CT Programmer

Oil: The Inconvenient Truth

Fitz, regarding California... having grown up there, and moved, I vote "should". CT is a much nicer place to live (oops, I just opened a can of worms there, huh?) ;-)

Oil: The Inconvenient Truth

Wow. I wait one day and I'm all the way, way, way down at the bottom of the comments. Nothing like a Fitz blog to stir the pot. It's sad to see all of your articles just get turned into a round and round session of does man-made global warming exist or not --- like the comments on some blog are going to definitively make it true or not. Or all the Democrat-bashing, like Pelosi is single-handedly responsible for oil hitting $147. Like bashing all the Dems suddenly puts a halo on the Republicans when it comes to energy policy (LOL). It's ironic that it will be the states that wean us off oil through their gradual increases in the percentage of "alternative" energy for utilities --- not the Feds. And its economics that's shelving plans for coal utility plants in lieu of NG plants (they're cheaper to build and easier to finance). I am troubled by this wecansolveit movement. I went to their web site the other day, and they don't even mention NG. Like we can go 100% carbon-free in 10 years. I think that's a nice goal, but very unrealistic. Invest in the oil and gas producers because they are incredible bargains right now. Invest in wind because it will grow significantly. Invest in a cheap solar stock (if you can find one --- there are a few that don't cost and arm and a leg, like Trina or LDK). Jury's still out on nukes. Excelon just asked the Feds to build 2 plants and they won't know if they get approval until 2012! And if they get the green light, it will be 4 years to build (make that 6-8 with schedule and cost overruns). It would be nice if the US would actually adopt a comprehensive energy policy. That would help get this thing rolling quicker. But the ball is rolling.

Houston to Obama: Smell the Oil

If the two-party system is broken, that must mean the single party system in China and the former USSR worked wonders, plus the "everyone gets their own party" system in Europe works miracles as well. As an old History professor of mine said, the two-party system is actually the most efficient and is one of the reasons why America has gotten so much done in its short 200 year history. And if you look at the differences between Dems and Reps in the US, they pale compared to Europe, Africa or the Middle East. You range all the way from Fascists to Communists and everything in between there. My cousin loves to go on about how everything is always deadlocked in Italy. I'll take the two party system any day.

Now what doesn't help is having someone in charge that is only looking out for his half, and that can apply to both sides of the aisle. George W put his unchecked political cronies in place and we've seen the fallout ever since, from Rumsfeld to Cheney, to "Good Job" Brownie to that HR chick that was just testifying before Congress about asking all the stupid conservative questions during DOJ interviews. Remember that Bush ran as a "uniter, not a divider". Yet he has continued a trend of virulently dividing this country and its politics. And all these fringe groups --- right and left --- and all the hard-core obviously-biased political pundits don't help get things done. They just fuel the flames. And its all the people in the middle that get screwed. I can't stand Sean Hannity, but who the hell is that Combs guy? He doesn't represent me as a Democrat. And what grave did they dig him up from? He's a stereotypical "liberal" to cater to their largely reactionary audience. My guess is most typical Republicans don't like half of what Hannity says. And I requested removal from MoveOn.org. I used to support them, but they have moved so far to the left that it turns my stomach to be affiliated with them. Whether you agree with the war or not, calling a General a traitor because he's doing his job is pathetic.

If you go through all the comments from all the people on this blog, what you consistently see is a bunch of people --- Dems, Reps and otherwise --- screaming that our politicians aren't listening, and that this country is on a crash course to disaster as far as energy is concerned. I hope Obama and McCain are reading this, but they're likely not. Maybe some staffer is and will relay the message: STOP THE CRAP AND GIVE US A REAL, WORKING ENERGY POLICY THAT WILL INCORPORATE ALL REALISTIC OPTIONS AVAILABLE AND MOVE THIS COUNTRY TOWARD ENERGY INDEPENDENCE!

PS: Sorry for the obsessive posts today. I usually have a self-imposed limit of no more than 2 posts on any given article, but it's been a good conversation with y'all.

Houston to Obama: Smell the Oil

Mmarrkk: "With expenditure cuts" is a big asterisk on your statement. The problem is there weren't any. In fact, George W. has outspent any Democratic president that I can remember. Ron Paul said that Reps have become the tax and spend party, not the Dems. But I also don't have rose-colored glasses on for any Democratic candidate. I am not crazy about many of the economic policies of Dems. And AlexS is 100% correct when he says that special interests have their hands out, but that's not just Dems. That's both Dems and Reps. Old people get a lot of pandering to because --- guess what --- they vote. And they vote by the busload.

