How To Lower The Price Of Gas

Gas prices seem near all-time highs and the summer driving season hasn’t even started yet! A recent email presented a simple solution that will force gas prices back to the $1.25 a gallon range. Read on for details and to learn basic principals that may make investing more profitable. Have you ever received one of those ‘chain’ emails—the kind where you are supposed to forward it to 10 of your friends? My wife received one this morning. The email contained the simple solution to the gas crisis. Supposedly, the solution was created by a high-level executive at a major U.S. corporation and an engineer that worked for an oil services firm. These guys should know their stuff, right? Wrong.

The solution proposed was that we should all decide to stop buying gas from ExxonMobil. If we stopped buying gas from them then they would be forced to lower gasoline prices to tempt us to buy from them again. The email said that we consumers need to teach the Big Boys that we are in charge, not them.

The Laws of Supply and Demand, the basis for capitalism, are taught in Economics 101. The law says that the market price of a good or service will be determined based on how much of it is available and how much buyers are willing to spend for it. This principle is one of the underlying reasons that bond, real estate and stock prices move up and down.

Let’s look at salt as an example. In centuries past, salt was hard to come by and many people needed it. At one time it was so valuable, it was worth its weight in gold.

That’s not the case nowadays. Salt is very inexpensive. The container it’s sold in probably cost more than the salt inside it. Why? Because the supply of salt is high and the demand for it is low. Salt is easily mined in vast quantities. Also, refrigeration and the use of other preservatives drastically cut demand.

This supply and demand law is the reason the ‘simple solution’ to reducing the price of gasoline can’t work. First, gasoline is a commodity product with a limited supply. If you only switch the outlet from which you purchase gasoline, you aren’t reducing the demand. The same amount of gasoline will be sold, keeping demand, and therefore the market price, level. It may hurt ExxonMobil but will help someone else.

Reducing the price of gasoline by decreasing demand will require that people use less gasoline. That means we need to carpool, ride bicycles, walk or drive more fuel-efficient vehicles. In the last year or so we’ve seen that demand remains strong even when prices rise by a dollar or more. So demand probably won’t change until prices are much higher than they are today.

Second, the simple demand solution doesn’t take into account the fact that there is a global market for oil. Gasoline is produced by refining oil. ExxonMobil doesn’t set the price of oil, the market does. Even if demand is reduced in America, the demand elsewhere continues to increase. The demand in China and India is growing so rapidly that prices will go up even if we cut back here in America.

Third, the supply of oil must be factored into the equation. There hasn’t been a discovery of a major oil-field in decades. The amount of oil pumped from an oil-field doesn’t stay the same. It will naturally decrease over time. There have been improvements made in getting the oil out of the ground, but overall, the number of barrels a day pumped is declining. For instance, did you know that the production of OPEC is lower today than it was in 2005?

So this ‘simple solution’ obviously won’t work. I believe that there is little we can do in the United States to significantly lower the price of oil. There simply isn’t enough oil to meet the needs of the world economy. Understanding that affects how I manage my clients’ portfolios.

As an investor, understanding the Laws of Supply and Demand will help you select where you should invest. Avoiding industries where supply is increasing faster than demand will reduce your losses. Investing in industries where demand is growing faster than supply can increase your profits.

Nationally-syndicated financial columnist and Certified Financial Planner® Jeffrey Voudrie provides personal, in-depth money management services and advice to select private clients throughout the USA. He’ll answer your financial question – FREE at www.guardingyourwealth.com.

Investing Overseas: Trend or Fad?

The returns on international mutual funds have far out-paced those earned by U.S. funds for the last several years. As a result, there has been a deluge of money flooding into these funds. Is this the 1999 Tech Bubble all over again? Read on to find out. Investing in technology stocks was the big thing in the late 90’s. Internet startups that didn’t have a dollar in sales were raising billions of dollars in an IPO. The value placed on companies was outrageous. Anyone remember Priceline.com? In 1999 the stock hit a high of over $300. A few years later it was trading at $5 a share. Will the same thing happen with International stocks?

The short answer is no. Investments in foreign companies haven’t reached the frenzied pace seen in the Tech Bubble. Moreover, there is a reason overseas markets are performing so well. It’s essential you understand the underlying trend so you can properly allocate the place international investments have in your portfolio.

My wife and I recently returned from a short trip to Cambodia. My experience there has given me a greater appreciation for and an understanding of the development under way in Asia.

Cambodia is a very poor country. The average annual income per person is $2,000. And they’re still recovering from atrocities of the Khmer Rouge in the late 1970’s, when 2 million people died. Now, 40% of the population is under the age of 15.

The human spirit, though, is the same everywhere. Ambition and desire are not American attributes; they are basic to human nature. And that’s what I saw in Cambodia. Many are working to improve their own lives and those of their families. That means commerce.

Cambodian wages are very low so foreign money is flooding into the country. Garment factories are being built and employ thousands. That’s causing land prices to double and triple in value. Family rice patties are now sold for tens of thousands of dollars. Their sale completely changes the lives of that family.

Invariably, they buy a car and home. They buy furnishings. That money trickles through the economy, raising the standard of living each step of the way. Multiply that by thousands and thousands and you can see the impact it has.

The capital of Cambodia is Phnom Penh. Just 5 years ago many of the streets there weren’t even paved. Now they are. New roads are being built and hydro-electric dams are being planned.

