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NEW YORK: The Volt may get 230 miles per gallon, and GM says it will cost only 40 cents to charge up the car from a regular household outlet. But guess what…it still might not be worth it to buy one.The problem: You might not save enough on fuel costs to compensate for the likely higher sticker price.The Volt is designed to go 40 miles on battery power alone. Since most people drive 40 miles or less a day, according to the Transportation Department, most Volt owners wouldn’t need a drop of gas for daily driving.But even if GM is able to live up to that promise, a couple of things have to happen for the Volt to beat out traditional gas-powered vehicles on cost, let alone other fuel efficient vehicles, such as the hybrid Toyota Prius.First, GM will have to price the car far less than it costs to build it, a subsidy that the still financially troubled automaker could have trouble affording. Second, gasoline prices will need to go higher and stay higher. The Prius, with its own price premium, doesn’t always make economic sense compared to some cheap gas-only models. That price difference hasn’t stopped it from becoming a sales success.Concerns about where gas prices might go in the future, and the desire of a growing number of consumers to drive a “green” vehicle will likely support demand for the Volt, especially given GM’s modest initial sales goals. But it’s likely most Volt buyers aren’t likely to save money by kicking the gasoline habit.How the Volt stacks up against the PriusHere’s how the math works out.The Transportation Department says three out of four drivers drive 40 miles a day or less, most drivers wouldn’t use the gasoline engine at all, and could get by on electricity only.The Volt will use normal household outlets and would charge overnight. GM’s CEO Fritz Henderson said it might cost consumers in Detroit paying off-peak rates only 40 cents to recharge the vehicle. But relatively few utilities offer off-peak residential rates. The battery needs about 8 kilowatts hours to recharge, and most consumers would pay about 11 cents a kilowatt hour, or 88 cents. During the course of year, that means a typical Volt owners’ electrical bill would increase by 321.In contrast, the hybrid Prius’ electric motor is charged from the excess energy thrown off by the gasoline engine, as well as the energy generated from braking the vehicle.The electric motor powers the car at low speeds. The gas engine generally takes over on the highway and during fast acceleration or uphill driving. That allows it to get an average of 50 miles to the gallon.Driving a typical 14,000 miles a year, or 38 miles a day, the Prius would use about 280 gallons of gasoline. With gas at its current price of about 2.65 a gallon, that would come to about 742 a year in gas, or 421 more than the Volt owners would pay if they can stick with electricity.Even if gas goes back to the record high of 4.11 and stays there, gassing up a Prius would cost about 1,150 a year, giving the Volt an 830 a year cost savings.But a Prius costs 25,428, on average, according to sales data from Edmunds.com, while GM will probably have to spend 40,000 or more to build each Volt. While Volt buyers will get a 7,500 tax credit that reduces the still undisclosed purchase price by that amount, the fact is that GM will have to subsidize much of the remaining 7,000 difference in cost to make it competitive with the Prius.At current gas prices, the 421 a year savings over a period of six years that a new car is typically owned, would mean that a Volt would only be cost competitive with a Prius if was about 34,500 before the tax credit.That means GM would have to take about a 5,500 loss on each Volt if it is to be strictly competitive.If you assume modest sales of 20,000 Volts the first year, that would mean about 110 million in additional losses for the cash-strapped automaker.Even if you assume a worst case scenario of 5 average price for a gallon of gas over those eight years, it’s only worth it to pay a 4,300 premium for a Volt after the tax credit. But that would reduce the loss that GM would need to take on each vehicle by 2,600 to be competitive. 0:00
/5:52GM launches auto ’space race’But the Prius itself, and many other hybrids, aren’t cost competitive with many gas powered cars. The Prius costs about 6,000 more than the average compact car, according to Edmunds data. If you compare the cost of operating a Prius to a 25 mpg compact car, which is on the low side of that class, you find a savings of about 750 a year for the Prius over the gas burner. And that would mean it only makes sense to spend about 3,500 more for a Prius, not 6,000.Of course higher gas prices can make the Prius more cost competitive with its cheaper gas-only competitors. Driving more city miles can also increase the cost advantage for a Prius. That’s a cost advantage that doesn’t necessarily work for the Volt because the additional miles for the Volt use gasoline, not electricity, to fuel the car.But the Prius has become a sales success, with U.S. sales reaching a record 181,221 in 2007, before slipping 12% last year as auto sales overall plunged. So it’s not impossible that the Volt could become a sales success, even if the strict dollar analysis does not work out for it.

