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Politics : Foreign Affairs Discussion Group -- Ignore unavailable to you. Want to Upgrade?

To: Michael Watkins who wrote (148245)	10/20/2004 8:10:02 AM
From: Keith Feral	Read Replies (1) \| Respond to of 281500

Michael: Why should I sense the merest whiff of reduction of demand for oil? My bullish outlook on oil is based squarely on the increasing demand for oil in every sense of the world. No one is seriously suggesting that demand is about to abate. As far as the price of oil vs. currencies like the Yen? Maybe the Yen will experience the 40% devaluation it deserves in order to accomodate their new demand for oil. The tightening of interest rates in the US from such low levels could offset any serious depreciation in the value of the $$US. Since more of my investments are in oil than in $$US, I am not that concerned about the value of the $$US in the first place. I completely agree with your concern that the overall costs of goods and services will increase as a result of the inflationary push in the price of oil. The pricing for most goods and services reflect paper thin margins that does not begin to account for the full social cost. Weak competition has been wiped out the past few years in many key sectors as the free market seeks to reduce the amount of competition. Just look at the airline sector. Why do so many companies push to fly people around at such a low profit margin? Overall, the increase in the price of goods and services will create better operating margins. Even if management does nothing, making a 5% gross margin on oil at $25 a barrel will earn the company far more at $50 a barrel. Similiarly, if the price in oil increase the price of airline tickets from $225 to $250, I would bet the gross profit per seat remains fixed at XX% (let's say 5%). 5% of $225 is less than 5% of $250, creating more net income for the airline. America is priced at stupidly low costs as global pricing has reduced the cost of our goods and services to eliminate any economic benefit, namely, profits. Thankfully, the rug was pulled out from the irrational protection of competition during the 90's. For example, phone companies were forced to sell excess capacity to competition that would sell the capacity at rates below the market. Everyone thought that every IPO in the market was going to become a market leader. Let the telecom example demonstrate that in a free market economy, companies do not necessarily have control of their goods. The intervention of US policy will often legislate reforms to increase access to vital products. In healthcare, doctors are only being reimbursed 30% for healthcare services by the medicare. The patients are not responsible for the balance. If the doctors want to work in the hospitals, they must accept medicare. Private insurance does the same thing, but the payout is slightly higher. Those low level of payouts are not even paying the fixed cost of a healthcare environment. The insurance company does not keep in mind that the $100 they remit to a doctor for a $300 procedure does not even pay the fixed costs to maintain the healthcare environment, let alone the doctor's salary. The way our economy is priced right now, pricing is based upon this high volume assumption. However, it is barely meeting the fixed cost environment. It is not providing an adequate return on investment to keep economic interests afloat. Higher pricing is a pre-requisite for this economy to get back on track. I think that higher costs of energy will give companies the excuse they need to increase their pricing.