W. G. Peters

Hedging is the act of investing in a financial instrument for the purpose of minimizing risk in a different investment. Many producers and consumers of commodities use the Futures Market for this purpose.

Lets assume that farmer Joe who grows wheat wants to sell 10,000 bushels for December delivery, and that it is now July.

Joe checks the futures market today, and finds that Dec wheat is now at $3.50 per bushel, and Joe thinks this is a fair price.

Joe takes out a futures contract to sell 10,000 bushels on Dec 15th.

The summer passes, and Joe harvests his wheat. By December 14, wheat is selling for only $3.00 per bushel, .50 below what Joe wanted.

Joe then buys a futures contract for Dec wheat at the going price of $3.00 which cancels his contract to sell with a net profit of $0.50 per bushel, and then sells his physical wheat for $3.00 a bushel to the local grain elevator.

So Joe got $3.00 a bushel for his grain, plus he got $0.50 a bushel for his futures trading profits for a net price of $3.50 per bushel of wheat.

The Futures trades locked in the price of his physical wheat although no actual commodity was traded in the Futures market. The person who held the Futures contract which canceled out Joe’s Futures probably lost money on the deal. So speculators perform a service for Joe by assuming his risk as a grower.

Now, take the same scenario but lets assume the price of wheat went up to $4.00. On Dec 14th Joe must close his Futures position by buying an offsetting contract at $4.00 per bushel. He loses $0.50 per bushel on his Futures trade, but he got $4.00 for his physical wheat which netted him $3.50 per bushel.

Let’s look at a wheat consumer, Sal’s Bakery, who depends on a supply of wheat to make flour for his bakery.

Sal knows he will need to buy wheat in December to make flour for his bakery. Sal sees that the Futures price of wheat for December delivery is $3.50, and is willing to pay $3.50 a bushel for wheat in Dec, so Sal buys a future contract to purchase 10,000 bushels on Dec 15th.

On Dec 14th, physical wheat is selling for $4.00 per bushel, so Sal sells a Futures contract to cancel his position in the Futures market for $4.00 a bushel, and buys physical wheat at $4.00 a bushel.

Sal bought Futures wheat at $3.50, and sold Futures wheat at $4.00 for a net gain of $0.50 per bushel. Sal bought physical wheat for $4.00 but with his gain of $0.50 per bushel in the Futures trade, the real cost of his wheat was $3.50 per bushel. By trading Futures as a hedge, Sal locked in the price of his wheat at a price he thought was reasonable.

The big advantage of hedging is that it locks in a future price for suppliers and consumers of a commodity so that they can plan their business effectively. Of course they don’t have to hedge, and may wait for the opportune time to purchase their contracts.

Notice that this does not affect the spot price of the commodity, but may affect the price of the goods made from them (bread in Sal’s case). It may make bread cheaper or more expense with regard to the underlying commodity depending on Sal’s skill with trading Futures.

Futures prices are often higher than current spot prices because of inflation and storage costs. Suppliers know that the government will inflate the currency and they factor this in when contracting to sell a commodity at a future date. Likewise, if a supplier is storing a product, perhaps a seasonal commodity, for future delivery, they must also factor in the cost of storing their commodity.

This then is a brief explanation of how the Futures Market is used by both suppliers and consumers to hedge against unexpected fluctuations in the price of a product.

Amidst all this handwringing over the current financial crisis, we are all asking who is to blame and how did this happen.

The answer is very simple.  Congress has not done its job.  The Constitution is quite clear that the Congress, and not the President, is tasked with managing the economy.  Article I, Section 7 specifically tasks the House of Representatives as the body responsible for raising all revenue.  Section 8  assigns the power  to borrow money to the Congress as well as the job of  of “… coin money, regulate the value thereof, and of foreign coin…”  So there is no doubt that our founding fathers said that Congress is the body in charge of economic matters.

However, Congress has failed miserably over the last century, since 1913 at least, when fiat banking came into existence through the Federal Reserve Act.  There is hardly a member of Congress that has even the slightest inkling of how the economy works, let alone banking.  Instead, Congress has abnegated its responsibility to the Federal Reserve, an organization that is a private bank, owned by foreigners, and can pretty much do whatever it wants.  The Fed was created to prevent banking panics among other things, but it looks like that didn’t work very well.