NEW YORK (Fortune) — Can reinvigorated financial watchdogs take a bite out of surging oil prices? President Obama is scheduled to outline a regulatory reform program Wednesday that will, among other things, call for strong federal oversight of derivatives — side bets on changes in asset values or interest rates. The reform push is being driven by the past year’s financial-system tremors, which were intensified by derivatives such as credit default swaps, or wagers on a bond issuer’s health. The administration aims to defang that demon by moving derivatives trading out of the shadows to reduce uncertainty. But this year’s surge in the price of oil is turning Washington’s attention back to another derivatives debate: whether speculation in the futures markets is responsible for wild swings in the prices for crude oil and other commodities. Crude oil recently fetched around 70 a barrel, more than double its December lows. The run-up has been taken in some quarters as a sign of the revival of global demand. But the price surge has raised eyebrows because it comes at a time when economies around the globe remain weak. In the United States, oil supplies are at two-decade highs while demand is at a 10-year low. Some observers blame the price rise on investment funds plowing money into commodity futures contracts. “What we’re seeing is the assetization of commodities,” said Dan Dicker, a longtime oil trader on the New York Mercantile Exchange who is writing a book about the phenomenon. “This isn’t a nefarious group at work, but the oil market is following stocks almost in lockstep now.” Not everyone agrees that investors are so innocent. The concept got an airing last year, as oil headed toward its all-time high at 147 a barrel, after hedge fund manager Michael Masters testified before Congress on the role of these funds — which he dubbed index speculators. Masters testified again earlier this month before the Senate Agriculture committee. He called for regulators to impose limits on futures-contract purchases by those not involved in the physical production or consumption of commodities. Any substantive changes in regulation will need congressional action.That’s a change that Obama’s top commodities regulator, Gary Gensler of the Commodities and Futures Trading Commission, seems to embrace. The goal: insulate commodity producers and consumers from the influence of investors who are betting on rising prices. “I intend to pay particular attention to using current authorities and obtaining much needed new ones, including aggregate position limit authority, to protect farmers, merchants, consumers, and small businesses from the burdens of excessive speculation,” Gensler said last month at his swearing-in ceremony.0:00
/3:53Behind oil’s steady riseBut Scott Irwin, an agricultural economist at the University of Illinois, says there is little evidence to support the notion that index fund buying is playing a substantial role in the level of commodity prices. “The academic work to date finds no evidence that the massive runup of commodity prices can be traced to the index funds,” he said. Irwin said a recent study of dynamics in the corn market, where prices spiked last year as well, shows that the rise in futures buying by index funds and other long hedgers was met with increased selling by large commercial interests — the entities that these markets were created to serve. Irwin adds that were the administration to expand CFTC control of position limits to all commodities, the “costs would far outweigh the benefits.” He proposes instead that regulators eliminate position limits except during delivery periods, when the markets are vulnerable to manipulative trading. Whatever is behind higher oil prices, it’s easy to see how they could impede an economic recovery — a turn of events that could draw much interest in Washington. Sen. Bernie Sanders, I-Vt., this month introduced legislation to force the CFTC to invoke emergency powers to stop speculation, saying Wall Street was being allowed to “jack up oil prices through price manipulation and outright fraud.” Dicker said that should oil prices continue to rise, the drumbeat for action will continue to get louder. He said he could even envision regulators forcing all futures traders to liquidate their contracts when they expire, rather than rolling them over into the next month — which is how regulators responded when the Hunt brothers tried to corner the silver market 30 years ago. “If the screaming gets loud enough,” he said, “you could see some pretty draconian measures.”

