout the day--intraday trading with real time pricing.
You buy and sell shares through your brokerage account at your usual brokerage commission rate.
You can buy an ETF on margin, sell it short, and use stop and limit orders
It trades between investors.

Its Unique Characteristics

An ETF replicates the performance of its index by owning all the stocks that make up that index.
It is designed to match the index, not to out perform it.
An ETF is passively managed. Changes are made only when the underlying index adds or deletes a stock.

The index the ETF replicates can be a broad index such as the Russell 2000, a small-cap index, or a narrow index such as the Dow Jones Industrial Average with 30 large-cap stocks or an index that covers a particular sector of the economy, such as oil and gas exploration, technology, or biotech. Thus, ETFs offer portfolio diversity and trading flexibility. You can choose from more than 500 ETFs. Three well-known ETFs are: 1. Spiders (SPDR) which mirrors the S&P 500 2. DIAMONDS (DIA) which tracks the Dow Jones Industrial Average 3. Qubes (QQQQ) which parallels the Nasdaq 100 index. For more information about ETFs, go to BetterInvesting.org, finance.yahoo.com, MorningStar.com, and SmartMoney.com.

Thu, 04 Sep 2008 05:45:10 GMT

Way to Go, Sarah Palin

Wed, 03 Sep 2008 16:41:18 GMT

Sarah Palin I heard the following story yesterday while out running errands-- In the discussions with Sarah Palin before she made the decision to become McCain's VP candidate, one of McCain's aids talked with her about the media and others and what they would do to her. Her reply: "Do you know the difference between a hockey mom and a pit bull?----Lipstick. My thoughts are with her, her family, and all candidates.

Wed, 03 Sep 2008 16:10:53 GMT

Friday, An Alaskan Day Friday turned out to be a great Alaskan day, at least for our household. After a morning of excitement over Sarah Palin's having been chosen as McCain's VP candidate, L and I, on the spur of the moment, decided to go to the Alaska State Fair. I hadn't really planned on going, nor really given it much thought. However, when by early afternoon I hadn't settled down to work due to the Palin excitement, L suggested we go to the Fair. I suddenly realized I was getting hungry; we were out the door and on the road in 10 minutes! It was a gorgeous sunny afternoon without a cloud in the sky. We judiciously ate (fresh roasted corn on the cob, a shared funnel cake, hot dogs, and gourmet ice cream bars) and strolled our way through the fair viewing the veggies and animals. It was a great afternoon of fresh air, sun, and State Fair ambience. The GCI Petting Zoo---always a favorite The veggies---too many people in front of us to take a picture of the enormous pumpkin; the award winning cabbage had not yet arrived.

Fri, 29 Aug 2008 17:09:41 GMT

I'm Proud to be an American; I'm Proud to be an Alaskan! McCain/Palin

Wed, 27 Aug 2008 17:56:56 GMT

Big Oil, Big Company Profits: The Rest of the Story For Example: ExxonMobil Costs to run the company: $15,000 per second ($1Billion a day to run the company) Taxes paid: $4,000 per second Profits Earned: $1,400 per second Info from here. Take a guess of what their profit margin is---in other words, out of every $1.00 of revenues, how many cents of that $1.00 ends up as company profit? 75 cents? 50 cents? at least 25 cents? No, only 9.2 cents. Think how much revenue the company has to take in per second to pay the costs to run the company and pay the taxes and have 9.2% left as profit. To me that is incredible. There is a reason their top management makes the salaries they do. To be responsible for creating that kind of revenues, keeping costs down, paying taxes, and paying stockholder dividends out of the profit. No I do not own any Exxon.

