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Exxon’s Profits and the Lack of Renewable Investment

July 31, 2008 10:18 AM

ABC News’s Bianna Golodryga reports: As the rest of the nation's economy grapples with record oil and gas prices, deep in the heart of Texas, things look pretty good -- and Texans can thank ExxonMobil for that. This morning, the world's largest oil company reported revenues of $138 billion for the second quarter of 2008. Believe it or not, the record profits of $11.6 billion, or $2.27 a share, were smaller than the $2.52 a share Wall Street had expected. Still, the company's profit topped its previous record of $10.9 billion during the first three months of the year.

For big oil, 2008 has been a very good year. How good? Well, it's even better than last year, when the combined sales of the top five oil companies added up to $1.5 trillion -- that's greater than the GDP of Canada.

Since then, the price of crude has soared by as much as 50 percent while the price of natural gas has also taken off. And though oil has had a significant drop from its high of above $140 a barrel for the second quarter, the benefits of high oil are clearly noted in balance sheets of the world's largest oil companies.

Exxon's earnings come on the heels of stellar earnings from ConocoPhillips, which reported a $5.4 billion net income for the quarter; BP, which posted net profits of $9.47 billion for the quarter; and Shell, which reported $11.6 billion earlier this morning.

Those kind of figures have sparked calls for alternatives to foreign oil now more than ever.

The calls for change are coming from big players from former oilmen like T. Boone Pickens to the oil companies themselves, which have invested in a media blitz highlighting their support for alternative energy sources.

But are they putting their money where their mouth is?

We crunched the numbers with Bernie Picchi, oil analyst at Wall Street Access, who said "They are probably spending more on their advertising than the actual research itself."

To be fair, Exxon has publicly said that it is not in the renewable energy business, but rather focused on oil and gas. So it should be no surprise that out of the five largest oil companies, Exxon spent just 1 percent of its $41 billion in profits last year on alternative energy sources.

But none of the others fared much better.

For its part, Shell also invested just 1 percent of its $32 billion in profits last year on alternative energy exploration.

While both Chevron and ConocoPhilips invested only 1.3 percent of their profits on research, the company that invested the most in alternatives -- BP -- after profiting $21 billion, just $600 million or 2.9 percent was spent on research.

All in all, between the five companies, $2 billion was set aside for alternative energy research.

Picchi goes thru the numbers.

"This is the largest industry in the world with the exclusion of the financial service industry. It’s a very large amount of money. The after-tax earnings of these companies was around $125 billion. You get the idea that $2 billion, although an enormous amount of money to you and me, is truly just several drops in the bucket for the industry."

But don’t let the numbers fool you: all is not so great for big oil either. Contrary to popular belief, Exxon is also feeling the heat of record high oil prices. The company, which only produces 3 percent of the world's oil, doesn't produce enough to meet its own refining demands. And because of that, it too has to shell out big dough to pay for crude at present-day prices.

And as the run-up in gas prices at the pump has led to a decline in demand for gas the past few months, Exxon and the rest of the industry are facing an uphill battle to raise wholesale and retail prices fast enough to break even with record oil prices and refining costs.

Which leads to the bigger question: why is oil so expensive today? Supply/demand, manipulation, or policy?
According to one of the country's most prominent oil analysts, Oppenheimer's Fadel Gheit, the later two explanations are the main factors. According to a new book “The Oil Card” by Jim Norman, by allowing financial players to dominate oil trading without regulations while keeping margin requirement at a low of 5 percent, compared with 50 percent on stocks, the U.S. government is engineering the rise in oil prices to slow down China's economic growth, which is the most formidable global challenge, not Iran, or terrorism. It is modern economic warfare.

In fact, many industry experts are expecting the sharp increase in demand for oil from China to decline after the Olympics. China, like other emerging markets, subsidizes its oil, thus making it more affordable for citizens to buy gas. And with an estimated 1,000 new drivers hitting the road in China every day, one can imagine how much money China's government shells out for subsidies. As global economic growth slows, many don't expect China will be able to support those subsidies for long.

Gheit also believes that the current price of oil is just not sustainable for the long term. “Oil companies are making record profits because of the inflated oil and gas prices, which I believe are not supported by market fundamentals. After all there are no shortages despite all predictions of potential disruptions, which have not materialized. The oil markets are rigged since government actions, or inaction, affect supply and demand. Access to resources, taxes, subsidies, product specifications, and other regulation allow other participants to push oil price up or down.”

