It seems like every week I write another article pertaining to energy for Seeking Alpha. I really would love to write about a different topic as I actually do have many other interests and hobbies. However, my engineering background encourages worst case design and opportunity analysis. So, with respect to economics and the markets, this work continues to lead me straight back to oil and energy. So, here I go again.
Anyone read Fareed Zakaria's article in Newsweek on The Post American World? Zakaria's grasp of the world's current events are so dead-on I wish he were U.S. Secretary of State. The magazine article is adapted from his book of the same title, which is a must read (along with Naomi Klein's The Shock Doctrine). Between the two books, one can easily comprehend the state of our current US government. But I digress...
The statement that is so memorable from Zakaria's magazine article was the last paragraph, and I quote:
Generations from now, when historians write about these times, they might note that by the turn of the 21st century, the United States had succeeded in its great, historical mission - globalizing the world. We don't want them to write that along the way, we forgot to globalize ourselves.
Nothing crystallizes this statement more than US policy as it pertains to the globalization of oil production and consumption. Russia and Brazil have joined the ranks of global oil producers. Demand has come online from China, India, Russia and the Middle East. Meanwhile, the US still consumes roughly 25% of the world's oil production, and is importing about 65% of that. Any rational person would have to say this is an unsustainable concentration of consumption without corresponding production.
As Boone Pickens opined on CNBC SquawkBox yesterday morning, the US is sending $600 billion out of the country every year for oil, it being the biggest component by far of the US trade deficit. And that is at $100/barrel and of course the price is going up every day. As Pickens noted, this fact alone should get the President's and Congress's attention. It's not that they don't know about it, Pickens himself has testified before Congress many times and warned them of the danger. He wondered aloud on SquawkBox why they are not listening, and noted it seems all the care about is getting elected or re-elected. True that. It could have been me talking. But boy, aren't these politicians playing dice with the country they are sworn to govern? I mean don't even politicians have children, family and friends?I feel Pickens' pain. I quit my job a few years back because I saw the trend in oil, invested appropriately, and decided I didn't want to spend what may be the last good years in the US sitting behind a computer screen making my managers wealthy. However, being secure and having some good investments isn't enough for me. I want my country to be STRONG. So, I started a campaign to educate and warn people about peak oil and the US "situation" for lack of a better word. I started with the DOE and members of Congress. I've contacted Barron's, Newsweek, Business Week, and CNBC; I figured rich people would care about their families and country and so I contacted the charitable foundations of Bill Gates, Warren Buffet, the Google guys and Sir John Templeton's Foundation. The result: almost unanimously, with a few exceptions in print (including my beloved Seeking Alpha), I have been either completely ignored, or ridiculed and called a "doomsday idiot" (this from CNBC's Joe Kernen when oil was $60/barrel). Meanwhile, oil is up 4.5x since I began my campaign. I did get a glimmer of hope the other day when Richard Branson said on CNN that the oil crisis presents "a bigger challenge than did WW1 and WW2 put together". If only he was in the US Senate!
CNBC and other "business" media seem to spend a lot of time talking about why oil is so high. It's the speculators, or the US dollar, or hedge funds, whatever. They do everything but acknowledge the obvious: we have a worldwide supply/demand problem and it is going to get a lot worse. Since the US is the biggest consumer and importer of oil, any logical person would conclude that US dependence on foreign oil is our biggest national security threat. Period.
So what is the government's response? An ill-advised ethanol program and little else towards a comprehensive energy policy. (See a good energy policy here.) Meanwhile, our Presidential candidates have an idiotic idea to suspend gasoline taxes this summer. That's about as idiotic as windfall profit taxes on those US companies that are providing the oil we so desperately need. This is just plain ignorant policy and electioneering. Now, Obama deserves credit for not supporting the gas tax holiday. That said, I am still waiting for Obama to acknowledge peak oil and publish a comprehensive US policy to deal with peak oil. Haven't seen it yet, but of the three candidates I am most hopeful about Obama. Perhaps he is just trying to get elected and then he will adopt a comprehensive energy policy. Time will tell.