But speaking strictly economics, the war in Iraq is costing us more than any tax hike could. We have bled billions of dollars there for 5 years. Do I think Obama will pull us out? Yes! I honestly do. The Democratic party is sick and tired of this war and have had enough. We are pissed off at the current Dem Congress for not pushing the issue (Pelosi and Reid). The Dem base wants us out, and the leadership has shied away from it because they haven't had enough to block a filibuster in the Senate. Many say they should have still tried. McCain has promised to stay the course in Iraq. I equate McCain with a third term for Bush. Pure and simple. This economic issue far overshadows any other domestic economy or social issue in my mind. Even being a life-long Democrat, if McCain was the one saying we'd pull out and Obama the one saying we'd stay, I'd be voting for McCain. I'd vote for Ron Paul in a heartbeat if he were the Republican nominee, because he's so vocal about the stupidity of this war and maintaining it that I'm 100% sure he'd pull out and quick.

Houston to Obama: Smell the Oil

Mmarrkk: There's a lot of aspects of modern society that you won't find in the Constitution. The Constitution is not designed to regulate every aspect of everyone's life, including taxation. It's not law. It's the BASIS of our law-making system. The Constitution set up the three branches of government, which then get to decide all the aspects of modern life for you and the rules that everyone plays by, and leave recourse to correct it (i.e.; vote) when the people don't agree. I hear you on taxes. I am in that "one percent" that George Bush gave the tax breaks to and Al Gore, John Kerry and the Dems were railing against giving a tax break to. About a third of my family's income is in the highest tax bracket. So, when you rail about taxes and spending, I have twice as much right as you to rail. Even though I won't be voting for McCain, he was right in saying that he didn't support the tax cuts originally without corresponding spending cuts. But McCain is willing to spend us into bankruptcy because the surge is working. Yes, government spends too much. There is a ton of pork, but even that is a phrase that is bandied about too much with a negative connotation. Something that benefits one state is called "pork" in the 49 other states. But the last time I checked, my taxes were paying for not only the military, but highways, bridges, ports, police, fire, etc., etc.. It's called civilization, and if I wanted rock-bottom taxes I'd go live in a shack with a tin roof in Venezuela and Hugo Chavez can take care of me. It's easy to go on about "them politicians spending all my money", and again, I have more right than anyone to complain (did you know that the top 10% of income earners in this country pay 40% of the actual taxes?). But taxes are necessary, and even though it hurts my bottom line, George W.'s tax cuts were misguided and will bankrupt us (even without bleeding cash in Iraq). We pay far less taxes than countries in Europe, so I wouldn't characterize us as "closer to socialism than you think" as you stipulate. I agree the stimulus check (which even though George W. came up with the Dem congress approved) was a waste. And guess how much of that $1500 my family got? You guessed it. Zip. Was it $1500 or $1200. I can't remember --- BECAUSE I DIDN'T GET ANY OF IT!

Houston to Obama: Smell the Oil

I am a life-long Democrat, and proud of it for many reasons. Democrats are not against capitalism, and nor are Republicans the poster-children for it. We are not a true capitalist society. We were close to it at the turn of the century when factory owners could employ children in dangerous working environments... that's true capitalism. We're not there. Nor are we socialists where everything is distributed evenly and the government controls the economy. We're somewhere in between. Despite the radical left and reactionary right, most Dems and Reps are somewhere in the middle, and so is our Republic. We just want to go to work, have a chance for a good life, and raise our kids the best we can.

As a Democrat, I do have problems with Obama's windfall tax idea. The problem is that big oil is labeled as some huge, inhuman machine that somehow is against society in general. It's not. It's you, me, and half of America via their IRA's and pensions. When big oil makes a ton of money, everyone that had the sense to put XOM, COP or the like in their portfolio makes money. And there are years when they aren't making huge profits. By my calculations, Obama's $1000 "energy credit" would cost upwards of $100 billion. That's 1/4 of all of XOM's revenue and more than half of their gross profit. All it amounts to is a tax on the investors in these companies.

