You see, on my recent trip to Kentucky’s Bourbon Trail, one thing stuck in my mind: TAXES. I was utterly shocked when I heard what the distillery tour guide was saying about a $13.50 per gallon tax on any distilled bourbon. That’s over $700 of taxes per barrel. And that’s before the bourbon even gets to the bottle. For me and you, fellow Whiskey Shooter, there’s another tax when we get to the counter—somewhere around 6%.

So what’s the total bourbon tax?

According to the Kentucky Distillers’ Association, around 53% of the cost of the average-priced bottle goes to local, state, and government taxes.

I guess that’s why the tour guide took the time to tell us about the taxes. That way we wouldn’t be bitter when we paid $30 for a bottle of “corn juice.”

So the tour went on and our group wandered through the rest of the distillery — tasting the freshly distilled 160 proof grain alcohol, feeling the corn mash and playing in the gift shop…

But wait. Isn’t this taxation that same kind that created rebellions?

My tour group, and Americans in general, have been lulled to sleep, as if Uncle Sam slipped us a Mickey. Last I checked, the U.S. isn’t an alcohol supplier. Nor is it a real estate agent. Nor is it a car lot. But it seems like the current administration wants to get its hands on everything.

And the way things are going, who knows what’s next…

The Latest Nickel-and-Dime “Tax”

You gotta give it to ’em: At least Washington came up with an appropriate nickname for its latest cash grenade. It’s called “cash for clunkers,” and last week the House approved the bill — with your money!

It simply amazes me that something this poorly thought up could pass so quickly through the largest legislative body in the U.S. Just think about it: 435 well-paid pairs of eyes took a look at this bill. And a majority OK’d it!

In case you haven’t heard of the latest clunker of a bill, let me give you the rundown…

It’s a $4 billion plan to subsidize sales of new cars with better mpg. Essentially, if you have a car that gets less than 18 miles per gallon and you “upgrade” to a new car that gets at least four more miles per gallon, you’re eligible for at least a $3,500 tax credit.

I love the well-accepted term “tax credit.” Does everyone on the Hill think we’re that easily swayed by bills that contain such positive-sounding phrasing?

Here at the Whiskey Bar, we aren’t that easily fooled. This “tax credit” is a simple euphemism for free money — money that you and I as U.S. taxpayers are providing. Simply put, it’s taking money from our pockets and giving it to new car buyers in an effort to jump-start new car sales.

I don’t know about you, but paying for my neighbor’s car wasn’t on my agenda today.

But let’s dig a little deeper, since we could be footing the bill…

The bill, as it stands, is less likely to be affecting normal car owners — so this is for our SUV/truck-driving neighbor. Because even if you bought a 1990 Chevy Cavalier or Ford Taurus, you’re still probably getting well above 18 mpg.

So obviously, this bill is almost strictly for those non-Peak Oil-thinking, overzealous SUV or truck buyers. These folks have roughly the same restraint and foresight as those who purchased houses that they couldn’t afford.

This bill is almost comical. But frankly, where does the spending stop on Capitol Hill? Combine this with the latest auto bailouts and it’s really starting to look like our nation has turned into a new and used car lot.

Things are getting scary ’round these parts.

Government Spends, You Save…

Those dollars in your pocket aren’t looking as great as they once did. And as I see it, with an overburdened and overspending government, the dollar could be in for a crude awakening.

That’s because one thing is for sure: Over the next few years, the world is going to spin, the U.S. government is going to spend, and all of this will be running on the same fuel: oil.

As I wrote a few months back, the price of gasoline is going to rise. And that mainly stems from the rising price of crude oil.

As you know, the world’s commodities (most notably oil) are priced in U.S. dollars. As the dollar weakens, and as the Earth still spins and demands more energy, the price of oil is going to rise.

In my opinion, over the next three months to five years, oil is going to rocket — even more so than the price of gold. We got a taste of what can happen when oil spiked last year to $147 per barrel. And from my standpoint, it’s inevitably going to be back to those levels, or higher.

My best advice for protecting your hard-earned dollars over the next five years is simply to invest in all facets of the oil industry: oil service companies, oil holding companies, oil technology companies, and the commodity itself (through ETFs or commodity options).

Sure, the Obama administration wants to improve mpg, but one thing is for sure: We’re still going to be burning oil for decades to come — more and more every year. And although we may hit some rough patches for demand, the overall trend line is going to be UP.

By investing in oil, you’ll protect your wealth and profit at the same time.

After all, we all want to be able to afford our next bottle of bourbon.