They also talk alot on CNBC about how high oil prices will go. While I was on my walk yesterday it dawned on me: oil will go as high as a falling US dollar will drop until demand in the US declines and allows a distribution of oil equitable to the strength of the US currency versus other world currencies. Boy, that was a mouthful. Read it again. Now, this should scare the hell out of Americans because, on the global stage, the outlook for the US currency can't be good. Our Fed is cutting interest rates in the face of roaring inflation (?), Bush and his friends have raped the US treasury so our fiscal deficit is the biggest in history and growing fast every day. Meanwhile, we have this small problem of $600 billion leaving the country to make a home in the Middle East or Russia. Jeez. Not a pretty picture and you don't need a degree in economics to see it. In fact, if CNBC's Kudlow and Liesman are any indication, perhaps an economics degree prevents you from seeing this reality. Kudlow still thinks we are in a Bush led "Goldilocks" economy. What a joke.
Yesterday was another day in the markets ever so typical of the last few years. Oil hit a new high over $129/barrel. As I write this, the Dow Jones is down 216 (1.67%), the S&P500 is down 15.45 (1%) yet the oil related XOI is up 12.53 (0.8%) and the oil services OSX is up 0.92 (0.3%). Gold is up over $14 and silver is up 4%. The US dollar is down 0.84%. Now, I am not an economist and don't pretend to be, but I have to say if I was Secretary of the Treasury, or the President, or the chairman of the Federal Reserve, and I saw market numbers like these almost day after day for years on end (as we have seen), I would like to think I'd get off my ass and do something constructive for the welfare of the country. It disgusts me (and borders on criminality) that our "leaders" seem so pathetically incapable of, as Zakaria says, dealing with the globalization that US policy has been so proactive in achieving. It's like going to play a game of tennis and leaving your racket at home. All you have left to play with is your balls. That must be what is taking up so much of our US policy maker's time.
In the meantime, what can we do but try to make money? The broad US market will be hosed for years to come as oil will dominant every aspect of American life until we adopt a sane and comprehensive energy policy. So, I continue to pound the table for ConocoPhillips (NYSE:COP), Exxon Mobil (NYSE:XOM), Chevron (NYSE:CVX), StatOil (NYSE:STO), precious metals ETS' Gold (NYSEARCA:GLD) & Silver (NYSEARCA:SLV); oil service firms Nabors (NYSE:NBR), Schlumberger (NYSE:SLB); a good diversified play is Fidelity Select Energy Services (MUTF:FSESX). Fidelity Select Natural Gas (MUTF:FSNGX) is also excellent. If you have a 401k, get some Permian Basin Trust (NYSE:PBT) and some Hugoton Royalty Trust (NYSE:HGT) which are good yielders and will also appreciate with the prices of oil and natural gas. Just buy all these and hold em through thick and thin.
I used to get great pleasure in beating "the market". Now it just makes me sad to profit on a situation that could have such dire consequences to the standard of living in my country. The problem I know is this: historically, it doesn't matter how much of a country's currency you possess if the country itself goes down the tubes. This is the reason I can't understand why people like Bill Gates, Warren Buffet, and the Google Guys don't use more of their fortunes to publicize peak oil and demand government action to prepare and protect America from the realities of globalization and peak oil. I guess they can have a plane fueled and standing by to zip them off somewhere (where?). Man, if I had that kind of money you'd be seeing full page ads in US Today, the WSJ, the NY Times, as well as minute long commercials on CNBC and the next time a popular TV reality show or Hannah Montana came on the air. The "Fitzman" would be very well known indeed. We simply have got to educate the US public and government about this issue. It's like everyone believes global warming is our only issue with oil when the urgency of peak oil is staring us right in the face every single day and presents a much greater near-term threat to our way of life.
The US can adopt a comprehensive energy policy (see link above) and it could enter a new age of peace and prosperity anchored by strong businesses providing non-oil energy alternatives. We could be proactive in dealing with peak oil instead of letting our circumstances be dictated by ignorant politicians. What will it take to wake Washington DC up? If anyone has any ideas, please let me know as I am running out of them. Just like Boone Pickens, America's lack of a comprehensive energy policy just baffles my mind. Here's mine again.