The Federal Reserve can print money anytime it feels like it, and that devalues all of the money already in circulation.  That means that your paycheck is worth less, and your savings account is less valuable than it was.  It means that your Social Security won’t buy what it did last year.  This is a hidden tax on every person in the United States, and it was never debated, or even mentioned in the Congress.

I think it is time for Congress to do its own job, and not turn it over to a quasi-private bank which has little accountability for its actions.  There is more to managing our economy than just spending money, the one thing Congress does know how to do.  If Congress is not able to do its job, perhaps it is time to clean house and elect officials who can.

It seems few people have any economic sense these days, so I thought I would tell you a few rules I have learned in my lifetime. They probably are things you never thought about.

1) The total amount of money in circulation is the exact amount needed to buy all the goods and services available. This is important to know because the Federal Reserve Bank (Fed) has the ability to increase the amount of money in circulation. If they increase the money supply by 10%, expect prices to go up by 10%.

2) Businesses do not pay any taxes. They merely collect taxes for the government. Any tax a business pays is a business expense, and must be passed along to the consumer or the business will go under. The consumer pays all the taxes in an economy. The effect of this is to hide a large portion of the tax burden the consumer pays. Now, knowing this, what would be the effect of the Federal Government increasing the taxes on the oil companies?

3) Ok, most everyone knows this one, its call the law of supply and demand. When the demand for something goes up, without an increase in supply, the price of that item will increase. Conversely, if the supply goes up with the same demand, the price will drop.

4) Fiat currency (the American Dollar) is actually an IOU. When you pay for something at Wally World, the debt is not yet paid. It is not paid until the other party trades the fiat currency for something real, like a screwdriver or pound of pork. This means that our huge trade deficit is a debt we must pay at sometime with our real wealth, like our factories, our real estate, or our gold reserves. Can you speak Mandarin?

I believe if people understood these 4 rules, our politicians would have to be more honest with our budgets. Maybe thats the reason we are not taught these simple ideas in school.

No, they should not.  Now I am not saying no one should learn a foreign language, but to say everyone should learn Spanish is just plain insulting and foolish.

America is significantly different than Europe.  Here, Maryland speaks the same language as Delaware, as Virginia, as Pennsylvania, as the rest of the states.  In Europe, people speak different languages, and people travel between them more like we travel among states.  So there is no real advantage in daily life for most Americans to speak any foreign language let alone Spanish unless you happen to live in a predominately Spanish neighborhood.  If you do, learn Spanish by all means.

I studied Spanish for four years in high school and college, as well as French.  In the 40 years I have been out of school, never once have I said “Wow, I’m really glad I learned to speak Spanish”.   For me, it was a total waste of time and energy.

If you want an edge in the high tech sector though, a foreign language can be very beneficial.  Having been in that situation most of my life, I know that speaking either  Mandarin, Hindi, or both would have been very helpful, and would have been an advantage for me in the technology fields since those are the languages most spoken by the foreigners who come here to work in the high tech industries.

English is spoken over most of the world.  Why is that?  It is because America has been  a world leader for the last century and it always an advantage to speak the language of those who hold power.  In the coming decades that might well be China.

So, if you don’t speak a foreign language, do not put yourself down about it.  If you are considering learning a new language, look into one which can help your career.

I am hoping someone who knows about the relationship between the Lymes vaccine, tissue type DR4, and arthritis will read this and contact me.

I took the three Lymerix shots in 1999 after living in a tick infested region.  My neighbors children all contracted Lymes, and several neighborhood dogs also were stricken.  I myself was bitten at least four times by deer ticks that I know of, and probably several more that I don’t.  For this reason, I took the vaccine.

About a year later, I started having pain in my hands, knees, and hips.  I was tested for rheumatoid arthritis, and was found negative.  I was also tested for Lymes disease itself, and that test was also negative.  

As time progressed, so did the pain in my joints; slowly at first, but increasing as time went by.  3 years after the shots, I had to give up riding my motorcycle because the pain in my fingers made it way less than pleasurable.  I had to sell my two story home because I could not go up and down the steps.  I had to give up my profession because it required climbing, lifting, and strength in my hands.

My cardiologist told me about several articles which implicated the Lymes vaccine with arthritis in patients who had the tissue type HLA-DR4.  So, I had myself tested, and like %30 of the population, I had this tissue type.  Unfortuneatly, no one seems to know what to do about it.