Mon, 25 Aug 2008 02:44:09 GMT

Investors are leaving Russia's markets faster than the Russian army is leaving Georgia. From Investors Business Daily (IBD)

On Friday, Russia's central bank announced that its foreign currency reserves--a key part of its economic stability and an indicator of foreign investor support--had plunged $16.4 billion in the most recent week, to $581.1 billion (see chart). Until Russia's move into Georgia, there seemingly had been only massive capital inflows, thanks mainly to the rising price of oil, which makes up 20% of Russia's gross domestic product. Now, it seems, investors are fed up with the rampant militaristic nationalism, red tape, corruption and anti-investor sentiment in Vladimir Putin's Russia. Some have decided to head for the door and take their money with them. Last week's decline was the largest since Russia's 1998 currency crisis, which led to a collapse of the ruble and rampant triple-digit inflation. So far this time, there's no major visible impact on Russia's economy. But if the flow of money leaving Russia turns into a flood, it could send Russia's markets into a tailspin, creating massive problems for Prime Minister Putin and his handpicked president, Dmitri Medvedev.

I find a perverse pleasure in knowing that someone/someones have tweaked the Bear's tail.

Wed, 20 Aug 2008 16:30:27 GMT

There is an estimated $1.3Trillion of oil under ANWAR. That means $239Billion in Federal taxes plus all the royalty dollars. The sale of oil leases on the very small area that might be used for drilling (the size of a dime on a table that seats 8 people) would add $4Billion to the Federal treasury. Our gasoline price dropped $0.03 yesterday to $4.33.

Fri, 15 Aug 2008 06:07:44 GMT

Price of energy---Rural Alaska The price of energy here in Anchorage is sufficiently high, but in rural Alaska it is even higher. Heat and electricity is one thing but gasoline for transportation is major. There aren't any roads to go from place to place but lifestyles have changed from dog sleds to snowmobiles that require gasoline at $8 or $9 a gallon. A day on a snowmobile subsistence hunting often consumes 25 gallons of gasoline. Then there are boats and ATVs. Interesting outcomes of lifestyle changes.

Thu, 24 Jul 2008 15:58:37 GMT

If This is Global Warming If this is global warming, it is not working; it is July 24th, 39 degrees, and raining! I'm going to either turn on the furnace or crawl back under the down comforter on my bed. I already have on my warmest Irish knit sweater. QUOTE of the Day from the Voice of the Times, 7/5/08, via a column in The Wall Street Journal.

NASA now begrudgingly confirms that the hottest year on record in the continental 48 was not 1998, as previously believed, but 1934, and that six of the 10 hottest years since 1880 antedate 1954. Data from 3,000 scientific robots in the world's oceans show there has been slight cooling in the past five years, never mind that '80 percent to 90 percent of global warming involves heating up ocean waters,' according to a report by NPR's Richard Harris.

Wed, 23 Jul 2008 00:40:03 GMT

Six Weeks Have Passed Six weeks have passed since I last posted; No, I've not "cut and run." I went to the east coast for a Stock Market Game conference---more about that later. When I returned home, my copy of the Slingerland Practical Guide that I combined and edited was here. That prompted me to clean out paper work from my office (edits from the Practical Guide and my stock market book). I reduced the paper from 7 banker boxes to two Nordstrom shirt boxes. I also cleaned four closets filling the corresponding number of trash bags for the Salvation Army store. Interspersed with all this, I have done plenty of sitting. Now, it's time to get back on track---whatever that means.

Tue, 10 Jun 2008 23:12:41 GMT

Cut and Run? I have often thought of the Jews in Germany and Eastern Europe during the early 1930's in connection with my survival in today's world. What did some Jews see and understand that prompted them to leave Germany? Did others not see it, did they doubt its existence, or did they choose to deny and ignore it? What is there in today's world that I should be seeing in relation to radical Islam threats or other internal/external threats? This question is particularly pertinent to me at this time because of David Warren's column, Invasion of Egypt, Michael Ledenn's Wall Street Journal column,Iran and the Problem of EviI and the book I've just finished reading, Counterinsurgency Warfare by David Galula. How can I determine whether the threat is real and requires planning for eventualities or whether it is only a misperception in the same vein as being invaded by aliens from outer space? I realize most of the population will not recognize the success of the radical Islam insurgency or other internal/external threats until it is far too late. I don't want to be part of that group. I want to be like the Jews who recognized reality and left Germany and the Eastern European countries. David Warren's enumeration of all the places around the world where radical Islam is experiencing success gives me a feeling of urgency. Michael Ledden in his Wall Street Journal column, Iran and the Problem of Evil, gives voice to my question:

