Gasoline Prices: How Much Do You Pay? How Much is Tax?

We know Bob Brinker says higher gasoline prices are not inflationary which disagrees with what Ben Bernanke says and what most of us consumers observe, so we won't debate it here.

(See: Bob Brinker & Ben Bernanke On High Inflation )

I am interested in what others are paying for gasoline around the country and how much of that is sales tax. Here in Taxifornia, the high prices on gasoline are great news for the government. A 20 gallon tank of gas is over $6 in sales tax!

Questions:

• What are you paying for gasoline?
• How much of that is sales tax?
• Do you know the other taxes?

Formula:

• Price before Tax x (1.0 + Tax Rate) = Final Price

so

• Price before Tax = Final Price / (1.0 + Tax Rate)

for an 8% tax rate:

• $1.00 = $1.08 / (1.0 + 0.08%)

Example:

• Los Altos, California on 4/26/08
  87 Regular gasoline $3.979 / gallon
  Sales tax rate 8.25%
  Before tax price $3.979 / (1.0825) = $3.676
  Sales Taxes per gallon $3.979 - $3.676 = $0.303
  Sales Taxes on 20 gallons 20 x $0.303 = $6.06
  .
  (So THAT Is how Arnold will try and balance our $16B deficit!)

Sales Taxes don't include the gasoline taxes!

Please post what you are paying for gasoline in our "Gasoline Prices" forum on facebook's "Investing for the long term" group.

Thanks

7.50% CD at Meriwest CU

Bob Brinker recommends CDs federally insured by the FDIC. Meriwest Credit Union has special insured* certificates for a limited time that will earn 7.50% APY** for 12-Month Term. More details and toll-free phone number here.

This offer is limited to new members only and has a $1,000 minimum and maximum.

Existing Members: May open a 7.50% APY* Term Share Certificate when you refer a new member who opens a 7.50% APY* Term Share Certificate and a Checking Account. One referral maximum.

*Your savings federally insured to at least $100,000 and backed by the full faith and credit of the United States Government by the National Credit Union Administration, a U.S. Government Agency. Certificate accounts with an original term of one year or greater are privately insured by American Share Insurance for up to an additional $100,000.

** Annual Percentage Yield (APY) is valid for the stated term of the certificate. The minimum and maximum balance to open the account and earn the stated APY is $1,000. Limit one (1) term share certificate per new member. Penalty for early withdrawal. Does not qualify for 0.25% Relationship Advantage certificate rate bump. Current members must refer a new member. Certain restrictions apply. Contact the Credit Union for complete details. New membership and new checking account required. Funds must originate from non-Meriwest accounts only. Limited-time offer can be withdrawn or modified at any time without notice. Membership is required with a one-time, non-refundable $5 fee. Copyright © 2008 Meriwest Credit Union. All rights reserved.

I-Bond Rates To Soar on High Inflation Data

Bob Brinker should have fun explaining how this high inflation data is good news for iBonds this weekend. The US Bureau of Labor Statistics released its March 2008 Consumer Price Index data today. PRESS RELEASE.

Currently newly purchased I Bonds pay 4.28% for 6 months after purchase with a base rate of 1.20%. This rate is good through May 2008 when they will calculate a new inflation adjustment for the next six month period which we estimate will be over 6% after the latest inflation adjustment!

March CPI up 0.9%; Yearly Inflation Rate Over 4%

If you own iBonds (Inflation protected bonds) that both Bob Brinker and I have recommended in the past, then the number you care about is the "Consumer Price Index for All Urban Consumers (CPI-U) without seasonal adjustments (SA)":

• CPI-U increased 0.9 percent in March, before seasonal adjustments. The March level of 213.528 (1982-84=100) was 4.0 percent higher than in March 2007.

Runner26 posted the current estimate for Ibonds in our I Bonds or iBonds forum on facebook's "Investing for the long term" this morning.