As for exploration in alternative energy sources, politicians have been hammering Exxon for what they say is too much emphasis on stock buyback policies, but Exxon and industry experts note that the company's main obligation is to it's shareholders, many of which are large pension and mutual funds.

Picchi adds that the oil companies "Have a responsibility to the owners to split the balance between growth and profitability. And growth without profits its a hard bargain for the owners of the company. What they have really done is respond to the owners requirement for the best possible return on their investment as owners."

Common belief within the industry is that oil companies won't have incentive to change their policies until Washington changes its policies. "In fairness to the industry, there really is no policy right now in the U.S. or for that matter Western Europe that would really help the companies to direct them to spend their money in these non-carbon fuels," Picchi goes on to say.

As for current solutions coming out of Washington, most oil experts believe it would take many years before any substantial relief from ANWAR drilling (which presidential hopeful John McCain supports) would be felt, while a windfall profits tax (supported by Senator Obama) would be more of a hindrance to further exploration and research than it would be a solution to the problem. Exxon claims that it is spending more of its capital on exploration, and notes that its tax rate has gone up from 44 percent to 49 percent.

Make no mistake about it, oil companies are gushing in dough. But when you look that their profit margins, they are actually lower than Microsoft’s, Google’s or IBM. And no one is suggesting a windfall tax for them.

So what does Picchi see as legitimate criticism for big oil? "Think a fair criticism is this industry has not been spending enough over the years on exploration an production. Total cash flow, only about half of it is going into traditional capital spending and roughly another 20 percent or so is going into share repurchases, the rest in dividends to the owners of the companies”
Politicians have been hammering Exxon for what they say is too much emphasis on stock buyback policies, but Exxon and industry experts note that the company's main obligation is to its shareholders, many of which are large pension and mutual funds a wide spectrum of Americans depend on.

And so the debate continues...

July 31, 2008 | Permalink | User Comments (45) | TrackBack (0)

The Drippy Days of Starbucks

July 30, 2008 5:22 PM

ABC News' Charles Herman reports: Like the drip-drip-drip of a coffee percolator, such are the days of Starbucks.

The world’s largest coffee chain that has millions of Americans addicted to its various liquid concoctions has been brewing up a lot of bad news recently.

Drip. Starbucks says goodbye to breakfast sandwiches.

Drip. Starbucks announces it will close 600 stores across the country and say goodbye to a reported 12,000 baristas.

Drip. Starbucks publishes the list of the stores to close. And despite the common complaint about too many Starbucks, coffee drinkers unite to save their Starbucks.

Drip. Starbucks saves the breakfast sandwiches.

Drip. Starbucks will cut 1,000 jobs, through a mix of layoffs and leaving unfilled positions open.

And today, drip, drip, drip. Starbucks reports a net loss from April to June of $6.7 million, compared with a gain of $158 million for the same period a year ago. The company cited continued slow traffic and declining sales in the U.S. as coffee drinkers cut back on thei r $3 lattes

But in large part, the loss was due to the costs of closing stores and restructuring the company.

Company CEO Howard Schultz has a rescue plan: focusing on what got the company percolating at the start years ago: coffee, coffee, coffee.

If only the daily drips could stop.

July 30, 2008 | Permalink | User Comments (39) | TrackBack (0)

A Housing Blue Light Special

July 29, 2008 1:12 PM

ABC News’s Bianna Golodryga reports: This morning's S&P/Case-Shiller Home Price Index, a widely watched gauge of U.S. home prices, reveals that prices continued to drop in May, erasing four years of gains. While continued declines in hard hit states like California, Nevada and Florida were expected, the latest report shows that the problem is nationwide. For the second straight month, every region in the country saw a drop in home prices from last year.

Eleven major cities, including San Diego, Miami, Orlando, Tampa, Las Vegas, Detroit, Los Angeles, Orange County, Phoenix, Sacramento and San Francisco, showed year-over-year declines of a record 16 percent or higher.

No doubt, with the number of U.S. home foreclosures skyrocketing over 120 percent within just the last year, the average price of those homes is following suit. But in the opposite direction.

While that's bad news for homeowners, for those looking to buy a home today, especially a foreclosed home, the timing could not be better.