Above all, we have sought answers to several basic questions: Why did the West fail to see the coming of the catastrophe? Why were there so few efforts to thwart the fascist tide, and why did virtually all Western leaders, and so many Western intellectuals, treat the fascists as if they were normal political leaders, instead of the virulent revolutionaries they really were? Why did the main designated victims - the Jews - similarly fail to recognize the magnitude of their impending doom? Why was resistance so rare?

Part of his explanation:

The failure to understand what was happening took a well-known form: a systematic refusal to view our enemies' plan.

Another part of his explanation:

Clearly, the explanations we gave for our failure to act in the last century were wrong. The rise of messianic mass movements is not new, and there is very little we do not know about them. Nor is there any excuse for us to be surprised at the success of evil leaders, even in countries with long histories and great cultural and political accomplishments. We know all about that. So we need to ask the old questions again. Why are we failing to see the mounting power of evil enemies? Why do we treat them as if they were normal political phenomena, as Western leaders do when they embrace negotiations as the best course of action?

Most generally evil threats appear in benign clothing and surroundings, here and abroad.

Tue, 27 May 2008 06:35:19 GMT

Memorial Day My deepest sympathy and gratitude for all that has been done and has been given--those who have given the ultimate gift--that I can go about my mundane, everyday activities in peace and security. You have given YOUR ALL to all Americans, equally, even those who malign who you are and what you do. You have given your life so they have the right to protest against you.

Sat, 24 May 2008 03:22:14 GMT

Top Stocks from Top Winners in the Ten Largest Stock Market Game Programs in the U.S. The national office of the Stock Market Game compiled a list of the top 10 performing stocks from the 10 largest SMG programs (CA, FL, GA, IL, MA, NJ, NY, PA, VA, TX). The article below is found on TheStreet.com through the support of Jim Cramer.

The Stock Market Game's Top 10 Stocks of Spring 2008 05/19/08 - 06:16 PM EDT CXP DAIEY MA POT RIMM (The Telecom Connection PICK) V X The Stock Market Game is a curriculum-based teaching tool that allows students to invest a hypothetical $100,000 online stock portfolio to learn about long-term saving and investing. More than 740,000 students participated in the Stock Market Game (SMG) during the 2007-08 school year. Last fall, we posted the top 10 stock picks from this army of young researchers and analyzed the top five companies. This spring, we have repeated this exercise, tracking the top stocks from the beginning of the SMG on January 14 to the end of the competition on May 2. Drum roll please. The five best-performing student stocks are: 1. Corporate Express (CXP - Cramer's Take - Stockpickr): Corporate Express has been rejecting unsolicited buyout offers from Staples (SPLS - Cramer's Take - Stockpickr) since February, which has helped fuel a 75% increase in its stock price over the last several months. Corporate Express is a supplier of office products to businesses and institutions, including computer supplies and office furniture. The company also supplies graphic equipment and related services. As of December 31, 2007, the Corporate Express operates in more than 350 locations in 21 countries. 2. Daiei (DAIEY - Cramer's Take - Stockpickr): This Japanese company is primarily engaged in the retail business, consisting of general merchandise stores, supermarkets, discount stores, convenience stores, department stores and specialty stores for the sale of clothing and sundry goods. Its 61% stock price increase appears to be related to the company's divesture from money-losing subsidiary enterprises. 3. MasterCard (MA - Cramer's Take - Stockpickr): This is a global payment solutions company that provides various services in support of the credit, debit & related payment programs to financial institutes. A falling interest rate environment as well as MasterCard's steady earnings and strong earnings growth in overseas markets made it a slam dunk for SMG students this past semester with a 60% increase in market value. Priceless. 4. Visa (V - Cramer's Take - Stockpickr): Not to be outdone by its chief rival in the credit card business, Visa's IPO on March 19 was the most successful in history, raising $17.9 billion from investors. Blue skies and a sunny earnings outlook continued to bless the world's most recognized global financial services brand. From the time of it's IPO to the end of the SMG on May 2, Visa stock increased 46% -- that's everything an investor could want it to be. 5. United States Steel (X - Cramer's Take - Stockpickr): This company is an integrated steel producer with production operations in the United States and Central Europe. It is also engaged in several other business activities, most of which are related to steel manufacturing. Recent acquisitions, a weak dollar and strong earnings significantly improved this stock's strength, allowing it to post a 40% gain over the course of the spring semester. The Rest Rounding out the top 10 list are Research In Motion (RIMM - Cramer's Take - Stockpickr) (37% gain); Potash (POT - Cramer's Take - Stockpickr) (24% gain); First Solar (FSLR - Cramer's Take - Stockpickr) (23% gain); Baidu.com (BIDU - Cramer's Take - Stockpickr) (6% gain); and Apple (AAPL - Cramer's Take - Stockpickr) (1 % gain). Six percent and one percent gains for Baidu.com and Apple, respectively, may not seem like much, but both of these stocks were very volatile from January to May, which created significant buying opportunities for many a Stock Market Game student. Potash and First Solar demonstrate that the green trend among SMG students is alive and well. Research in Motion and Apple revealed a continuing fascination with tech among our computer savvy students.