The March jump in CPI was large. [Kirk's Comment: I-bonds use the Not Seasonally Adjusted (NSA) data, so while the headline CPI number with "seasoinal adjustments" was only 0.3%, the NSA was a whopping 0.9% increase for the month. This number matches what many feel in their pocketbooks too.]
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My estimate for the new rates for existing bonds will be the following when their 6-month reset period arrives.
.
Base----Rate
1.0%----5.86%
1.1%----5.97%
1.2%----6.07%
1.3%----6.17%
1.4%----6.27%
1.6%----6.48%
2.0%----6.89%
3.0%----7.91%
3.3%----8.22%
3.4%----8.32%
3.6%----8.53%
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Current I-Bonds are at a 1.2% base rate, which means if you buy them before the end of this month, you will get 4.28% for 6 months, followed by 6.07% at their next reset in 6 months. You may find this attractive.
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If they leave the base rate at 1.2%, new May issue bonds would carry a 6.07% rate. My guess would, given the low current base rates being paid for TIPS, the base rate for new May issue I-bonds will be LOWER, and it likely better to purchase before the end of this month. Be aware however, that I have been surprised before by the actions of the Treasury.

For CA residents in the 9.3% state tax bracket, the equivalent taxable rates for the two periods are 4.719%/6.692%.

So, high inflation before seasonal adjustments is not bad news for holders of I bonds and TIPS but inflation is bad news for consumers not making six figure plus incomes who spend most of what they make.

Vanguard's TIPS index fund (VIPSX) was up 11.59% in 2007 and is up 4.74% YTD in anticipation of these high inflation readings. With inflation expected to moderate, I don't expect to see this level of performance continue.

Disclaimer: I have a fairly large position in TIPS in both my personal account and some of the newsletter porfolios in "The Retirement Advisor" investment letter. I also recommend TIPS as part of a 3-item alternative to the easy to track "Total Bond Fund" in "Kirk Lindstrom's Investment Newsletter" where I may again recommend iBonds with these attractive rates.
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March Inflation Up on Higher Energy and Food Costs

Bob Brinker will have a hard time telling his audience that inflation is low after today's report. According to the US Government, wholesale prices, as measured by the Producer Price Index (PPI) gained 1.1% in March on higher energy and food prices. Press Release Text

According to the US Labor Department, energy prices rose 2.9% in March, while food prices gained 1.2%.

The core producer price index, which excludes volatile food and energy, rose 0.2%.

Year-over-year, the PPI is up 6.9% with core PPI up 2.7% over the same time period.

The report states:

During the first quarter of 2008, the finished goods index rose at a 10.2-percent seasonally adjusted annual rate (SAAR), after climbing at an 11.5-percent SAAR during the fourth quarter of 2007. Much of this slower rate of increase can be traced to prices for finished energy goods (EC: Gasoline is a finished energy good while crude oil is raw material), which moved up at a 22.5-percent SAAR for the 3 months ended in March after jumping at a 44.1-percent SAAR for the 3 months ended in December.

Last year, Peter Brimelow reported (2nd to last paragraph) that Bob Brinker said the following about inflation in his newsletter:

However, Brinker clearly does not regard inflation as a threat, and congratulates Federal Reserve chide Ben Bernanke for refusing to monetize oil-price increases:

"We have always maintained that rising oil prices act as a tax on consumers, and are therefore counter-inflationary as they have a negative impact on consumer discretionary spending power."

There was no mention of "core inflation" in that Marketimer quote.

Honeybee reported in post #1294 at our Bob Brinker Discussion Forum that Bob said of inflation:

Brinker: "If you’re a Moneytalk listener you know that we have repeatedly said that those that were forecasting runaway inflation, hyper inflation – whatever you want to call it, were completely wrong because they were basing their forecast on a bogus centerpiece……..high oil prices would result in runaway inflation – not true…….”

That is a not true. PERIOD. I can't name one person of consequence that said we would have run-a-way inflation with higher oil prices if the Fed raised rates. But, one could argue that prices rising at a seasonally adjusted rate of 10.2% is close to being the very high inflation we saw in the 1970s and 1980s.

