James Mulva, CEO Conoco Phillips (NYSE:COP)
At what point does the insanity cease? There was another dog and pony show on Capitol Hill yesterday as lawmakers took oil company executives out to the woodshed for having the temerity to make money. Most of these career politicians have no clue about the workings of business. Then again, most have no clue about the workings of government for the people. Sadly, in both incidents, they really could care less. It's all about hot buttons. The more they push, the more citizens feel hopeless, and the more they are forced to turn to government and its big pockets.
For some, the animosity toward businesses is based on some idea that it would all be fair if we all worked and took our earnings and placed them in a giant community pot from which anyone could partake. Such thinking goes against laws of nature where survival of the fittest propels and ensures species move forward. Early nursery rhymes spell out the virtues of hard work. The pig that took the time and put in the effort to build his home out of brick beat back the big bad wolf.
Now it's a pack of wolves that are huffing and puffing and if we're not carful, they will blow this amazing structure we call American capitalism away. The reckless and unrelenting spending of Washington has sent the dollar spiraling, which has sent commodity prices soaring. Federal and state taxes mean government nets a bigger chunk of gasoline profits than oil companies. Locking out prime drilling locations on and offshore add more upward pressure on gasoline prices.
It would be so much smarter to stop browbeating oil companies, take the shackles off and let them find oil on our shores. That would surely bring down the price of gasoline. It might leave that pack of wolves without a convenient scapegoat, but it would make America richer.
I've always said Mr. Spock would go broke in the stock market. I say it tongue and cheek, but often it feels true. Commonsense can be a counterintuitive liability at times because one plus one doesn't always equal two. Take for instance the notion that stocks would dive as oil and other commodities are diving. But stocks are taking cues from commodities, so investors find themselves rooting for higher commodities prices. Why?
The cheaper dollar enhances profits of U.S. multinational corporations, which dominate the major indices. So a cheaper dollar drives commodities higher and profits higher until input costs reach a tipping point; we haven't hit that point yet as remarkable or counterintuitive as that might seem. There is another factor as well.
Higher commodities costs at the end of the day are driven as much by demand as any other factor. Greater demand reflects strong economic underpinnings. Those underpinnings are real, but not American. The rest of the world is galloping hard as we dismantle the greatest economy ever known.
The same nations with growing appetites for everything from more gasoline to beef instead of pork are buying products from American companies. It is absolutely nuts the war on these companies from the White House continues unabated. We should cheer these companies and help them take advantage of global growth. We should allow them to make money around the world and bring it back home without pressure, browbeating, and apologies.
Changing of the Guard
It's time to celebrate mediocrity as many European nations posted GDP growth that beat expectations, but underscore how terrible their economies have become.
By the way, Hong Kong's 1Q11 GDP was 7.2%.
* France: +1.0%, beat consensus and was best since 2006
* Germany: +1.5%, beat consensus
* Portugal: -0.7%, missed consensus of -0.3%
* Italy: +0.1%, missed consensus
The Debt Ceiling
There is a growing belief that something constructive will be done with respect to the debt ceiling. Constructive meaning strings will have to be attached to any compromise that raises the ceiling yet again. For the most part, we are above the old ceiling and nothing has changed. In fact, deadlines etched out by Treasury seem more like bogus bargaining attempts than genuine dates for the expiration of America. I hope the GOP holds its ground. Sure, they are going to cave on raising the ceiling; let's hope they get something in return that beats the beads swapped to the Manhattan Indians.