Follow the link to the article to view a table showing the Per Share Gain and Per share percentage gain for each of the 10 stocks To learn more about The Stock Market Game, go to www.stockmarketgame.org.

Tue, 20 May 2008 21:00:42 GMT

Summer, Baseball, and The Mariners Things could be worse. The leaves are 10 days late coming out, but we are finally green, even though it's a bit cool--still in the mid 50's. It is perhaps spring, but not yet summer. And our baseball team, the Mariners---things could be worse. Actually, I thought they were the worst in all baseball (only 18 wins) and had one of the highest payrolls. Okay, now for the facts:

They have the 2nd worst record in the American League.
They are tied with the Rockies for the 4th worst record in all of Baseball.
They have only the 9th highest payroll.

And I will be watching them at 3:00 this afternoon! MUCH LATER: FOUR GAMES LATER The Mariners have clinched the Bottom Place in the American League by 2 games and have tied with the Colorado Rockies for the Worst Record in All Baseball.

Sun, 18 May 2008 01:39:42 GMT

Arctic Shipping and Global Warming I am attending Commonwealth North's current study group about global warming and the Arctic Circle countries (the U.S/Alaska, Canada, Greenland, Iceland, Denmark, Finland, Norway, Sweden, Russia). This week's presentation was by Lawson W. Brigham(check him out; and people like this live in Alaska, which is sometimes called the "backwater of the world"!), Alaska Office Director of the U. S. Arctic Research Commission. He discussed the Arctic Marine Shipping Assessment 2005-2008. The bulleted items below are highlights from my notes. Arctic Climate Impact Assessment (ACIA)--- from key finding #6:

"Reduced sea ice is very likely to increase marine transport and access to resources."
"Increased economic activity together with the current retreat of Arctic sea ice presents several plausible futures for the Arctic's regional seas, The Northern Sea Route, The Northwest Passage, and the central Arctic Ocean."

