The T. Boone Pickens Approach

Includes: COP, NBR, OIH, SLB, USO, XLE
by: Michael Fitzsimmons

I wrote an article for Seeking Alpha the other day in which I applauded Al Gore's recent comments on the economic impact of foreign oil addiction as a positive step for him and his advocates to get what they ultimately desire: reduction in CO2 levels by reducing fossil fuel consumption. In that article I wondered aloud whether or not focusing on the economic impact of our 70% addiction on imported oil wouldn't have been a better strategy all along in order to achieve the results Gore and his followers were after (as opposed to driving the issue with global warming).

The comments I received on that article effectively proved my point: Al Gore and his presentation of climate change and CO2 levels, for whatever reason, is divisive. Many people dismiss Gore and his arguments automatically - despite, what I believe, is a mountain of science that support his assertions.

But let's not have that debate again. Let's focus on what I believe is a better argument to reduce our reliance on oil. It also happens to be a more imminent threat to the US: economics. This is what I will call the T. Boone Pickens approach. However, I have been writing (preaching?) about the same issues for years now. Every American has been affected by rising oil prices, rising inflation, and the very weak stock market. I believe this audience is ripe to hear what Pickens has to say. Hopefully, Pickens' views on the economics of imported oil will be welcomed by people who don't want to hear anything Al Gore has to say.

Pickens is describing our $725 billion dollar a year foreign tax bill as "the biggest transfer of wealth in the history of the world". He points out that this transfer of wealth will have dire consequences for the US economy, currency, and our standard of living should we continue to ignore the issue. Seeking Alpha readers know that I have been saying the same things in my articles...unfortunately, no one listens to me.

However, the commercials Pickens is now running on CNBC are fantastic! It took Pickens to run these...not the President, not Congress, and Lord knows not Paulsen or Bernanke. Sure Pickens will make money on his wind ventures...but no one should doubt that he cares greatly about his country, its security, and the quality of his children's and grandchildren's lives. That said, I believe my energy policy is a bit more comprehensive.

Pickens probably feels he will have a better chance of success if he keeps his message focused and narrow.

I hope Pickens, with his fame and easy access to the media and Congress, has better luck than I have had to date. I still can't get the Wall Street Journal, BusinessWeek, The Economist, or any other major "economic" magazine or paper to publish my energy policy and the reasons why it is so vital for the US to enact it (or at least some version of a real long-term comprehensive energy plan).

Neither have I had any substantial conversations with anyone at the DOE or Congress. What's harder to understand is their refusal to do so in spite that fact that oil has gone from $50 to nearly $150 since I began, nat gas has gone from $6 to over $13, inflation is raging, and of course the US dollar has averaged about a 7% drop per year for the last 8 years.

The result, as everyone can now see, is an S&P500 that has gone no-where in the last 10 years and an economy that could be described as anemic at best. In other words, all the predictions than any common sense economic analysis of our addiction to 70% imported oil has come true. Still, everyone wants to talk about "speculators", "manipulators", big oil (and wind-fall profits taxes), off-shore drilling, etc. etc. Everyone it seems, except Pickens and a few others (me for example), wants to talk about everything but the REAL inconvenient truth: going forward, worldwide oil supply will not be able to keep up with worldwide oil demand. It's that simple! For a country like the US that consumes 25% of the world's oil (yet has only 5% of the world's population) and imports 70% of that oil, you would think this would be the page 1 headline issue in the financial papers every day.

Yet, it isn't. It's being ignored or at least significantly marginalized. Ignored even when the dire economic consequences are staring them in the straight in the face every day. And, it's getting worse every day we continue to ignore it.

All that said, you won't be surprised to know I believe the recent sell-off in energy has been waaaaaay over done in. I suppose it's in response to falling US demand for gasoline, seasonality, the fact that Chinese drivers are now allowed to drive only every other day (even or odd license plate numbers) because of the Olympic clean air issue, and because apparently the stock piling of diesel by the Chinese has been cut back significantly.

Of course, the fact that oil has come down under $125 and natural gas has dropped below $10 hasn't helped. All that said, winter will come, the Chinese drivers will probably be allowed to drive everyday after the Olympics (although many Chinese apparently favor the cleaner air and having every other day off work), and energy demand will continue to be strong in emerging economies. Oil and natural gas stocks are at bargain prices today and great buys! I won't list all the recommendations again, you all know them.

Now, I will take my lumps and fully admit the recommendations I have made on SA in my last few submissions haven't faired too well in the last month or so. Of course, I have always said to buy and *hold* these energy stocks through short term volatility. The energy stocks will come back, stronger (and faster) than ever. Just look at the futures prices for oil and natural gas. Energy stocks will print cash faster than the Fed - and that's really saying something!

Anyone read ConocoPhillips' (NYSE:COP) earnings report Wednesday? It was yet another stellar quarter that beat analyst estimates. The analysts are now predicting COP will earn over $13/share in 2008. The stock is currently at $82 and change, which is a 6 month forward PE of just over 6 (!?). On the day their earnings came out, COP traded down, and GM traded up most of the day. Crazy market indeed! Another of my favorites, Schlumberger (NYSE:SLB) also had a great quarter, but Nabors (NYSE:NBR) dissapointed me. Oh, and don't forget gold. Gold has weakened along with energy...pick up some bullion and bury in your backyard. If you're not able to dig or don't have a shovel, just buy some streetTracks Gold (NYSEARCA:GLD).

Disclosure: The author owns COP, SLB, and NBR as well being long gold.