Stay ahead of the curve,
Matt Insley

June 17, 2009

Taxing to Better Mileage? was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

Back in the middle of the year oil was sitting around $140 a barrel and gas was $4.50 a gallon. It took me about $50 to fill up the tank of my Corolla — which really got my blood boiling.

I’m still bitter about who actually got my money. Some of it surely went to the Middle East, some of it ended up with IOCs, and a portion of it went to our government through taxes — those are three charities I normally wouldn’t hand a donation to.

So here we are in the third month of 2009 and oil is sitting around $50 a barrel — which is pretty cheap, in my opinion. In fact, some modest estimates put oil at $75 in the next three months.

So with looming price increases, do we have to sit back and live with increasing prices at the pump? I don’t think so…

There’s a simple way that you can control the price you pay for gas over the next five years. Actually, you could be paying the 2009 price in 2014. And heck, you could even lock in today’s price for the next 10 years… that’s like paying 2009 prices through 2019. Had you made this same move 10 years ago (in March 1999), you’d be saving 48% at the pump — so basically, every mile you drive would cost half. That’s not bad at all.

Of course this won’t make any sense if you think gas prices are high today. You’d have to assume that prices are going to rebound and prices at the pump will be much higher in five years. Honestly, I’d say that’s a pretty safe assumption.

So if you’re still onboard with this idea, I’ll get down to the details — but first, let’s look at today’s gas prices…

The Gas Price Debate

As it stands, the current national average is $1.92. Take a look at the 10-year chart:

This chart shows the 10-year bull market in oil and gas prices. It also shows the huge correction in prices since July 2008. But the one thing that this chart clearly portrays is that even with major corrections, the price of gas is on the way up. Waaaaay up.

Frankly, every time I fill up my Toyota Corolla for $19 bucks a tank, I get a little giddy. Compared with 2008’s price run-up, it feels like I’m stealing every gallon I get.

That’s a feeling I want to have for years to come.

So how’s it possible to keep this low price for the next five or 10 years?

Hedging Without the Hedge Fund

Hedging has been around for centuries, but interestingly enough, not many consumers use it — which I think is a mistake.

Hedging is nothing more than a simple tool to offset risk.

The classic example of hedging is when a farmer wants to make sure he gets a good price for his crop. By hedging his crop, he’ll be able to lock in the price he receives. And that makes perfect sense: If I were a farmer and put my life into growing corn, I’d be damned sure to guarantee a fair price for my harvest. Otherwise, I could get burned when the harvest came in — imagine getting half the price you expected.

Another example is when airlines hedge the price of crude oil or jet fuel. Much like a farmer, airlines have a lot of risk. That’s why most major airlines use hedge contracts to control the prices they expect to pay for their fuel. It’s just smart business.

But you don’t have to be a large-scale farm or airline company to get involved.

Hedging is simple, and as long as you have risk (which you do if you intend on driving over the next five-10 years), you can easily protect yourself against the rising price of gasoline.

A Gas Hedge for You…

So what’s the best way to hedge?

In lieu of owning your own gas station and controlling your own prices, here’s what you can do: Buy into the United States Gasoline Fund (UGA: NYSE ).

The fund has been around for a little over a year and offers a pure way to hedge the price you pay at the pump.

Each share you buy could act as your personal hedge and gives you a way to ride the rising cost of gas. As the price of gasoline goes up, this fund will also rise — it’s an effective way to offset the price you pay at the pump! And as long as you hold shares, you’ll be completely protected from any movements in gas prices.

Here’s what the prospectus has to say:

“The investment objective of USG is to have the changes in percentage terms of the units’ net asset value reflect the changes in percentage terms of the price of gasoline, as measured by the changes in the price of the futures contract on unleaded gasoline.”

That’s it. There are no CEOs or earnings announcements. The fund just follows the price of gasoline with the use of futures contracts. So it’s safe to assume that if gas goes higher, this fund will follow.

Take a look a the one-year chart:

As you know, gas prices have taken a beating over the past year — which has made for some cheap fill ups lately. And that’s exactly why UGA has also fallen. But I don’t expect prices to stay low — especially not over the next five or 10 years.

That’s why now may be the perfect time to hedge your gasoline usage and pick up some shares of UGA (currently trading around $24 a share). As the price of gasoline rises, so will the price of your shares.

You’ll benefit in every move gas makes on the upside, so in five years, if the price of gas triples, you’ll have that three times your investment. That’s profit that you can use to offset (hedge) the price you’ll be paying at the pump!

Under-$2 gas for the next five years sounds OK to me.

Stay ahead of the curve.

Regards,
Matt Insley

Surprise! Higher Gas Prices Are Coming was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.