Previous Traffic

Between 1977 and 2005 there were 61 ship transits to the North Pole; 17 ship transits to the North Pole between 2004 and 2005
Seven trans-Arctic transits across the central Arctic ocean have taken place--1991, 1994, 1996, 2005

Arctic Marine Shipping Assessment 2005-2008

Because of decreasing Arctic sea ice and increasing ice-free areas in the Arctic Coastal area and expanding global economic demands and natural resources, there will be an increase in Arctic shipping traffic with concerns about emergency preparedness, response and prevention.
Among other things, the study is determining how many ships ply the Arctic seas (not as easy to determine as one might think). Ships include fishing, whaling, ice breakers, scientific ships, cargo ships, drilling, coast Guard patrol, and cruise ships (around Greenland). They do not count naval vessels.
The route is open and ice free for 15 days during the summer. Yet it still requires an ice breaker.
It is difficult geography to navigate due to many very shallow areas

Importance to Commerce

Shorter route from Hamburg to Yokohama--7,000 miles vs 11,000 through the Suez and 12,000 through the Panama Canal and 14,500 around the Cape of Good Hope
This shipping route works best for natural resources. Stock pile them then transport them during the summer.
Alaska's Red Dog Mine (the largest zinc mine in the world) initiates 250 barge transits from Kivalina to the outside world during the 100 day shipping season.

This PDF is a summary of what he shared with us plus some well-detailed graphics and some great pictures. The graphics and pictures are will worth the time to click on the link and look at it.

Thu, 15 May 2008 18:40:49 GMT

Stock Market Game Winners The Stock Market Game ended a couple of weeks ago. The 1st Place Overall and the 1st Place Middle School portfolio management team was Team ZZ61 from Mitkof Middle School in Petersburg. They competed against 54 teams within Alaska---adults, individual high school students, and high school, middle school and elementary school teams. Congratulations!! Even though we had a difficult market between January 14th and April 25th, Team ZZ61 made $13,349 by investing their $100,000 in five companies. They increased the value of their portfolio by 13.5 percent. Their portfolio outperformed the S&P 500 Index by 12.06 percent. That is the official measurement of their portfolio management skills. Many highly paid professional money managers did not do that well during that particular time. These five students invested in world-wide natural resource companies, a world leading Swiss company that developed the first milk food for infants in 1867, and a U.S. company that started in 1892 and was the first to manufacture electric fans and is now one of the world's largest engineering and conglomerate corporations. Team A17 from Rocky Mountain High School in Goodnews Bay won the 1st Place award for portfolio management in the High School Division. The value of their portfolio increased by $11, 953--10.66 percent better than the S&P500 Index. These two students had a diversified portfolio of 11 stocks that included Exxon, Alliance Data Systems, Columbia Sportswear, Sony, and Apple. One of their important management strategies was to cut their losses at 8 percent. Congratulations to Team A17. Team A2 from Academy Charter School in Palmer won the 1st Place award for portfolio management in the Elementary School Division. Their portfolio, a diversified portfolio that contained 10 stocks including the United States Oil Fund (an ETF), Caterpillar, American Express, Pepsi Bottling, McDonalds, and Hershey, increased in value by $1,273 and beat the S&P 500 Index by 2.57 percent. Their portfolio was 11th out of 54 teams of adults, middle schoolers, and high schoolers. Congratulations! Yesterday, I finished my Stock Market Game Program Alaska coordinator end-of-game activities as I delivered the last winner certificates and SMG t-shirts. To the Winners: Wear your t-shirts with pride. Kudos to all those students who participated and learned about the economy, companies, the stock market, and investing in stocks and mutual funds and to the teachers who chose to use the Stock Market Game program as a teaching tool with their students to engage them in a fun, yet meaningful, hands-on learning experience. Their teaching and encouragement allowed their students to begin their journey in becoming thoughtful investors.

Thu, 08 May 2008 16:31:46 GMT

Northrim Bank Annual Meeting I went to Northrim's annual meeting the other morning---sweet rolls, bagels, orange juice, several very good presentations, and record attendance. The bulleted items below are some of the highlights from my notes. The Bank

Their net income was down on higher provisions for loan losses
Their stock price has undergone a 34% decline
They acquired Alaska First Bank and Trust
They have a new branch in Fairbanks
Deposits are slowly increasing
Loans are down---construction, consumer, and real estate

Item	Lower 48 States	Alaska
Home values	down 3%	up 4%
Subprime Mortgages 2004-06	21% of loans	10% of loan
Average Delinquency Rate	6.3%	3.3%
Loans in Foreclosure	2%	0.6%

The Economy

Securitized home mortgages ended the connection between the lender and the borrower.
Recession fears (I have inflation-stagnation fears)
In the past year the price of crude oil has gone from $65 to $120. If the dollar had stayed put---not declined---the price of oil would be $70.

