Saul Sterman

Houston to Obama: Smell the Oil

forwoodenboats,
Short reply re:source now, the rest later.
Source:
1) en.wikipedia.org/wiki/...
2) www.answers.com/topic/...
3) financial-dictionary.t...
4) www.britannica.com/EBc...

"a tax levied on profits in excess of a stipulated standard of “normal” income. There are two principles governing the determination of excess profits. One, known as the war-profits principle, is designed to recapture wartime increases in income over normal peacetime profits of the taxpayer. The other, identified as the high-profits principle, is based on income in excess of some statutory rate of return on invested capital."

Houston to Obama: Smell the Oil

As allured to in this article, by defining incorrectly (or leaving it in vague terms), the term "windfall profit taxes" are being misused by politicians in order to create their own war chest or perhaps worse.
See: online.wsj.com/article...

The American public needs to be educated about this and understand the difference between 'excise tax', 'excess profit tax', ('windfall tax' - non U.S. term - which is the Government giving back!) and 'windfall profit tax'. The term 'windfall profit tax' has been misused many times.
The Carter (1980) "windfall profit tax" as it was called was NOT a windfall profit tax at all! It was an excise tax. Today people are confusing this with 'excess profit tax'. In other words, Senator Obama is using the term incorrectly when talking about a 'windfall profits tax' when he really means to say an 'excess profits tax'. The latter is reserved for wartime etc.

Houston to Obama: Smell the Oil

forwoodenboats,

Thank you for clarifying your first comment with the last. There seems to be a disconnect between the meaning of capitalism and state run communism.

Monopolies are the mantra of communism. Free competition is the norm for capitalism. A windfall profits tax is not a dirty word in capitalism IF and WHEN used correctly and for the purpose that capitalism intended it for.

Whenever competition is stifled, this occurring for any number of reasons, inevitably the first symptom is obscene profit margins. Not all abnormal net margins dictate an underlying monopolistic structure, as most are not. However, it needs to be scrutinized.

There are several ways to 'break up' a monopoly so that we DON'T become a communist style economy. One of them is applying a windfall profits tax to the monopoly and assisting the future competition either directly with the proceeds or through indirect methods.

Throughout the entire article, including the quote in your second comment, the analysis is linked to COMPETITION, as in - no monopoly.

You would be correct had you said that this is NOT what you have been hearing from Senator Obama. My opening paragraph spells this out. The fact that I am being polite and not calling Senator Obama all sorts of names does not detract from the essence of the article where I clearly explain what a 'kosher' application of the windfall tax would be TO PROTECT CAPITALISM.

Also, note that I have intentionally not gone into the argument whether or not windfall tax methods actually work as compared to a break-up when necessary.

The bottom line is that just like XOM, CVX and COP are not even close to being monopolies, RIG when looked at on a global basis is far from one as well. There is no reason to intervene regardless of method as they do NOT pose a threat to CAPITALISM.

As an aside, there is no concept of 'windfall taxes' in a communist or totalitarian regime. The monopoly is owned by the state or party. Think about it.

Saul

Houston to Obama: Smell the Oil

forwodenboats,

Can someone please take the time and explain to forwodenboats my article. Apparently my writing skills are inadequate.

1) No one is picking 'a company'. The Dem/Republican argument was stated fair and balanced, Dem's being: monopoly intervention etc.
2) High net margins are a symptom calling for further diagnosis.
3) Article concludes that though it may smell like a monopoly, RIG is not a true monopoly, more in line with the drug industry...new technology etc.
4) RIG needs to establish itself before we "wake up to a new crude reality" as in 'supply side' state owned competitors that will change RIG's landscape (or is that oceanscape!).

Perhaps if someone could summarize the article in a few sentences using your own words, perhaps forwoodenboats and others will understand why I say we need to keep a watchful eye on RIG, but by no means kill it!

It appears to me that some readers are accustomed to reading articles that present a single side of an argument and are lost when both sides are presented in an abbreviated fashion. To complicate matters, I tend not to delve into secondary outcomes and stick to the primary basis of the logic on each side. Not to say that I can't do it, but who wants to read a ten page article? I don't!

Thanks,
Saul

Houston to Obama: Smell the Oil

paulk8756,

Thank you.

Houston to Obama: Smell the Oil

Tarun,

Read the article again. No one is saying that XOM or RIG have no competition. The argument is that whereas there is seemingly efficient competition for XOM - based on margins, at first look it seems that there is lack of efficiency in the rig sector.

The conclusion is that this is an aberration brought on by new deep water fields requiring new technology etc.

Dare I say that if you can't follow a trend of thought for a few paragraphs perhaps it would be wise to leave investment advice to others! All in good spirits!

As an aside, I'm not sure that readers realize that the picture is of the Four Horsemen of the Apocalypse as described in the Christian Bible. In essence this is meant to reflect my ambivalence regarding RIG. On the one hand I say let them be as they fight our battle, but do so with a watchful eye on conquest, war, famine and death. You must admit it is truly amazing how oil can embody all four. No offense intended towards anyone; being that I'm not Christian, I wasn't certain if an elaborate comparison/ parallel would be considered offensive…so I'll leave it to the readers to fill in the blanks. The link to the Metallica lyrics "The Four Horsemen" pretty much hit the nail on the head.

Butanol, an Alternative to Ethanol, Gets a Boost (DD, BP)

For your evaluation.... the source for this article seems to be;
www.butanol.com/