MANY of us said higher oil is inflationary and the Fed was right to raise rates to keep inflation in check. Brinker disagreed at the time. He was wrong so he "misrepresents" what he said in the past.

People also said that if the Fed had kept rates low and let the housing bubble continue to expand, then we would have an inflation problem from higher energy prices. Brinker disagreed and asked on the radio: "What does Allan Greenspan have against people's homes going up in value?" as he argued they should have stopped raising rates at 4% when speculation in houseing was out-of-control.

Brinker: “The inflation hawks, that’s what they said would happen. They said that rising oil prices would cause rising core prices and it did not happen – they were completely wrong.”

Bob is in denial as the last three months worth of data shows core CPI at 2.7% is well above the Fed's 1.0 to 2.0 comfort zone. Bernanke said before Congress just the other day that inflation was too high. A double digit seasonally adjusted rate of inflation for the past six months is far from "low inflation" that Brinker predicted we would see if energy prices went up.

Brinker failed to predict that the demand push for energy is coming from outside the US! The more the Fed cuts rates, the higher energy prices go up due to the falling dollar.

In January 2000 Brinker thought "inflation approaching 3%" was too high and in the presence of over valuation he took 60% of his portfolios out of the market. Maybe if he had seen higher inflation last fall and the impacts on earnings when the markets were in the 1500s and the sentiment indicators were screaming "TAKE PROFITS" he could have taken 20% out so he'd have money to buy now in the mid 1200s to low 1300s.

With producer prices up 6.9% year-over-year they will have to pass these on to consumers or suffer from lower profits. Neither of these are good for the stock market which explains much of why the stock market is down nearly 20% off its high.

The problems in the US economy today are from the housing bubble bursting and the bankers lending money to people who could not pay it back on the agreed upon terms. Outside the US the international econmies are doing much better and the demand for energy and food there is driving the prices higher causing inflation.

I lost most of my respect for Brinker long ago over how he refuses to admit his mistakes. But I have to admit listening to see what lengths he will go to try and spin the facts and figures to avoid admitting he is wrong is very entertaining radio!

March Inflation Up on Higher Energy and Food Costs

Wholesale prices, as measured by the Producer Price Index (PPI) gained 1.1% in March on higher energy and food prices. Press Release Text

According to the US Labor Department, energy prices rose 2.9% in March, while food prices gained 1.2%.

The core producer price index, which excludes volatile food and energy, rose 0.2%.

Year-over-year, the PPI is up 6.9% with core PPI up 2.7% over the same time period.

The report states:

During the first quarter of 2008, the finished goods index rose at a 10.2-percent seasonally adjusted annual rate (SAAR), after climbing at an 11.5-percent SAAR during the fourth quarter of 2007. Much of this slower rate of increase can be traced to prices for finished energy goods (EC: Gasoline is a finished energy good while crude oil is raw material), which moved up at a 22.5-percent SAAR for the 3 months ended in March after jumping at a 44.1-percent SAAR for the 3 months ended in December.

Honeybee reported in post #1294 at our Bob Brinker Discussion Forum that Bob said of inflation:

Brinker: "If you’re a Moneytalk listener you know that we have repeatedly said that those that were forecasting runaway inflation, hyper inflation – whatever you want to call it, were completely wrong because they were basing their forecast on a bogus centerpiece……..high oil prices would result in runaway inflation – not true…….”

That is a not true. PERIOD. I can't name one person of consequence that said we would have run-a-way inflation with higher oil prices. But, one could argue that prices rising at a seasonally adjusted rate of 10.2% is close to being the very high inflation we saw in the 1970s and 1980s.

MANY of us said higher oil is inflationary and was right to raise rates to keep inflation in check. Brinker disagreed at the time. He was wrong so he "misrepresents" what he said in the past.

People also said that if the Fed had kept rates low and let the housing bubble continue to expand, then we would have an inflation problem from higher energy prices. Brinker disagreed and asked on the radio "What does Allan Greenspan have against people's homes going up in value?" as he argued they should have stopped raising rates at 4%.