Alaska

The natural gas line--AGEA won't work; the Denali gas line outside the AGEA process looks quite hopeful
Mining---$3.4B in production in 2007---$550M invested in additional exploration

Anchorage

Building permits for single family units---in 2006 there were 672 permits; 2007 there were 525 permits; 2008 there are 310 permits (by this time of year most of the permitting is completed)
Housing units listed for sale---930 last year---1,114 currently

Wed, 07 May 2008 06:27:53 GMT

The Relationship Between the Price of Crude and the Price of Gasoline A barrel of crude makes 42 gallons of gasoline. If the price of crude goes up $10, the price of gasoline will go up $0.24. $10/42 = $0.238 If the price of gasoline goes up faster than this, oil companies are exercising some market power and not just passing the increase on to consumers.

Mon, 05 May 2008 16:54:25 GMT

Hot Topic: What's Up With Gas Prices? This came from the Foundation for Teaching Economics (FTE). I thought it of interest. (The internal bold emphasis is mine.)

Student Reading: On April 14th 2008, the national average price for a gallon of regular gasoline reached a new all-time, inflation-adjusted high of $3.37. But people are driving less and oil supplies are increasing! Decreasing demand and increasing supply should lower the price of gasoline; so why are gas prices rising? Is it the election? A conspiracy? Price gouging oil companies? Or might supply and demand still have something to do with this mystery? Before the new records set in March and April of 2008, the highest historical price for gasoline was in May, 1981 when the average price was $1.36/gallon. In today's dollars, that's the equivalent of $3.22. While gasoline and oil prices have reached and passed the highs of the '80s, they're high for different reasons. Read the excerpts from two articles below for a comparison between the factors influencing gas prices then and gas prices now. Gas prices strike all-time high (CNNMoney.com, March 31, 2008) Average gasoline prices have hit another all-time high, according to a survey conducted for motorist organization AAA. The average price of regular rose to $3.287 a gallon, up from $3.286 the previous day, according to the AAA Web site. The price averaged $3.165 a month ago. A year ago, American drivers were paying $2.673, according to AAA. . . . Analysts say surging crude prices are largely to blame for pricey gas. Crude topped $100 a barrel in early 2008, and has traded above $100 for most of the year. While gasoline prices have hit record highs well before the start of the summer driving season, most analysts expect prices to peak relatively early - somewhere between $3.30 and $3.80 a gallon - and then decline during the second half of the spring as a slowing economy crimps demand. Oil Prices Pass Record Set in '80s, but Then Receded (by Jad Mouawad, NY Times, March 3, 2008) Since 2000, oil prices have more than quadrupled as strong growth in demand from the United States and Asia outstripped the ability of oil producers to increase their output. The rising prices of the past decade failed to dent global economic growth as consumers absorbed the higher costs. Even now, with the United States economy slowing markedly, the trend has not slowed much. Global oil consumption is still expected to increase by 1.4 million barrels a day this year, driven by demand in China and the Middle East. Still, today's record is markedly different from the energy crises of the 1970s and 1980s. These were brought about by sudden interruptions in oil supplies, such as the 1973 Arab oil embargo, the Iranian revolution of 1979, or the outbreak of the war between Iran and Iraq in 1980. Also, the United States economy at the time was much more dependent on oil than it is today. The amount of oil needed to increase economic output by $1 has dropped by 25 percent since 1990. In the early 1980s, energy accounted for about 8 percent of disposable income in American households. As the economy became less energy-intensive and prices declined, that share fell under 4 percent in the early 1990s. But as prices keep rising, the share of energy spending has been increasing. It reached more than 6 percent of household disposable income in December. Since the year 2000, increasing demand for gasoline, mainly from Asia and the United States, has lead to rising gas prices. An increase in demand means that consumers are willing and able to buy more gas at any given price. However, according to the Dept. of Economic Analysis, demand for gasoline has actually decreased by 1% since January. When demand decreases, the equilibrium price and quantity decrease. Why then, are prices still rising? Economists and analysts think that commodities markets, gasoline futures