One of the roles of government is to re-distribute wealth. If you don't believe that, then look at the progressive tax codes. The more you make, the higher % you pay. That's not a Democratic idea. That has evolved from all of the prior Democratic and Republican politicians since the 40's. The problem is that this $1000 energy credit is just pandering to the masses. We're taking money from the "rich guys" and giving it to the "working Joe's". That's all fine and dandy to some extent, but this won't help the economy nor will it help us long-term in weaning ourselves from foreign oil. As a Democrat, I agree with Norman Lepoff that taxing success is ludicrous. I personally believe the income tax should be scrapped in favor of consumption taxes. We need to increase the incentive to work hard and save. However, I wouldn't hold my breath for anything like that in the near future from either party. Ross Perot and Steve Forbes proposed just such a thing and they were marginal candidates only --- and we all know that even if elected they'd be stone-walled by BOTH parties in Congress.

Without overhauling the entire system, which I think most people realistically don't expect to happen, the logical choice is to increase taxes somewhere to subsidize industry that will wean us off foreign oil. We don't have enough domestic oil to do it, so that means replacing oil with something else: natural gas, solar, nuclear, wind, bio-fuel, clean coal (if ever economically feasible), all of the above and then some. It won't be one thing. But if you're going to put a windfall tax on big oil, don't just squander it with a rebate that won't do anything for the economy long-term (just like W's stimulus plan). It's not worth it to raise GDP by one-tenth of a percentage point. We've got a huge federal deficit, huge debt load, and a war that's costing us more than the federal budget. And an economy that's addicted to oil worse than a junkie to heroin.

Crude Sell-off: Solid Entry Point into U.S. Oil Majors

I hope I didn't sound like I was saying it was time to bail on ag and oil. Quite the opposite. The time to bail was a month ago, and that just to buy back in now at the lower price if you had the foresight. Ditto on metals. This is all just a temporary sell-off. Ethanol production accounts for less than 2% of the worldwide harvest. Ag, like oil, has gone up due to fundamentals. More mouths to feed, and to do that it takes better better ag tech --- thus fertilizer, seeds, tractors, etc. all are good plays long-term. Fertilizer contracts just keep going up and up. Last year potash went from roughly $500/ton to $1000/ton. Agrium just reported today and their revenues are up 90% yoy. Sure, that's not sustainable. And yes, the upward pressure for ag stock prices will EASE due to money being pulled out and directed elsewhere, but like oil, fundamentals are fundamentals and you can expect it to keep trending upward. If you're not into ag, today is the day to do it. Ditto for oil, NG, solar, wind and metals. They've pulled back from being overvalued, but that doesn't mean they're not solid investments.

I do agree with lewisabroad in that demand will taper off, but I see that as more just leveling off as the developed world uses less and the developing world uses more. Demand will still increase, but not by as much. However, you'll still have falling supply and increasing demand so prices will trend up over the long haul.

Also, even if we did have real "leaders" in Washington, these things take time. We're talking decades, even if a real plan was adopted today. So we're not coming off our oil addiction anytime soon, and China and Asia would lag behind us by a decade as well.

Crude Sell-off: Solid Entry Point into U.S. Oil Majors

Great article, Fitz, as usual. Couple points, however. First, I don't see the dollar strengthening in the medium to long term. Asian countries have runaway inflation currently, and the only way they'll be able to reign that in is to raise rates. They've been doing this, but only tepidly. They'll get to the point where they have to drastically raise them. China will after the Olympics. Europe is starting to slow a bit, but the ECB unlike the Fed has a primary directive to fight inflation, not promote growth, and theirs is on the rise. So I see them raising rates soon, although not as fast as Asia will need to raise them. You won't see the Fed raising rates in the next year as they continue to worry about slow growth and not technically hitting the "R" word. All of this is going to further weigh on the dollar. Like you said, we've seen a slight strengthening of the dollar by a meek 3% --- you can compare that to a bear rally.

Ag is facing the same thing as oil. It has dropped off a cliff lately (I've seen a 200% return reduced to a 125% return on one of my fertilizer stocks --- I know, boo hoo for me). You've had tons of money poured into energy, ag, metals, etc. over the last 6-12 months because everything else was tanking. Now you've got people taking profits and looking for other opportunities to put their money to work. Cramer called the bottom last week, and true or not, you can't argue that in many people's minds we have turned a corner and it is at least flat if not up from here for the market in general. I'm still long on oil, NG, ag, and metals. 2-10% demand destruction in the short term is just that --- short term. Too bad the Fed can't print oil. Man, that would solve everything. ;-)

By the way, there's a sale on solar stocks currently. I picked up LDK recently, but they're just one of many that have come down in price and have low forward PE's and good prospects.