It's the Oil Imports, Stupid!

by: Michael Fitzsimmons

"It's the Economy Stupid" was a phrase made famous during Bill Clinton's 1992 campaign against President George Bush. The phrase was attributed to campaign strategist James Carville and was a sly way of inferring President Bush was "stupid" for not addressing American's major concern at that time: the economic recession.

"It's the Oil Imports Stupid!!" is my way of saying that no one seems to be paying any attention to the #1 economic problem of the United States today: its reliance on foreign oil. The following bullets summarize the problem quite succinctly:

  • According to the Commerce Dept., the U.S. trade deficit in September was $44 billion.
  • The U.S. imports about 12,000,000 barrels of oil per day.
  • At $80/barrel, that oil import bill = $960,000,000 per day
  • Therefore, roughly $30 billion of the $44 billion trade deficit was due to one commodity alone: oil. And oil is the most strategic commodity of all.

Now, given these facts, wouldn't you think American economists, Congressmen (and women), and every major financial publication in America would be talking about the need to reduce foreign oil imports?

It's the Oil Imports Stupid!

But of course they are not. Just like Stephen Leeb predicted in his masterpiece book The Oil Factor, instead we hear economists endlessly debating about whether inflation or deflation is happening. We had a housing bust due in part to $140/barrel oil and gasoline prices that rose dramatically. We have the Federal Reserve printing money out of thin air in order to pay for these oil imports and the military expenditures required to obtain and safeguard delivery of the foreign oil to the U.S. Reading The Oil Factor now is like reading a history book - Dr. Leeb predicted it all. I was excited when I first read The Oil Factor book so many years ago because I thought, wow, at least one other person in America thinks like me!

But today, you basically hear a lot of noise except for the noise we should be hearing loud and clear: We Need To Reduce Foreign Oil Imports!

My faithful readers are well aware that I have been beating this drum long before oil went to $140/barrel. I was actually happy that it did go to $140/barrel thinking, now, surely American policymakers will get the message and take action! Wrong. President Obama picked up right where President Bush left off: no energy policy, no reduction in oil imports, and fully supporting the Federal Reserve as the "chosen ones" continue to debase our currency. Apparently if you have a PhD in economics, you come to the conclusion that somehow printing paper dollars to pay for our foreign oil imports is a brilliant plan. An engineer with a bachelor's degree replies: Not!

So, let me spell out the solution yet again:

  1. Adopt a strategic long-term comprehensive energy plan.
  2. Adopt natural gas transportation. We could very easily reduce foreign oil imports by 5,000,000 barrels per day within 5 years. At $80/barrel, that is $400,000,000 per day that would stay in the U.S.
  3. Regulate, at the Federal level, natural gas fracking environmental and technical standards. Else, as the Gasland documentary and last week's 60 Minutes showed, we risk destroying our drinking water in a similar fashion to how the EPA has let coal producers and consumers destroy our streams, lakes, and rivers.

Adopting natural gas transportation would have the following benefits:

  • Re-industrialize the country
  • Create millions of well paying jobs
  • Create an infrastructure that would pay dividends to all Americans for decades into the future
  • Keep billions of dollars inside our country which would go to landowners and farmers and consumers instead of foreign oil producers
  • Negate the necessity to fight foreign wars to obtain oil and thereby saving not only American lives, but hundreds of billions in non-productive military expenditures
  • Drastically reduce toxic and CO2 emissions thereby cleaning our air and water
  • Allow people to fill up their vehicles in their garages with natural gas at half the cost of filling up at the gas station with gasoline derived from foreign oil
  • Strengthen the U.S. dollar
  • Reduce inflation
  • Negate the need to QE2 and other such foolishness

In short, natural gas transportation could usher in an era of American prosperity few today can even imagine.

But we need our leaders, our economists, our Federal Reserve, and our media to understand one thing:It's the Oil Imports Stupid!

However, I have absolutely no confidence that the Fed, Obama, the Tea Party, the Republican right wingers or the Democratic left wingers, Energy Secretary Chu, or anybody else that receives my tax dollars for salary will uphold their oaths of office and get this message. So, what is an investor to do?

As usual, I say we have no choice but to buy energy stocks, gold, and silver. For the oil stocks I would recommend Conoco Phillips (NYSE:COP), Chevron (NYSE:CVX), Exxon Mobil (NYSE:XOM), Occidental Petroleum (NYSE:OXY), Marathon (NYSE:MRO), and Petrobras (NYSE:PBR). In energy services, I like Schlumberger (NYSE:SLB). For gold and silver, buy yourself some American Eagles or if you like really brilliant gold coins, Canadian Maples Leafs (.9999). The broad market (S&P 500) will continue to struggle as it has been over the last decade. Every time the American economy gets going, high oil prices will chop it off at the knees. So an investor should get out of all long-term broad market based investments and just stick with energy, energy service, and precious metals. This strategy will not change until the U.S. adopts natural gas transportation as a means to fix the huge gaping crack in its economic foundation: its reliance on foreign oil.

Disclosure: Long COP, PBR, SLB