We found bargain basement prices across the country. And they are falling at record speeds. According to Dr. Paul Bishop, research director at the National Association of Realtors, "One thing that is really unprecedented is the speed at which the prices have fallen in these markets. It hasn't been slow and painful, it has been quick and painful.”

Bishop goes on to say that “It really is a buyer’s market out there, there are roughly a dozen markets out of 110 we track where median prices are under $100,000 and another 17 or so markets where median prices are between $100,000 and $120,000."

A startling figure, given that the current national average price of a single family home is $215,000. So if the average home is losing value, what does that say about the value of a foreclosed home? The answer, we found, is pretty shocking.

In Cleveland, a 3-bedroom, 2-bath multi-level home that had an estimated value of $112,692 can be yours today for just under $40,000. In South Carolina, a brand-new, 2,000+ square-foot home sitting on an oversized lot was previously valued at $125,000. It's currently priced at $50,000. But why stop at $50,000? In Louisville, Ky., $28,000 will get you a 4-bedroom single-family home -- where the average list price is nearly $170,000.

But perhaps some of the best deals for home buyers today can be found in the Motor City. Detroit is home to a whopping 1,754 properties currently on the market for under $10,000.

A 3-bedroom bungalow with a 2-car garage is on the market for $6,500. New windows and kitchen cabinets included.

According to local Detroit realtor Carl Williams, "You can't beat the buys here. We're standing in front of a house that two years ago went for $90,000 to $120,000. Now it’s on sale for $6,900." That home is located in a middle-class neighborhood and experts say that when the market goes back up, so will the value.

So therein lies the $64,000 question. When will the housing market rebound? The answers vary from soon, to not so soon. But when even bearish investors suspect that there's only another 5 percent drop in home prices to go, one has to believe that there is a light at the end of this dark, deep and painful subprime tunnel after all. As for now, if you can stand the risk, and have the credit and cash, then investing in a foreclosed home has never been such a steal. As Bishop says, "While it is painful for sellers it is a good opportunity for buyers who are in the market to get a good deal."

July 29, 2008 | Permalink | User Comments (20) | TrackBack (0)

`Extreme Makeover’ Home: Foreclosed

July 29, 2008 10:52 AM

ABC News’ Scott Mayerowitz reports: A reality TV house just got a nasty dose of reality. One family’s Georgia home -- rebuilt as part of the popular ABC show “Extreme Makeover: Home Edition” -- is now one of the latest victims of the nation’s foreclosure crisis.

Back in January 2005, the TV show – along with Atlanta-based Beazer Homes USA -- demolished the Harper family’s decrepit old home and its faulty septic system. Construction crews and more than 1,800 volunteers then built a new four-bedroom house.

Beazer gave the family $100,000 in cash and paid off their mortgage.

It seemed like the perfect fairy tale TV ending.

But fast-forward three years, and the Harper family’s castle is about to go up for auction on the steps of the county courthouse.

Apparently the family used the home as collateral for a $450,000 loan which it now can’t repay.

Patricia Harper told ABC’s Atlanta affiliate, WSB-TV, that the money had been used for a construction business which was suffering.

The house is set to be auctioned on Aug. 5, but Harper told WSB that the family had reached a deal to save their home. The bank couldn’t comment on that.

ABC said in a statement that the show “advises each family to consult a financial planner after they receive their new home. Ultimately, financial matters are personal, and we work to respect the privacy of the families."

Lake City Mayor Willie Oswalt, who helped put a large beam into place in the family’s new living room, is upset about the possible foreclosure.

"It's aggravating," Oswalt told The Atlanta Journal-Constitution. "It just makes you mad. You do that much work, and they just squander it."

July 29, 2008 | Permalink | User Comments (210) | TrackBack (0)

Gas Prices Fall Below $4; First Time Since June

July 28, 2008 4:42 PM

ABC News’ Daniel Arnall reports: The Energy Department announced this afternoon that gas prices have fallen by 11 cents in the past week. The national average price for a gallon of regular unleaded is now $3.96. This is the first week since June 2 that has seen a national average below the $4 mark.

Even with the big drop, the price is still 38 percent higher than it was a year ago ($2.88).

Consumers in the Midwest saw an astounding 15 cent drop in the price of a gallon -- the biggest regional drop in this week’s survey.

American consumers are helping push prices lower by cutting back on their driving. The demand for motor gasoline has fallen by 2.4 percent, according to the latest weekly Petroleum Status Report from the Energy Department.