I am now to the point where I cannot open a soda bottle, put my socks on myself, take care of my property, and a thousand other things most of us take for granted and do without thinking how much it is going to hurt.

The only thing which gives me any relief at all seems to be gold nanoparticles, (colloidal gold).  I have tried everything I know of, including glucosamine/chondroitin, CMO, raisins soaked in gin, OTC pain relievers, hot wax treatments, physical therapy, and DMSO.  None of these helped, and the destruction of my joints goes unchecked.

If you know of any way to reverse the effects of Lymerix, please contact me using the Send A Comment link on this webpage.

Thanks…

eBay recently announced a policy change concerning feedback. They have mandated that buyers can only receive positive feedback, while sellers can still receive negative, neutral and positive feedback.

As both an eBay buyer, and a seller, this certainly does not make any kind of sense to me. Feedback is a central part of doing business on eBay. It is a person’s reputation. This outrageous change has opened the door to buyer scamming with such mechanisms as threatening a seller with negative feedback if they don’t acquiesce to buyers demands, like free shipping, or a discounted price.

As a seller, I think I will follow a new policy of not leaving any feedback at all. Since the new eBay rules make feedback meaningless anyway, there is no point. Further, as a seller, I will bar all bidders with less than a 98% positive seller feedback. Although doing so will limit my buyers, it is also the only way to have any meaningful use out of the eBay policy.

One of my friends who also sells on eBay recently left a positive feedback for a problematic buyer that said: “Positively the worst buyer on eBay — Don’t sell to this person”. I guess that’s one way to handle it.

It is my hope that eBay reconsider this policy and recognize the error of their ways. I have always had issues with eBay feedback in the past because feedback carries the same weight whether a transaction was for a $1.00 item, or for a $1000 item. Because of this lack of weighting, people could essentially buy their eBay reputation by purchasing trinkets for a few pennies. Again, such policies make feedback inaccurate at best. I would rather do business with a person who has 98% positive feedback on large ticket items than with a person who has 100% feedback on low cost items.

Wake up eBay!

This morning, I got up, and decided to work on one of my website. Argh!, it was gone!. I checked this site, gone too. I tried to load HostRocket, my hosting company, and they were gone. Whats up?

Panic set in. It was like having one’s car stolen or worse. I looked up HostRocket in the domain name registrar, and found their phone number. When I called it, I got a “number not in service” message. Now I really panicked. Could it be possible that my web site host completely disappeared overnight?

Remembering that ViaTalk, an HR subsidiary hosts my VOIP phone line, I tried the line looking for dial tone….NONE. ViaTalk was gone too.

I have had my sites hosted by HR since 2001, and never had anything like this ever happened. None of my sites were even in the domain name servers.

Luckily, I do keep backups of my sites locally, so everything was not lost, but some of my backups were out of date. I was about to lose 8 hours of work from yesterday.

Such a feeling of helplessness I had.

The good news is that everything came back about an hour later, except my VOIP line. That took a little longer.

All in all, I have to say that although this outage gave me a scare, HostRocket has been extremely reliable for me over the 8 years I have been their customer. Never once have I lost any data on their server, and they have always been very responsive to any technical issues I have had.

I can still recommend them as a first class hosting provider, and plan to keep many of the sites I have built for others running on their platforms.

Install board
Turn on Power
Vista crashes
Recovery fails
Reinstall Vista from DVDs
Recovery fails
Remove Tv card
Reinstall Vista from DVDs… again
Search Web
Remove 2gb ram memory
Reinstall Tv Board
Tv Works
Windows downloads new drivers
Windows crashes
Reinstall Vista
Reinstall fails
Remove Tv Board
Reinstall Vista
Vista works again.
Download New driver from Hauppage
Burn Driver to CD
Driver won’t install, no Tv board
Install TV board
Vista crashes
Remove Tv board
Recovery fails
Reinstall Vista from DVDs
Check Hardware Compatibility List
Tv Card Compatible
Reinstall TV board
TV works
HP downloads new driver
Vista Crashes
Recovery fails
Remove TV board
Try Recovery again
Recovery fails
Reinstall Vista from DVDs
Reinstall fails
Give UP
Smash computer with hammer.
Feel much better now.