Brinker: “The inflation hawks, that’s what they said would happen. They said that rising oil prices would cause rising core prices and it did not happen – they were completely wrong.”

Bob is in denial as the last three months worth of data shows core CPI at 2.7% is well above the Fed's 1.0 to 2.0 comfort zone. Bernanke said before Congress just the other day that inflation was too high. A double digit seasonally adjusted rate of inflation for the past six months is far from "low inflation" that Brinker predicted we would see if energy prices went up. Brinker failed to predict that the demand push for energy is coming from outside the US!

In January 2000 Brinker thought "inflation approaching 3%" was too high and in the presence of over valuation he took 60% out his portfolio out of the market. Maybe if he had seen higher inflation last fall and the impacts on earnings when the markets were in the 1500s and the sentiment indicators were screaming "TAKE PROFITS" he could have taken 20% out so he'd have money to buy now in the mid 1200s to low 1300s.

With producer prices up 6.9% year-over-year they will have to pass these on to consumers or suffer from lower profits. Neither of these are good for the stock market which explains much of why the stock market is down nearly 20% off its high.

The problems in the US economy today are from the housing bubble bursting and the bankers lending money to people who could not pay it back on the agreed upon terms. Outside the US the international econmies are doing much better and the demand for energy and food there is driving the prices higher causing inflation.

I lost most of my respect for Brinker long ago over how he refuses to admit his mistakes. But I have to admit listening to see what lengths he will go to try and spin the facts and figures to avoid admitting he is wrong is very entertaining radio!

Put Call Ratio 60 Day Moving Average Record High

One of Bob Brinker's sentiment indicator components is what he calls the "60-day put/call ratio." The CBOE (Chicago Board Options Exchange) Put/Call Ratio (CPC) is the ratio of the trading volume of put options to call options. Bearish investors buy put options that gain in value when the market goes down. Bullish investors buy call options that gain in value when the market goes up. According to Bob Brinker, a high 60 day moving average of the put/call ratio is bullish for us contrarian investors.

The 60 day moving average (60-DMA) of the CBOE Equity Put/Call ratio ($CPC) remains near at a record high of 1.10 as shown on this chart.

Click charts courtesy of stockcharts.com to view full sized images

On January 04, with the 60-DMA of the put/call ratio at a then record of 1.00, we reported here that Bob Brinker said this was bullish.

In his January Marketimer, Bob Brinker reported:

"The 60-day put/call ratio remains in bullish territory as the new year begins."

Brinker remains bullish, does not expect a bear market (as defined as a 20% or more decline in the S&P500) and he looks for new highs to be made in the year ahead.

On an intraday basis, the market declined 20.2% and the put/call ratio is 10% higher at the current record level of 1.10.

Some Historical Perspective:

• In January 2000, when Brinker last lowered his asset allocation to equities , the 60-day put/call ratio was 0.525
• In March 2000, when the S&P500 peaked before the 2000-2002 bear market, the 60-day put/call ratio was all the way down to 0.475.
• In November 2002, shortly after the markets bottomed in October 2002, the 60-day put/call ratio was 0.86
• In March 2003, when Brinker returned to a fully invested position, the 60-day put/call ratio was 0.82

Here is a chart of the put/call ratio back to 1998.

For more information, see Technical Analysis: Sentiment Indicators

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Click to view the attached (but slow to load) PDF file: Take Profits & Sell Sentiment Indictors from The Market Top.

If you want to know what I have been buying in this period of weakness with my profit taking dollars from selling when the market was higher, Subscribe to Kirk's Investment Newsletter TODAY and get the April 2008 issue FOR FREE!

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Bob Brinker's 2008 Operating Earnings Estimates

One of five the components of Bob Brinker's stock market timing model is Valuation. He used to to say the S&P500 can trade at 16 to 17 times forward operating earnings in a "low inflation" environment such as we have had in the past few years compared to the high inflation environment of the 1970s and 1980s.