The falling demand for refined products was a key factor in the significant sell-off in crude oil futures two weeks ago. Today, the price of a barrel of crude settled up $1.47 to $124.73. That’s nowhere near the $147 peak that oil hit on Friday, July 11.

Analysts say increasing tensions between Iran and the West and continued violence in oil - exporting Nigeria helped buoy the price of oil today.

July 28, 2008 | Permalink | User Comments (10) | TrackBack (0)

Miles Driven in May Show Steep Decline, Transportation Dept. Says

July 28, 2008 10:21 AM

ABC News’ Kate Barrett reports: People drove almost 10 billion fewer miles in May 2008 than in May 2007, according to new numbers released this morning from the Department of Transportation.

The month of May usually brings a surge in vehicle traffic as summer kicks off and families celebrate Memorial Day. But not this year. May’s drop in traffic was the third-steepest monthly decline since record keeping began. (Travel in May 2008 was 254.7 billion miles, according to the Transportation Department. )

In fact, May has never seen such a drop off in miles driven. Often, large decreases in traffic come in December rather than at the start of the summer. Of all areas of the country, the data shows that people continue to drive most in the nation’s north central states.

While driving less may mean spending less money at the gas station, it also means fewer dollars are being pumped into the Highway Trust Fund.

Transportation Secretary Mary E. Peters said Monday that the data collected from the Federal Highway Administration provides evidence that the way in which America funds its infrastructure needs to shift. She said the government needs to look at funding highways and bridges in alternative, sustainable ways rather than relying on the gas tax.

Tell ABC News how you are dealing with high gas prices.

July 28, 2008 | Permalink | User Comments (17) | TrackBack (0)

Why Banks Don't Like Fridays

July 25, 2008 4:05 PM

ABC News' Charles Herman reports: TGIF? Not for a bank in trouble.

Friday is probably your most feared day for a bank struggling to stay in business.

The Federal Deposit Insurance Corporation, or FDIC, has a history of taking control of struggling banks on Friday evenings. Perhaps it allows the government agency time to review the bank’s books and make sure the doors can open for business on Monday, albeit under new ownership. It might also be the hope that people will be paying a little less attention to the news over the weekend.

Whatever the case, five times this year, the FDIC has assumed control of a bank. Five times, it has done so on a Friday:

Friday 1/25: Douglass National Bank, Kansas City, Mo.
Friday 3/7:  Hume Bank, Hume, Mo.
Friday 5/9: ANB Financial, Bentonville, Ark. 
Friday 5/30: First Integrity. Staples, Minn.
Friday 7/11: IndyMac, Pasadena, Calif.

So, if you were a bank officer struggling with huge losses and a surging number of defaulting loans, you might be a little bit worried today.

July 25, 2008 | Permalink | User Comments (9) | TrackBack (0)

If the Stock Market Were a Movie...

July 25, 2008 2:44 PM

ABC News’ Bianna Golodryga reports: If the stock market were a movie, it would look a lot like "Sybil." Sally Field's character had 13 personalities, and for the last 13 days, so has the market.

Triple-digit selloffs are followed by triple-digit rallies. Bad economic news one day is followed by not-so-bad news the next.

Just compare Thursday's action with today's. Thursday's nearly 300-point selloff was triggered by a report showing that existing home sales for June were at their lowest level in 10 years. Add to that news that U.S. foreclosures in the second quarter more than doubled compared with a year ago, and soared nearly 14 percent within just the last three months.

For investors, it was just another reminder that the housing market is nowhere near hitting bottom. Or is it?

Just hours later came word that the decline in sales of new homes in June was smaller than analysts' expectations.

As for that shaky consumer sentiment ...a report out this morning shows that it's not that bad. Durable goods orders were also better than expected. So what gives? Don’t worry about it, because the truth is, no one really knows.

But wait a minute, if that's the case, then maybe we should worry? (You see my point about Sybil?) Take financials, for example. After the Treasury's valiant attempt at resurrecting Fannie and Freddie combined with the sense that most large banks will not fail, financials came back from the dead with a vengeance.

Forty percent swings by a stock in one direction were immediately followed by 60 percent swings in the opposite direction. Better than expected reports out of Citi, JP Morgan and Wells Fargo all boosted confidence that maybe financials were finally making progress at cleaning out the skeletons in their subprime closets and were ready for a significant recovery.