After owning a Honda Civic Hybrid for two years, I decided to add another Hybrid to the stable. Here in the north east part of Pennsylvania, a four wheel drive vehicle of some sort is a necessity if a person needs to get around in the winter. Previously I had a standard Ford Escape to drive on those wintry days when the Honda just wasn’t up to the task. So what better choice than the Ford Escape Hybrid?

I ordered mine in mid October 2007 from the local Ford dealer which I had very favorable dealings with in the past (Ray Price Ford in Mt. Pocono PA). At the time, the estimated delivery time from the plant in Kansas was 8 weeks. I thought that was a long time considering the faltering economy and lackluster car sales, but little did I know!.

Eight weeks came and went, and I asked the dealer when I would get the car. He informed me that the delivery time now was out to 6 months! That was a real shock, and the justification given was that there is a battery shortage. I thought about canceling my order at that point, but upon reflection, I figured I could do no better elsewhere unless I was willing to drive hundreds of miles. I left the order stand.

My Hybrid Escape was delivered the second week of April, and I believe it was well worth the wait, especially considering the $3.50+ price of gasoline at the time.

Functionally, the Escape Hybrid looks just like a normal Escape with two minor exceptions. It has an air vent behind the left passenger window to allow for cooling of the Hybrid battery pack, and it has Hybrid badges added. The interior is the same also, except for a few inches less cargo width behind the rear seats, and there is no storage area under the rear floor. The Hybrid battery occupies that space.

Physically, the car is very comfortable for my 270 pound 6 foot 2 inch frame to drive. The ergonomics seem almost perfect except for the placement of the display selection and reset buttons which are under the steering wheel. My Escape has controls for the sound system built into the steering wheel, a feature earlier models lacked, and I find very convenient.

Driving the Hybrid is a familiar yet strangely different experience. The controls are the same as almost any other vehicle, yet they don’t always do the expected. For instance, the brake pedal sometimes causes the engine to stop. It always slows down the car, but it also tells the car’s computer that maybe the engine isn’t needed for a while. Sometimes, the gas pedal doesn’t rev up the engine, it just moves the car forward or back in a Hybrid driver’s favorite mode, all electric. However it does it, it is certainly effective, as my all wheel drive Escape managed an impressive 32 mpg on its first tank of fuel mostly on 8 to 10 mile trips, and an amazing 34.8 mpg driving from Stroudsburg PA to Camp Hill PA. Compare this to 19 mpg in my ‘05 regular Escape. Many Escape Hybrid owners report better fuel mileage than the EPA ratings state, and it looks like mine is going to outperform the EPA also. Its always fun to pass a gas station!

On my first trip into town, the car managed a mile stretch solely on battery power. It may have gone further, but I arrived at my destination, so I don’t know. It is fairly easy to achieve all electric mode at 30 mph or less, as long as the driver does not have a ‘lead foot’. Whether that actually increases the gas mileage or not is still up in the air for me. From the standpoint of pure physics, it should not, as the batteries must eventually be recharged, and the batteries are only 66% efficient at converting electrical input into stored energy. Since the charging current inevitably comes from the gas tank, the increased mileage of in-town driving comes at the expense of highway mileage.

The Escape’s high voltage generator creates a high pitch whine that is just barely audible in the cabin, and sounds like a distant fire siren. This was slightly unnerving at first, but now I don’t notice it.

Unlike my other SUVs that I owned, this one does not allow the driver to pop the transmission into neutral when going down hills. This was a fuel saving maneuver in my previous 4 wheelers, but the Escape Hybrid locks the driver out of neutral. There is an ‘L’ gear that the driver can shift into, but its not really low at all, it just provides braking effect by generating electricity for the battery pack. Actually, the Escape technically does not have a transmission, it has a power splitting planetary drive almost like that used in the Toyota Prius.

Did I mention that the US Government allows a tax credit of $2200 for 2008? Some states also give a rebate for buying certain Hybrid models. In Pennsylvania,, the rebate is $500, and these rebates offset much of the extra cost of the Hybrid models. Its a win-win all around.

All in all, I am very pleased with Ford’s Hybrid SUV. Its just hard to argue with 32 mpg in a big comfortable and useful auto. Order it now, the delivery times probably won’t get shorter any time soon. Oh, you might find one for immediate delivery on eBay if you are willing to drive a couple hundred miles to pick it up.