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Politics : Stockman Scott's Political Debate Porch -- Ignore unavailable to you. Want to Upgrade?

To: Jim Willie CB who wrote (1007)	7/1/2002 12:19:46 PM
From: stockman_scott	Read Replies (1) \| Respond to of 89467

Raw Materials - Economics 101 by Clyde Harrison June 25, 2002 Whenever a government does something for someone, it must do something to someone. The definition of politics is the advance auction of goods that have not yet been stolen. Some countries offer rule of law. We suffer from rule of lawyers. Lawyers have the right to collect money from U.S. citizens at the point of a gun to pay for their economically illiterate programs. Recently the Congress was taken over by the liberals – the lifestyle police. Using history as a guide, this should move us from energy conservation to energy anorexia. The last central banker to get it right was Joseph in the Bible. 7 good years followed by 7 bad. Belief in Greenspan and the FED is misplaced. Central planning was totally discredited when Russia collapsed. Faith in the FED is based on elaborate mathematical models relying on the breathtakingly faulty assumption that human beings behave rationally. The FED is like the post office, giving out money instead of stamps. Today the two largest economies on the planet, Japan and the United States, are printing money as fast as they can. In the US, the jobless rate is 5%. Greenspan has slashed the cost of renting money 400 basis points and increased the supply $900 billion or 30% in the past 9 months. I expect a V shaped bottom in the GNP. The up trend will start in the second quarter of 2002, but there will be an L shaped bottom in corporate profits. In the stock market, I expect a few years of W’s (wwww). Study the period from 1966 to 1982. The stock market produced a no-return; while the currency declined 40%. When you dramatically increase the supply of something, the value declines. When stock prices rise, people talk about a bull market. When consumer prices rise, they talk about inflation, but both are either a price increase or a decline in the value of the currency. If you believe Alan Greenspan and the FED guide the economy, you must also believe the twelve birds sitting atop the rhinoceros guide him through the jungle. The investor could purchase T.I.P.S. to protect them from inflation. But if you own tips, you're letting the borrower (the government) tell you what they owe you. Your returns are sure to get chain-weighted and seasonally adjusted to mediocrity. Raw materials in many instances, such as in the ‘70’s, protected investors from inflation, but here the demand versus supply plays a far more important role. The Law of Supply and Demand The history of capitalism tells us that cycles are the norm. Indefinite business trends simply are not. The stock market isn’t any more likely to go straight up forever than it is to go straight down forever. Cycles occur because of temporary imbalances in supply and demand, imbalances that eventually correct themselves. Today in the United States there is a complete lack of understanding of the relationship between the lifestyle we enjoy and the resources that must be harnessed to enjoy that lifestyle. We want our SUV, but not the oil wells to fuel them. In the past 10 years fuel economy has dropped 2 miles per gallon. In 1973, 36% of our oil came from foreign sources. Today 56% of our oil comes from foreign sources. The Energy Department estimates that by 2010, 61% will have to come from foreign sources. The “not in anyone’s back yard” attitude and a "back to the caves" no growth environmental policy has resulted in no new refineries being constructed, in the U.S. in the last 25 years. We now import 900,000 gallons of refined gasoline a day. Our oil problem rests not with a lack of supply, but our refusal to develop our natural resources. For years there has been inadequate investment to increase the supply of oil. The cheap oil to find and drill has already been found. The world is using around 27 billion barrels of oil per year and discovering around 7 billion barrels of new oil per year. At some point the depletion of reserves will become a big problem. The only question is: At what price will the public demand drilling? – $60/BBL, $100/BBL? Our short-term, politically-correct policies could result in a bounty on caribou in the long term with bus loads of hunters heading to Alaska on weekends. We have reduced supply. What about the demand side of the problem? Washington talks about more mileage for SUV’s and increased conservation focusing on a tiny fraction of demand. Peace put 2 1/2 billion people in the world labor market. India and China alone contain 2 billion consumers. Suppose each of the 2 billion people consumes a mere quart of gasoline per week as their economy booms. That’s an additional 1.7 million barrels a day, new demand that is sure to increase price. Today, China is booming. They have declared the national bird to be the construction crane. Between 1990 and 2000 per capita income increased 315%. The Chinese will go from walking to bikes, to motorcycles, and to autos. They will need oil and gas, chemicals, forest products and metals. China and other low cost producers are producing deflation in many manufactured goods and at the same time increasing demand for raw materials. Consider the following: World oil production is around 75 million barrels per day. The U.S. has 5% of the world population and consumes 25% of the world’s oil. U.S. population: 263 million – 2 people per car Mexico population: 93 million – 11 people per car India and China population: 2,161 million – 281 people per car If India and China consumed half as much energy as the U.S., it would consume all 75 million barrels each day of the world’s oil production. Energy consumption in India and China is increasing 10% per year versus 3% in U.S. India now has more millionaires than Canada’s total population of 31 million. Motorcycle and appliance sales are higher in China than America. In the first 6 months of 2000, China’s oil imports increased 100%. The Chinese eat less meat in a year than we eat in a weekend. Raw Materials At Lowest Levels in History Raw materials are now close to their lowest prices in history. Tops and bottoms are creatures of extreme. Markets rise above all rational expectation, then go higher, and then they fall farther than common sense suggests. The most desirable investments for the future might not be in cyberspace, but back to the basics. By the end of 1998 the only drilling rig in Texas not laying on its side was at the Midland Petroleum Museum. Oil in 1982 was $28 a barrel. Allowing for 3% inflation, that would equal $47 a barrel today. In 1981 there were 4,530 oil rigs operating in the U.S.. Today there are 800 -- up from 500 in April of 1999. It takes a long time to add to capacity. In the last 20 years, the capacity to produce most raw materials has declined, dramatically in some cases, while demand has continued to increase. As you climb the ladder of financial success, check to make sure it’s leaning on the right wall. I believe raw materials will be one of the best investments for the next 10 to 15 years. © 2002 Clyde Harrison June 25, 2002