The thing is there really are no economic policies. Mr. Obama's comments to these students actually revealed things about his ideology many people realize but are rarely articulated (in public) or highlighted by the media.
Saying "there is enough oil out there for world demand" is an admission we don't need an alternative for supply reasons but should plow billions of dollars in taxpayer funds into overpriced wind and solar projects to appease environmentalists. Of course, Economics 101 goes over supply and demand and to ignore the latter in this case shows Mr. Obama's intellectual dishonesty or his being wildly misinformed. In either instance, it should buoy the amount of drilling permits assigned by the government.
Saying speculators can "make bets on the future direction of the price" of crude is overly simplistic. Some traders are betting higher and some are betting lower. When the entire country was betting on the stock market, it hit a brick wall and never really ever recovered. Still, it's the President's assertion that speculators are A) always right; B) always long; and C) always work on Wall Street. With that line of thinking, that speculators always make prices go higher, I wonder why the White House hates speculators in the housing market.
I own a home...heck if gas is up only because of speculators then shift them into the housing market!
So as the White House tries to deflect blame for the rise in gasoline prices we need to be clear the current spike is a lot less about speculators in crude than about disastrous monetary and fiscal policies crushing the dollar. Then we must examine how taxes and massive regulations have also played a sinister role in higher gasoline prices.
The last refinery in America was permitted in 1974 and built in 1976 at Garyville, Louisiana. Since then, efforts to build additional refineries have been thwarted by environmentalists and their friends in elected office that have established a labyrinth of rules and guidelines that would have deterred Hercules from the task. There is the infamous case in Portsmouth, Virginia where backers of a potentially new refinery found themselves dragged through seven years of litigation and finally gave up. It has been noted to obtain the right to build a new refinery these days could mean enduring a process of 800 different permits.
In addition, refineries have been forced to spend tens of billions of dollars to meet regulatory requirements to remove sulfur from crude and to create so-called boutique gasoline, which shifts blends to lower emissions during colder winter months. This costs a lot of money and lessens supplies.
Then there are taxes which include federal, state, and local energy levies coupled with special taxes and state taxes. It has been said government makes more money from a gallon of gasoline than oil companies make. So, when President Obama begins his reelection campaign saying "we are going to make sure that nobody is taking advantage of American consumers for their own short-term gain" as justification for a taskforce headed by the U.S. Attorney General beware. Mr. Obama went on to point the finger directly at speculators. The dirty secret is the White House wants higher gasoline prices. Just connect the dots.
Also last week in an effort to nudge deficits to a secondary election issue, President Obama acknowledged we can't ignore them, but noted "failing to invest in our kids and our infrastructure and our basic research and clean energy" would be "mortgaging our future, as well" but we are doing most of this. First off "we" when used by the President means my Administration with your hard earned tax dollars, and secondly, the only way investments payoff is if there is demand for end-products. The only way there can be demand for an ultra-expensive solar-powered car, or even electric car, is if gasoline costs are prohibitively too high.
Maybe his comments were a Clintonesque play on words, and it's wrong to mislead the public for "short-term" gain but okay for long-term gains to make sure Mother Earth is happy even if America is broke and literally powerless to compete in a global economy. If somehow the Administration could have its cake and eat it too that would be the perfect scenario.
Gasoline prices higher - Check
Shifting the blame - Work in progress
Bush's Gasoline Spike versus Obama's Gasoline Spike
A look at the individual components that goes into the price of a gallon of gas reveal that the spike in crude was a much bigger contributor of higher gas prices during the summer of Mr. Bush's discontent. Note the national average is quickly approaching $4.00 a gallon ($3.85 national average); the most recent official data is from February, but it illustrates stark differences on why gasoline prices are so high. During the 2008 spike, crude oil played a much larger role in the rise of gasoline prices. It was easier to blame speculators for that spike than the current spike that has correlated with skyrocketing refinery and tax increases.
Oil That is, Black Gold, Texas Tea...
Those looking to blame higher gasoline on speculators and the station owner looking for a quick payday argue there is no shortage of oil, and they're right. But, oil is more difficult and expensive to extract as we are a long ways from the time Jed Clampett shot at, but missed, a squirrel and up through the ground came a bubblin crude. So there is oil; in fact America is sitting on enough oil to cut foreign imports in half in less than a decade. This brings me back to gasoline, where inventories in America are actually down 7.5% from a year ago (a week earlier it was down 5.8% y/y).
If we are going to back multi-billion dollar solar and wind projects with taxpayer funds then why aren't we at least allowing oil companies to build refineries? As it is refineries are expensive and have low profit margins, yet more would dramatically lower costs for Americans at the pump.
Don't confuse the issue of gasoline versus crude oil prices. Don't allow the message to be deliberately muddled. When the White House, France, and Saudi Arabia agree on any topic I get really worried. When they all say it's speculators goosing the price of gas while ignoring the obvious spike in demand (which correlates with a spike in prosperity) from Asia and other parts of the globe it's willfully ignorant. I understand why Saudi Arabia would throw us off the trail and OPEC's role, and France pushed for war in Libya, but at least those are economic reasons by and large.
President Obama's energy policies have nothing to do with economics, and that takes advantage of American consumers and robs our kids' futures.
By the way, Exxon Mobil (NYSE:XOM) reports its earnings this week, watch for fireworks. It's not a surprise the taskforce was called last week. With 70% of respondents to a recent New York Times poll saying the nation is heading in the wrong direction, and 57% disapproving of the handling of the economy, the finger-pointing is going to be intense. Can you say windfall profits tax?
Gold and silver shined brightly out of the gate as grumblings about the dollar gain traction in China, making it likelier some form of divestiture is in the cards. Last Tuesday, a monetary committee member of the central bank suggested China should cap its holdings of U.S. dollars at $1.0 trillion. On Saturday, respected businessman Tang Shuangning of China Everbright Group, urged the PBOC to limit U.S. dollar holdings to $800.0 billion to $1.3 trillion. The fact is skyrocketing oil, gold, and food prices are all a vote of no-confidence in the Administration. Investors began last week shocked at S&P's downgrading of the U.S. outlook to negative...that was a vote of no-confidence, too.
Earnings Game = Higher Stocks
It's never the actual number a company reports but instead the earnings results versus Wall Street consensus. This is another major week of corporate earnings which began slowly with Alcoa (NYSE:AA) and others, but caught fire last week. Thus far, about 75% of companies have beaten the Street, in line with recent trends, but ahead of most hunches coming into earnings season. The 75% beat rate is also significantly ahead of the 62% average since 1994. Since 1994, many firms have cut back on research departments after they couldn't use them to promote investment banking arms.
There has also been the issue of whether these analysts knew what they were doing. What has happened is a one-two punch of caution. Companies offer sand-bagged guidance and then the Street whittles the numbers even lower all in an attempt to avoid egg on the face. So, beating has become easier, which also explains the devastating consequences when publicly traded companies miss consensus.
Major indices are at major breakout points, but we begin today with upside momentum butting against so much anxiety.