Out of Sync with Reality

If there's anything this recent economic crisis taught me, it's that when things are out-of-sync with or disconnected from reality, it's like being a red-uniformed, bit-character in Star Trek -- things aren't going to turn out well.



Case in point, when mortgagors and credit card companies stopped linking the borrowers' ability to re-pay to its lending standards, we got the financial system meltdown. Yesterday's market rally seems to be another serious disconnect. The S&P jumped 2.6% based on the highest increase in "consumer confidence" in 6 years. What the heck are consumers confident about? Housing hasn't bottomed out, credit card companies are chomping at the bit to screw-over responsible card users and GM is going to file BK. Oh yeah, and let's not forget the S&P may downgrade US debt.

If that weren't bad enough, looks like we're headed back to $3/gallon+ gas. I've been keeping track of my local Costco's prices since late July last year and I'm seeing an ominous trend.

Date	$/Gallon
7/28/08	$4.16
8/12/08	$3.94
8/21/08	$3.82
9/8/08	$3.68
9/16/08	$3.62
9/29/08	$3.48
10/8/08	$3.34
10/15/08	$3.26
10/23/08	$3.03
11/7/08	$2.46
11/22/08	$1.85
11/22/08	$1.85
11/29/08	$1.79
11/30/08	$1.96
12/4/08	$1.69
12/16/08	$1.59
12/20/08	$1.76
12/30/08	$1.68
1/12/09	$1.90
1/26/09	$1.98
2/13/09	$2.20
2/26/09	$2.16
3/10/09	$2.10
3/24/09	$2.08
4/1/09	$2.18
4/18/09	$2.20
4/29/09	$2.28
5/6/09	$2.30
5/13/09	$2.40
5/20/09	$2.49

Most experts do not believe the recent oil price increase is demand driven. But paper demands have increased inexplicably. This leads me to believe there's some sort of market manipulation by oil companies, refiners, hedge funds and/or other institutional investors.

Even assuming a real economic recovery is underway, I think that surging gas prices will squelch this fragile rebound. I don't know about you, but $3/gallon gas will cause me hardship. I know if it's going to cause me heartburn, it's gonna hurt others as well.

In November, I decided to start donating to charity regularly because my gas expenses went down significantly. Unfortunately, when gas hits $3/gallon, I will have to suspend my charitable giving.

Do you think gas will hit $3/gallon? What are you doing to prepare?

Update: According to this LA Times article, "Retail gasoline prices jumped by more than a dime over the last week in California and nationwide as oil rose to a new high for the year. But analysts had some reassuring words: Gas prices should be nearing their peak for the year, and a repeat of 2008's record run-up isn't anticipated." Uh-huh. We'll see.