All of the sudden, anyone who was short financials quickly reversed course. But that too, didn’t really work. Liquidity concerns about Wachovia and Washington Mutual, Merrill Lynch selling its stake in Bloomberg to raise capital and continued whispering about the state of affairs at Lehman Brothers reminded investors that all is not well, not yet.

It was a busy week for earnings as well. For anyone keeping track, we're now halfway through second-quarter earnings season. So far, nearly 70 percent of S&P 500 companies have beaten Wall Street estimates.

But when you break down the sectors, you can see where the true problems are. Eighty-five percent of financial companies reported earnings below estimates. And until the financial and housing sector can stop the hemorrhaging long enough to convince investors that the worst is behind us, we can expect to see more volatility, mood swings, and yes, "Sybil-like" behavior on Wall Street.

As Wall Street power player Doug Kass so eloquently put it this morning, "If you are not facile, fleet-of-foot and you are unaccustomed to the volatility, don't produce (or invest/trade!) -- just watch the movie, eat some popcorn and drink a Duff."

And whatever you do today, try to enjoy what is shaping up to be a rather quiet day for the markets. Because come next Friday it will no doubt be quite the opposite. The jobs report for the month of July is expected to show a loss of 85,000 jobs, with the unemployment rate steady at 5.5 percent.

But according to Deutsche Bank, which expects that level to grow to 6.5 percent by the middle of next year, we're nowhere near the bottom in the labor market. If that wasn’t enough, motor vehicle sales for July will be released, as well as construction spending figures. Both are expected to show continued declines.

July 25, 2008 | Permalink | User Comments (8) | TrackBack (0)

Sue-Friendly Skies: Angry Fliers Take on Delta

July 25, 2008 11:16 AM

ABC NEWS' Alice Gomstyn reports: Does this sound familiar? Man books flight. Man stresses out over flight. Man files seven-figure lawsuit against Delta Air Lines.

It happened in May and now it's happening again: The Associated Press has reported that a lawyer from New York City is suing Delta Air Lines for $5 million for leaving him stranded in Paris for four days during an airport workers' strike.

Thomas Mullaney alleges that, last October, Delta refused to let passengers rebook flights by phone and instead insisted that they go to the airport. Mullaney eventually took an American Airlines flight home and says Delta refused to reimburse him for the unused portion of his two Delta round-trip tickets.

A Delta spokeswoman told the AP she couldn't comment on pending litigation.

Back in May, another man sued Delta for $1 million. Richard Roth, who is also a lawyer, alleged that Delta ruined a family vacation to Argentina and left him, his wife, their two children and his 80-year-old mother stranded in airports without their luggage for three days. According to published reports, Roth said that Delta repeatedly turned down his requests for reimbursement.

July 25, 2008 | Permalink | User Comments (31) | TrackBack (0)

America's Most Coupon-Loving City

July 24, 2008 12:23 PM

ABC NEWS' Alice Gomstyn reports: Has the Brew City become a magnet for bargain hunters? Milwaukee is tops when it comes to U.S. grocery coupon-clipping, according to new analysis by Scarborough Research. A full 40 percent of households in Wisconsin's largest city use grocery coupons at least once a week.

Rochester, N.Y., came in a close second: there, weekly coupon usage stands at 38 percent. Albuquerque, meanwhile, has the lowest number of coupon-clippers in the country, with just 14 percent. The national average is 27 percent.

Overall, Sunday newspapers are the most common source of coupons for American consumers, but Internet coupons are growing in popularity, with more than one in 10 households now downloading coupons from the Web.

A couple of ironies in Scarborough's report:

* On average, coupon-clipping families actually spend $4 a week more on groceries than their coupon-free counterparts.
* Those with higher household incomes are slightly more likely to clip grocery coupons.

Find the full analysis here.

July 24, 2008 | Permalink | User Comments (6) | TrackBack (0)

Who's to Blame for High Gas Prices? You

July 23, 2008 7:42 AM

ABC NEWS' Dan Arnall reports: The government task force set up in June to ferret out any manipulation in the oil markets has issued an early look at its investigative conclusions. The interim report -- which comes months before the final one -- says that speculators are NOT responsible for the increase in prices.

Some highlights:

* BASIC CONCLUSION: "The Task Force’s preliminary assessment is that current oil prices and the increase in oil prices between January 2003 and June 2008, are largely due to fundamental supply and demand factors."