It has been reported (Summary Bob Brinker Moneytalk) that Brinker said on Saturday April 5, 2008:

"Well as I’ve – you mentioned the investment letter that you subscribe to, and then you well know, I’ve written about this in the letter. And this is the reason that I’ve had (EC: Had is past tense. Remember this!) very, very conservative 2008 earnings estimates for the S&P 500 -- very, very conservative. My number for the S&P 500 for 2008 is way below, way below the Wall Street number for 2008. And the reason is because of the reason you said – because we have a sluggish economy.
We expect the first half to be especially sluggish. And even though I expect some recovery will start in the second half, when you take a look at the year on a whole, hey, we’re looking at a sluggish year. Very low growth in real GDP for the full year is my projection. And consistent with that, and consistent with the inevitable margin compression you get in an economy like this, we have anticipated this in the investment letter by coming forth with a very, very conservative estimate for S&P 500 earnings for calendar year 2008. "

I think if any current subscribers were watching Mr. Brinker live, they might have observed his nose grow a bit longer with that misstatement of the facts.

Every week or two Runner26 reports in our "Bob Brinker FREE Discussion Forum" what Standard and Poors estimates the earings will be for the companies in their index. As of March 31, S&P estimated 2008 operating earings for 2008 would be $96.74, which is LOWER than Bob Brinker's published estimate made in 2007 but higher than Brinker's current estimate!

This is what Bob Brinker said in October Marketimer dated 10/3/07 with the S&P500 at 1526.75:

We expect significant additional stock market progress into next year as investors discount growing corporate earnings in an environment of low inflation and benign interest rates.
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Our Current Marketimer S&P500 Index Operating earnings estimate for 2007 is $93.70. Using our forward price/earnings multiple estimate of 16 to 17 times earnings, the S&P 500 Index should be able to trade into the mid-to upper 1500's range. Investors will begin to look forward to 2008 operating earnings, and based on our estimate of $99.50, we see the potential for theS&P 500 Index to rise at least into the mid-1600's range next year
.
We expect slow economic growth this year, with real GDP growth in a range of 1.5% to 2.5%.
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In the August and September editions of Marketimer, we rated the stock market attractive for purchase on any weakness in the area of the S&P 500 Index mid-1400'srange. .... Although we do not believe further weakness into the mid-1400's range must occur, we remain comfortable with rating the market attractive for purchase should any such additional weakness occur. Above that price range, we prefer a dollar-cost-average approach fornew stock market investing. All Marketimer model portfolios remain fully invested.
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In our view, stock market valuation remains reasonable, with the current P/E ratio on the S&P 500 Index at 15.3 based on our 2008 operating earnings estimate. We expect investors to mark up stock prices into next year as corporate earnings continue to grow against a fundamental backdrop of monetary accommodation, slow to moderate economic growth, low inflation andlow interest rates.

Clearly the market did not make the 1600s. This is what Bob Brinker says now in his April 3, 2008 Marketimer newsletter with the S&P500 at 1322.70:

The current S&P 500 Index price of 1322.70 represents a P/E ratio of 15.2 times our 2008 operating earnings estimate of $87. (EC: He should say "New and greatly reduced earnings estimate") We expect investors to value these operating earnings at a multiple of 16.5 to 17 times as we move further into 2008, bringing the index into the mid-1400's range during the second half.

So, maybe his earings estimates are "very, very conservative" TODAY but that was not the case when the market was at a record high and he was looking for investors to "market up stock prices" into the 1600s into 2008.

In fact, Brinker is far less bullish for the S&P500 TODAY than he was back in late 2007 when the market was over 200 points higher and he was predicting it would be in the mid 1600s.

BTW, if you use 16 times his $87 estimate for 2008, then you get 1,392 which is only a gain of $69 or 5.2% above 1322.70. Perhaps that is why he increased the lower multiple from 16.0 to 16.5.

I don't think Mr. Geppetto would be very pleased with Bob Brinker's answer to the caller Saturday.