contracts, and the exchange rate may have something to do with the rising prices. Because of news reports on "the Dow", most of us are aware that investors buy and sell stocks in markets like the New York Stock Exchange or the NASDAQ, but we may not realize that investors also buy and sell futures contracts for commodities such as iron ore, gold, sugar, crude oil, and gasoline. Every day billions of dollars in commodities are bought and sold on the floors of commodities exchanges like the Chicago Board of Trade (CBOT) or the New York Mercantile Exchange (NYMEX). As buyers and sellers interact, commodities prices change, and those changes can affect the price we pay for gasoline at the pump. A futures contract is an agreement to buy or sell a commodity at a prearranged future date and price. The basic purpose of a futures contract is to provide price-change protection. For example, a farmer estimates that it will cost $2 a bushel to produce his wheat. Rather than run the risk that the market price for wheat will be less than $2 at harvest time, he can enter into a contract now to deliver the wheat at harvest time for a price of $2.50. At the same time, a food processing company may want to enter into a contract now to receive the wheat for $2.50 rather than run the risk that the market price at harvest time may be higher than $2.50. However, the buyers and sellers of the actual commodities are not the only players in the futures market. Speculators buy and sell futures contracts, but have no desire to own the actual commodity; they see the possibility of price change as an opportunity for profit. A speculator who anticipates a commodity price increase will buy a futures contract now with the hope of selling it at a higher price later on. On the other hand, a speculator who anticipates that a commodity price will decrease, will sell a contract he doesn't own (a practice called selling short) with the hopes of being able to buy it back at a lower price. Contracts are bought and sold many times over before the contract date when the actual commodity must be delivered. In fact, the Chicago Board of Trade estimates that only four percent or less of what is traded, actually gets delivered as businesses attempt to manage risk and speculators attempt to profit by anticipating price changes. A final piece of the puzzle of rising gas prices in a time of falling demand is the exchange rate. In order to trade goods and services with other countries, businesses must first exchange currencies. Currencies are bought and sold in the foreign exchange market and the term exchange rate refers to the price of one currency in another--or how much of one currency it takes to buy another currency. If it takes more and more dollars to buy one euro, then we would say that the dollar is depreciating relative to the euro and the euro is appreciating relative to the dollar. The articles below refer to a "falling dollar" which, in general, means the dollar is depreciating relative to other currencies. Sometimes this is also referred to as a "weak dollar." That means foreign investors can buy more dollars for less of their own currency. And then, rather than just holding those American dollars and watching them lose value as the dollar falls or inflation decreases the purchasing power of the dollar, they can invest in things for which they expect the price to rise faster than inflation. . . like gasoline or crude oil futures contracts. Read the following excerpts and pay close attention to the role that commodities markets, futures contracts, and exchange rates are playing in the rising gas price saga. Gas Prices Near Records, Following Oil (by John Wilen, Associated Press, March 10, 2008) . . . Many analysts believe speculative investing attracted by the weak dollar is the primary reason oil has risen so far so fast in recent months. Crude futures offer a hedge against a falling dollar, and oil futures bought and sold in dollars are more attractive to foreign investors when the dollar is falling. . . . Many investors believe the greenback is likely to keep falling as the Fed continues to cut [interest] rates. Many analysts believe the rise in crude prices is not supported by the market's underlying fundamentals, noting that supplies are generally rising while demand is falling. "By gobbling up everything in sight, (investors) are pushing food and fuel prices to ruinously high levels," said Peter Beutel, president of the energy risk management firm Cameron Hanover, in a research note. Good Question: If people are driving less, why do gas prices keep rising? (by John Wilen, Associated Press, March 21, 2008) Q: If people are driving less, why do gas prices keep rising? A: People are indeed driving less. Gas consumption has fallen