* WHAT THEY WERE LOOKING FOR TO PROVE SPECULATION: "If a group of market participants has systematically driven prices, detailed daily position data should show that that group’s position changes preceded price changes."

* WHAT THEY FOUND: "The Task Force’s preliminary analysis, based on the evidence available to date, suggests that changes in futures market participation by speculators have not systematically preceded price changes. On the contrary, most speculative traders typically alter their positions following price changes, suggesting that they are responding to new information -- just as one would expect in an efficiently operating market."

* WHAT CAUSED THE HISTORIC RUN-UP IN PRICES: "The world economy has expanded at its fastest pace in decades, and that strong growth has translated into substantial increases in the demand for oil, particularly from emerging market countries. On the supply side, the production of oil has responded sluggishly, compounded by production shortfalls associated with geopolitical unrest in countries with large oil reserves. As it is very difficult to rely on substitutes for oil in the short term, very large price increases have occurred as the market balances supply and demand."

Find the complete report here.

July 23, 2008 | Permalink | User Comments (30) | TrackBack (0)

Oil Falls As Dolly Misses Major Oil Areas

July 22, 2008 3:32 PM

ABC News’ Daniel Arnall reports: The press office at NYMEX says that the price of a barrel of oil settled down $3.09 to $127.95 today.

Traders seem to be selling as Tropical Storm Dolly’s path seems to be sparing the vast majority of oil production in the Western Gulf of Mexico. Government sources told ABC News that the area represents about 11% of Gulf of Mexico oil production and about 3% of total US production. There’s also an indication that a strengthening US Dollar is helping push prices lower.

Also of note, the Federal Government’s interagency task force investigating speculation in the energy markets released an interim report noting that supply-and-demand, not speculation, was the biggest culprit in the historic run-up in oil prices. The committee’s investigation continues and it will release a complete report later this year.

July 22, 2008 | Permalink | User Comments (0) | TrackBack (0)

Pickens Takes Wind Message to Congress

July 22, 2008 3:19 PM

ABC's Z. Byron Wolf reports: T. Boone Pickens, the conservative Texas oil man, brought his sermon to Capitol Hill Tuesday, preaching energy conservation, renewable resources, wind and solar farms and his plan to save America from non-Texas, foreign oil.

"We are more fragile from a national security standpoint than we have been since  World  War II," he said, calling American dependence on foreign oil a "national disaster."

Much of his opening statement was taken verbatim from the multimillion-dollar ad campaign he has been running on national television. http://www.pickensplan.com/

"I'm going to awaken the American people.  When they go out of the room they're going to turn out the lights," he said. He told the story of his mother, who he said knew the value of a dollar and made him turn or the lights or else he'd have to pay the electric bill.

Pickens said he is for drilling all the oil Americans can find domestically.  "I only have one enemy. That's foreign oil. That's what I want to get rid of," he said.

But that doesn't mean he thinks drilling for oil on the outer continental shelf or in the Arctic National Wildlife Reserve is going to solve anything.

The ranking Republican on the Senate Energy Committee, Sen. Pete Domenici of New Mexico, asked Pickens if he supported Republican proposals to drill in those  areas.

Sure, Pickens said, but he added, "Its not going to do it.  You don't have enough reserves in the offshore."

Shortly after his testimony before the Senate Homeland Security and Government Affairs Committee ended,  senators voted 94-0 in favor of considering a bill that would give the government new powers to police oil speculation in foreign and domestic futures markets. 

Republicans have said they will try to add authorization for offshore oil drilling to that bill. Many Democrats point to areas where oil companies can already drill . Pickens said today that both sides are missing the point.

"It doesn't have anything to do with some speculator on  Wall  Street," he said, arguing that it has more to do with the fact that Americans use a quarter of the oil produced in the world, but only have 3 percent of the reserves.

Pickens envisions a bridge period over the next 10 years, during which wind and solar energy will begin to replace 20 percent or more of the electricity produced by natural gas. And simultaneously, the natural gas will be used to fuel automobiles (Pickens himself has a Honda Civic GX that he plugs into a natural gas line at his house http://automobiles.honda.com/civic-gx/).