Cambodia is just one example of what is happening in countries all across Asia. In China and India alone there are over 2 billion people. Most of them have lived in poverty all of their lives. But that is changing. Standards of living are increasing.

Will this rate of growth continue forever? No. But I believe it will last a decade or more. The rate of growth isn’t going to be constant. There will be cycles just like there are in any economy. There’s no denying the overall trend, though.

What does this mean for your portfolio? I believe that many investors should have a substantial part of their portfolio invested outside the United States. Our economy has been growing around 3% a year. China and India’s economies are growing around 10% a year.

Traditionally, experts have suggested that 10-15% of your portfolio be invested internationally. Now some suggest 25%. I believe it should be higher than that.

The problem, though, is that you can’t just throw money into an overseas mutual fund and forget about it. These markets can be very volatile. China’s market dropped almost 10% in a single day earlier this year. It’s vital that this money be invested wisely, that it be closely monitored and that strategies are in place to reduce the overall risk.

That’s what I’ve been doing in my clients’ accounts the last year or so. Some of the stocks that have performed very well are Bayer (BAY), Siemens (SI) and Bunge (BG). There are investments in Canada, Europe, Russia, Israel, Brazil, Australia and all across Asia.

Using targeted companies to profit from such trends is better than just buying an index. When balanced with other income-oriented investments and loss-limiting proprietary strategies, the result is a portfolio that is designed to have greater growth potential than one focused only in the United States.

It’s important that you have money invested outside the United States. The growth in emerging markets like China and India isn’t a fad, but a trend that could last for decades.

Nationally-syndicated financial columnist and Certified Financial Planner® Jeffrey Voudrie provides personal, in-depth money management services and advice to select private clients throughout the USA. He’ll answer your financial question – FREE at www.guardingyourwealth.com.

Income Deposit Securities: Income and Growth

Investors everywhere seek opportunities that can provide stable income while increasing the value of their initial investment. Traditionally, these investors turn to stocks that pay dividends. Income Deposit Securities are designed to more directly meet these goals. Read on to learn about three such investments you should consider now. A money manager’s job is to help investors adjust their portfolios to changing market conditions. In uncertain times like these, I believe it is important to use investments that pay healthy dividends. I’m not talking about the dividends you see in the big well-known companies found in the Standard & Poors 500. Most of those companies pay a paltry 2-3% in dividends.

Nor am I impressed by the dividends you can get from mutual funds. The size of most mutual funds means that they have to search for dividends among the large, well-established companies. As a result, the dividends they pay don’t cut it either.

But there is another dividend option that is far better, found in an Income Deposit Security (IDS). The Income Deposit Security was developed in coordination with the American Stock Exchange. It is a combination of a corporate bond and a common stock. That means it can provide the interest certainty associated with a corporate bond, but also the potential for long-term growth found in a common stock.

A lot of people don’t understand the two-part nature of an Income Deposit Security so when they try to analyze it as an investment it doesn’t appear as attractive. It’s only by breaking it down into its components that the true valuations can be found.

One IDS that continues to work well in my client’s accounts is B&G Foods (BGF). This company makes condiments and spreadable preserves. It makes pickles, peppers and hot sauces under the Red Devil, B&G and Trappey labels. B&G Foods produces the staples that people continue to buy regardless of how fast the economy is growing. That makes it very defensive.

It also is a company that generates a steady, consistent cash-flow. It pays a dividend of around 7.5%. That’s very attractive compared to the interest paid on many corporate bonds. That’s considerably higher than the measly dividends paid by the companies in the S&P 500.

There’s more to B&G Foods than a healthy dividend. It’s generated excellent growth as well. According to Morningstar (www.morningstar.com), an investment in B&G Foods grew 52.3% in 2006 and is already up over 20% this year. Not bad for a defensive, dividend-oriented company!

Another example of an IDS that you might consider is Coinmach Service Corp (DRY). This isn’t a company you will hear about from the analysts at the big firms. You can’t even find out much about it from Morningstar. That’s OK; I know that there is a lot of money to be made for my clients in solid businesses such as Coinmach Service Corp—and it’s my job to find them.

Coinmach Service Corporation is the leading owner and operator of laundromats across the nation. It’s another boring, defensive company whose revenues aren’t dependent on a surging economy. In fact, the slower the economy the better this company will do because more people will rent apartments as opposed to buying homes.

It pays a healthy dividend, too. Currently, the dividend is around 7.5%. Overall it was up over 25% in 2006 and has already increased in my clients’ portfolios by 13% so far in 2007.

A third IDS that you should consider for your portfolio is Centerplate (CVP). I’ve mentioned this darling in my column before—hopefully you purchased it then. Centerplate runs the concession stands in most major stadiums and ballparks. They’re the ones selling those expensive hotdogs!

Centerplate has a yield of almost 9% right now. And it produced a return of over 60% in 2006. It is down 5% this year because of an attack by some short-sellers. If your investment time-frame is only 30 days then move on. But is you are looking for a solid, growing company that pays an attractive dividend, consider Centerplate.

Income Deposit Securities are an investment that can help your portfolio. But you can’t just pull one up in Morningstar and get an accurate picture of their worth. With a little digging, though, you may uncover a real gem.

Nationally-syndicated financial columnist and Certified Financial Planner® Jeffrey Voudrie provides personal, in-depth money management services and advice to select private clients throughout the USA. He’ll answer your financial question – FREE at www.guardingyourwealth.com.