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Bob Brinker & Ben Bernanke On High Inflation

Bob Brinker says he is right and inflation is low. On the Blog article Bob Brinker: Inflation and the Fed Honeybee quotes Bob Brinker with the following Sunday March 30th statement:

Bob Brinker said: “Well, if you’ve been listening to Moneytalk for a while, you know full well that I’ve maintained that this business about run-away inflation is total nonsense. This business about pre-occupation with high inflation is total nonsense. We have said over and over on a consistent on-going basis that the problem is not inflation. And as has been the case, we’ve received more good news on inflation this past week. The most important gauge of inflation, according to the Federal Open Market Committee, is an index known as the Chain Price Index for Personal Consumption Expenditures. I usually refer to this on the program as the Personal Consumption Expenditure Price Index. And this index came through this week showing some really outstanding numbers showing that inflation is decreasing. The year-over-year rate of inflation on the Index came in at 3.4, in the latest data. And the year-over-year core index – excluding food and energy – came in at 2%.
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Now you’ll remember that the inflation hawks told us last year that because oil prices were going up, that was going to feed into the overall rate of inflation and cause higher inflation.

and Brinker concludes with:

How did it turn out that so many people, including members of the Federal Reserve, were wrong when they said higher oil prices would create an inflation problem? How is it that here on Moneytalk, we were able to correctly assess the situation by saying over and over again that this is not inflationary. In fact, it’s contractionary..........That’s what it’s all about.

Federal reserve chairman Ben Bernanke testifying before Congress on April 3, 2008 about the Bear Sterns rescue was asked about inflation:

Question from Senator Johnson: "Are you concerned about inflation?"

Answer by Chairman Bernanke: "Of course, we are concerned about inflation. Inflation has been too high. Over the last year, it has been about three and a half percent instead of a little over two percent in the previous year. The primary reason for the high inflation is rapidly increases in prices of globally traded commodities including crude oil and food, among others. It is our expectation, which is consistent with prices seen in futures markets, and that these prices will moderate in the coming year…. Therefore, overall inflation will tend to slow. However, we are aware of the uncertainties with that. "

Back in January 2000 Brinker didn’t think 3% inflation was low and he thought a falling dollar and higher prices for imports were a problem. In fact, he wrote in his January 8, 2000 Marketimer:

"Here is our current analysis of the five root causes of a bear market:
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#3) High Inflation: The annual rate of gain in the consumer price index is approaching 3%. Higher import prices, up 5.5% during the past year, show the powerful impact of the weaker dollar on inflation. Also, the Columbia University Leading Inflation Index has deteriorated over a period of several months and shows an annual rate of change close to 5%. These are the factors that have damaged the bond market, and these same factors pose added risk to future stock market returns in a very highly priced valuation environment.”

Perhaps if Brinker had remembered how he thought about inflation “approaching 3%” due to higher import prices from a weak dollar he might have taken some profits last year when the markets were at all time highs in the "high 1500s" before they corrected as much as 20.2% to the "mid 1200s!"

Click the graph to see it full sized.

Since the highs, the S&P500 has corrected as much as 20.2% on an intraday trading basis.

Brinker "got it right" back in 2000 when he correctly said higher import prices were a problem for inflation. The Fed killed economic growth back them by raising rates too high to reverse the high inflation. That gave us a recession. That was probably worth 20% of the S&P500's 50% decline. The other 30% of the decline was easily due to over valuation which Brinker also was correct on back then.

After the recession where the Fed lowered the Fed Funds rate to 1.0% to prevent deflation, they created a housing bubble by keeping the Fed Funds rate too low for too long. Of course, this is easy to see now with 20:20 hindsight.

This time, Brinker was wrong about the Fed and inflation. Thus, he missed the opportunity to take profits before the 20% decline like he did in January 2000. Fortunately, he has valuation in his favor and I doubt we will go below the 20.2% correction we've already had.

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Click to view the attached (but slow to load) PDF file: Take Profits & Sell Sentiment Indictors from The Market Top and read the more current report Weekly Put/Call Ratio at Record Highs

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