 

July 22, 2008 | Permalink | User Comments (11) | TrackBack (0)

Falling Home Prices Continued Drag on U.S. Economy

July 22, 2008 12:47 PM

ABC News’ Charles Herman reports: Average U.S. home prices dropped 4.8 percent in May from a year ago, according to a government report released Tuesday morning.

The Office of Federal Housing Enterprise Oversight calculated the drop in prices by examining the sales of homes owned by or guaranteed by Fannie Mae and Freddie Mac. From April to June, home prices dropped about 0.3 percent. Since housing prices peaked in April 2007 they have dropped an average of nearly 5 percent, although the decreases have been much larger in some parts of the country.

OFHEO regulates Fannie Mae and Freddie Mac. The two mortgage financing giants became household names in the last several weeks after their stock prices plummeted and the government announced a series of bailout proposals.

Treasury Secretary Henry Paulson has embarked on a public speaking tour to get Congress to act quickly on the proposals made a week ago last Sunday. This Sunday he was on CBS’s “Face the Nation.” Monday, he met with reporters and editors at the New York Times and on Tuesday, he gave a speech at the New York Public Library.

Critics of the plan worry it would be the equivalent of giving the two companies -- which own or guarantee nearly half of the outstanding mortgages in the country -- a blank check secured by taxpayer dollars.

My colleague Lisa Chin in Washington, D.C. attended a briefing by the Congressional Budget Office this morning about the potential impact of the administration's plan on the federal deficit.

She reported that Congressional Budget Director Peter Orszag said the Treasury's proposal for a potential Fannie/Freddie bailout might cost the government about $25 billion.

Orszag said there was a better than 50 percent chance that the government might not need to expend any money to help the ailing Freddie and Fannie. He said there was a 5 percent chance that a bailout could cost the government as much as $100 billion, if a worse-case scenario came to fruition.

Formal legislation has not been introduced to the Congress as of yet. A full copy of Orszag's letter to the chairman of the House Budget Committee can be found here.

Later this week, the National Association of Realtors will report existing home sales for June and the Census Bureau will release new home sales in June. Both reports are expected to show further declines in prices and total sales.

Many economists believe that the nation’s current downturn will end when home prices stop dropping and sales start increasing. That might not start to happen, however, until 2009.

July 22, 2008 | Permalink | User Comments (30) | TrackBack (0)

Food Prices Will Remain High

July 21, 2008 5:58 PM

ABC News' Charles Herman reports: Don’t expect lower prices in the grocery aisles any time soon.

Food prices are expected to rise 4.5 percent to 5 percent this year and then another 4 percent to 5 percent in 2009, according to a government forecast to be released this week from the Department of Agriculture’s Economic Research Service.

Egg prices will crack double-digit price increases of at least 13 percent this year.  Baked goods and cereals will rise more than 9 percent.  And food items, like peanut butter, salad dressing, butter and cooking oils will go up by as much as 12.5 percent, largely due to higher soy prices.

Higher prices for corn and soy and other crops, along with higher energy prices, are to blame.

"There's a lot of discussion about why raw food costs globally are going up so much, and why energy prices are going up so much, but those are what are feeding into the retail system, what are leading to higher costs," said Ephraim Leibtag, economist with the Economic Research Service.

So, whatever the cause -- increased demand for gasoline, increased demand for corn to be used as ethanol, or just increased worldwide demand for food -- it will mean higher bills at the checkout. 

At least gas prices fell 5 cents today to an average of $4.06 a gallon.  Some comfort.

July 21, 2008 | Permalink | User Comments (16) | TrackBack (0)

Gas Prices Drop Five Cents This Week

July 21, 2008 5:55 PM

ABC News' Daniel Arnall reports: The Energy Department says consumers are seeing a bit of relief at the pump this week. The national average price of a gallon of regular unleaded fuel is now $4.06, down 5 cents from the previous week.

It's the first substantial drop in the price of gasoline since the week of March 24, when the average price dropped by 3 cents. Even with the drop, this marks the seventh straight week in which the national average price has been above $4.

The price is 37 percent higher than a year ago, when the average price was $2.96.

Prices in all regions of the country dropped, except for the Rocky Mountain West, where prices were up a penny week-over-week.

Oil prices, which saw tremendous drops from the record price of more than $147 last week, settled up $2.16 today (to $131.04) thanks to Tropical Storm Dolly rolling into the Gulf of Mexico’s oil producing region.

July 21, 2008 | Permalink | User Comments (0) | TrackBack (0)