Source:CNN

NEW YORK (Money) — Question: I’m planning to invest some money in the stock market, but I’m wondering whether I should buy mutual funds or individual stocks. Which do you think is better? And in the event I decide to go with stocks, which ones to you think are really good buys now? –Monique ThompsonAnswer: The stocks vs. funds issue has always been a biggie for individual investors. But the question of whether you should go it alone or turn over your money to a mutual fund manager who’ll invest it for you is even more critical today, if only because this uncertain economy and volatile market make the rewards for success and the cost of failure that much higher.Clearly, the answer will vary from person to person, depending on such factors as how much money you have to invest, how well versed you are in the ways of the financial markets and how much time and effort you want to put into your finances.It’s also clear that each approach has advantages and drawbacks. With mutual funds, you get convenience, a diversified portfolio and the security of knowing that you have an experienced stock picker working full time on your behalf.On the other hand, you have less control over your investments – not just which ones you choose, but when you recognize gains. That can be an issue when it comes to taxes. If the fund manager sells enough shares at a profit so that the fund has realized capital gains in a given year, you’ll have to pay tax on a share of those gains even if you haven’t sold shares of the fund (assuming you hold the fund in a taxable account).0:00
/4:49Do-it-yourself investingIf you decide to buy stocks on your own, you definitely have more control over what you own and when you sell. But you’ve also got to be willing to devote more time and attention to your investments.So as I see it, the decision to go with stocks or funds comes down to a realistic assessment of how much you want to make your own investing decisions and your ability to handle that responsibility. Here are three questions you might ask yourself to help you with that assessment.Am I willing (and able) to analyze companies’ prospects? You don’t have to be a rocket scientist to identify promising stocks. But you should be able to evaluate a company’s finances. What sort of earnings growth is it likely to achieve? What’s the value of its assets? Is it vulnerable because of a heavy debt load or a weakness in its product lineup?But even that’s not enough. You’ve also got to be able to assess whether it’s selling at an attractive price. If a company has solid earnings and an impeccable balance sheet but is so popular that it’s trading at a bloated share price, buying it may be an invitation to subpar returns.There are many ways you can develop stock-picking skills. CNNMoney’s Money 101section has easy-to-read lessons on everything from assessing stocks to putting together a portfolio. The American Association of Individual Investors also offers lots of information about stock investing [www.aaii.com/basics/] that’s geared toward beginners, as does the Learn [www.weseed.com/learn/learn.html] section of relatively new site called WeSeed.But until you at least familiarize yourself with the basics of stock investing, stick with funds (or at least keep all but a tiny portion of your money in funds).Am I ready to devote the time and effort to monitor my holdings? As we know from recent experience, the investing world can change dramatically. I certainly don’t want to suggest you need to be buying or selling stocks every time the market or the economy reverses course or the fortunes change for a company whose stock you own. But there may be times when you should react.If a company’s potential has dimmed, you may want to sell some or all of your shares and plow the proceeds into a firm that has a rosier future. Conversely, if one of your stocks has racked up such huge gains that it now represents an outsize percentage of your portfolio, you may consider selling some shares to avoid having too much riding on one stock.There may also be times when you can turn the tax system to your advantage, say, by selling shares that are trading for less than you paid for them and then using the loss to trim your tax bill.Keeping an eye on your portfolio and making occasional adjustments isn’t a 24/7 job. But you should be prepared to spend at least a few hours a week tending to your holdings. If you’re not disposed to put in that amount of time – and possibly more during periods of upheaval – then you’re better off in funds, which generally require less attention.Do I have enough money to make it worthwhile to choose stocks on my own? Here, mutual funds offer a clear advantage for most investors. By using a tool such as Morningstar’s Fund Screener, you can easily find funds that allow you in for a minimum initial investment of as little as 500, even less in some cases. Many of the funds on our Money 70 list of recommended funds also require a minimum of 1,000 or less. And once you’re in, you can typically add to your account in increments of 50 to 250.If you want a reasonably diversified portfolio of stocks, on the other hand, you’re talking about a much larger investment. You don’t have to buy in round lots of 100 shares as was the case back in the day. But at the same tie you don’t want brokerage commissions to eat up your returns. So even if you figure on paying a modest 10-per-transaction brokerage fee, you’d probably want to invest a minimum of 1,000 per stock in order to prevent your costs from exceeding 1% of the amount you invest. (Remember, you’ll also have to pay a fee when you sell.) Assuming you’ll need at least 20 stocks to create a balanced portfolio, you’re talking about investing in the neighborhood of 20,000 to 25,000, if not more.You can always invest smaller amounts, either initially or when adding shares. But the less you invest, the higher the percentage of your return that gets eaten up by brokerage fees.One final tip: If you’re relying on personal finance columnists or cable TV pundits for stock picks, then my feeling is that you probably shouldn’t be in stocks at all.The point to buying individual shares is that you think you bring something to the table that adds value and can boost your return – in-depth research, expertise at valuing securities, a sense of discipline that prevents you from buying or selling on emotion.But if all you’re going to do is buy on someone else’s say so – in other words, substitute their judgment for yours – you’ll save yourself a lot of time, energy and money by acknowledging that upfront and sticking to funds.