about 1 percent since late January. Yet, gas prices are on the rise. Gas has averaged more than $3 a gallon for four straight months and, more recently, has surged into record territory. Estimates of how high gas prices will go this year vary from $3.50 a gallon to $4. But virtually everyone agrees prices have higher to go before they fall. This disconnect between demand and price may seem to violate fundamental rules of economics, but gas prices are actually responding to demand of a different kind: from investors. Contrary to the views of many conspiracy theorists, gas prices aren't set by refiners or gas stations as part of a campaign to gouge consumers. Prices are a function of the open market, as manifested in the trading of futures contracts on the New York Mercantile Exchange, or Nymex. Nymex gasoline futures have been rising, following oil, despite growing supplies of both commodities. Blame the falling dollar, which has made dollar-denominated oil contracts irresistible to foreign investors and to any investors looking for a safe haven for their money during a turbulent time in the stock market. This buying by investors has pushed oil futures to a series of records in recent weeks, and the rest of the energy complex -- which includes gasoline futures -- has followed. Unfortunately, consumers pay for this investment frenzy in the form of higher pump prices. And despite mounting evidence that Americans are cutting back on their gasoline habit -- and may cut back even more drastically as gas gets more expensive -- it might be some time before prices start responding to lower demand. Teacher Guide to Discussion Questions 1) What caused the high oil prices of the early 1980s? The "energy crises of the 1970s and 1980s . . . was brought about by sudden interruptions in oil supplies, such as the 1973 Arab oil embargo, the Iranian revolution of 1979, and the outbreak of the war between Iran and Iraq in 1980." 2) What explains the rising oil prices from 2000 to 2006? A rising demand world-wide for oil. "Global oil consumption is still expected to increase by 1.4 million barrels a day this year, driven by demand in China and the Middle East." 3) Despite the 1% decrease in demand since January, 2008 and the increased supplies of oil, what explains the recent and continued rise in gasoline prices today? "Blame the falling dollar, which has made dollar-denominated oil contracts irresistible to foreign investors and to any investors looking for a safe haven for their money during a turbulent time in the stock market." "Investors desperate for havens in a deep housing market slump are buying up all kinds of commodities, including oil. In addition, a weak dollar makes oil cheaper in foreign nations." 4) If the Federal Reserve continues to enact expansionary monetary policy (i.e. "the Fed continues to cut rates"), what impact will this have on the value of the dollar relative to foreign currencies? How will that impact futures contracts for crude oil and gasoline? And how would this impact gasoline prices? Expansionary monetary policy may lead to higher price levels (inflation) for everything we buy with dollars . . . including other currencies. In other words, it will take more dollars to buy those foreign currencies. The dollar will depreciate relative to foreign currencies. That could continue to spur demand by foreign investors for oil and gas futures (which are traded in dollars), and that increase in demand for futures could ultimately lead to even higher prices for gasoline. 5) Markets are dynamic. There is constant pressure on supply and demand from all directions. Identify some variables referred to in these articles that could increase the demand for gasoline? Decrease? Increase -Summer driving season -Increase in oil consumption in China and Middle East Decrease Slower economy "Americans--cutting back on their gasoline habit" 6) Identify some variables referred to in these articles that could increase the supply of gasoline? Decrease? Increase ". . . ability of oil producers to increase their output" (i.e. improved technology, discovery of new resources) Decrease -increase in price of crude (an input for gas) -hurricane, war, or other supply disruption 7) If the supply of gasoline increases at the same time demand increases, can you say for sure what will happen to the equilibrium price and quantity? When supply and demand increase at the same time, more will be exchanged (equilibrium quantity will increase). Equilibrium price, however, may increase, decrease, or stay the same, depending on the relative size of each shift. For example, if the increase in demand is greater than the increase in supply, price will rise. If the increase in supply is greater than the increase in demand, price will fall.