Source:CNN

(Money Magazine) — In 2004, Tim Jones bought a little piece of the American dream: a modest three-bedroom home in Bend, Ore., that went for 218,000. Three years later he married and was ready for phase two of the dream: trading up. But instead of buying, he and wife Elise pocketed the 100,000 profit from the sale of their house and rented bigger digs. Smart move. Today Jones, 36, estimates their old place would sell for only 230,000. Meanwhile, he and Elise, 37, have been paying 1,250 a month for their rental, the same as their total costs for the smaller house. “I’m not building equity, but nobody around here is,” says Jones. With home prices expected to continue falling in most areas this year and to flatline for several years after that, many people are joining the Joneses in rethinking the merits of home ownership – for now. As a renter, you won’t wind up throwing away money on eroding equity. And there’s plenty of inventory to choose from, as owners who can’t sell seek to rent their condos and single-family homes. You’ll pay less for the same space too. U.S. rents dipped in the fourth quarter of last year, according to the Census Bureau, and real estate research firm Property & Portfolio projects they will fall again in 2009. 0:00
/3:41The new rules of real estateTo be sure, the case for renting is largely short term. Over the long haul the arguments favor ownership: You get to enjoy tax breaks, build equity, and take pride in a place that’s yours. Renters also run the risk of faulty market timing. Few expect real estate to bounce back swiftly, but if it does, prices could jump before you buy again. With that in mind, here’s how to decide whether renting is the right course. Calculate your time frameRenting makes the most sense if your housing situation is already in transition. Maybe you need to move for a new job, in which case renting allows you to test out a new location. Maybe you’ve already decided to sell and trade up. Or maybe you’re retiring and want to trade down or relocate. This year Cheryl Mitchell, 63, retired from her HR manager job and pocketed the gains from the sale of her three-bedroom San Antonio home. She’s now renting a smaller but luxurious condo near her kids in Gainesville, Va., for the same cost. “I’m getting a lot more for my money,” Mitchell says. Price out the tradeoffsDetermining the real costs of owning vs. renting on the kind of property you want to live in is complex. Property taxes and maintenance as well as mortgage payments factor into home-ownership costs, offset by the tax advantages (the calculator at move.com can help). But if you rent for a while, you might have to pay a couple grand to a broker, and when you buy again, you’ll have to pay for another move. To figure out whether renting is a better value than buying, the best metric to look at is your area’s price-to-rent ratio, says Dean Baker of the Center for Economic and Policy Research. To figure it out, divide the price of a home you’d try to buy by the annual rent you’d pay on a comparable home. If the ratio for your market is far above the historical average of 15, says Baker, renting may be a better deal. Assess your marketThe longer the price-to-rent ratio stays in your favor, the more benefit you’ll gain from renting. To get a sense of where your local market is headed, look at trends in home prices and foreclosure rates. Use the Stats & Trends tool on Trulia.com to get average list prices and median sales prices within your zip code. You can find out how the rate of foreclosures is changing by county on RealtyTrac.com. Finally, consider the local economy – if your area’s major employer just announced mass layoffs, home prices will probably fall further. Weigh the intangiblesThe desire for ownership isn’t purely financial. As a renter, you’re at the whim of a landlord for things like painting and home improvements. But the tradeoff may be worth it. “I don’t like our beige carpets,” says Jones, “but it’s the best financial move for now.”