THE TEA CUPS ARE FULL!
When I was still a pup, the price of sugar went on a multi-year run. I was hardly aware until I visited Papaw Miller who had a cabinet full of 5 and 10 pound bags of sugar. He had noted the price was rising sharply and bought a few extra bags on sale . When the price rose again he bought more and so on. He was pleased to show bags marked $.69, $.89, 1.29 and $1.69. He was using the oldest sugar first and was pleased to note that the sugar he was using in his coffee that morning was $.49 sugar.
All the folks who lived through the great depression can appreciate the actions of my grand-father. Even his tea cups were full of sugar.
Today we have a similar situation in regard to oil. My brother, an executive with CSX railroad, tells me that every spare tanker in the yard is full of oil. He says the Governor of the Florida has encouraged the railroad company to store all the oil they can. There is no storage capacity that is not full to the brim.
The reported oil market inventory numbers verify that it is not just the great state of Florida where oil is being stockpiled. In the past 5 months, the US has put 6 million barrels per month in the Strategic Petroleum Reserve. In addition, oil inventories in other storage has soared. There has been a disconnect between oil prices and inventories for about a year now. Normally, when oil stockpiles grow, the price of oil goes down. In the past year, US inventories have grown by more than 60 million barrels while the price has risen steadily. In the early 70's, many a consumer installed a second fuel tank, particularly on pick up trucks. Many a consumer became a "farmer" with an extra fuel storage tank out by the barn. The evidence suggest that the US is currently making a last minute push to get the SPR filled by August as Mr. Bush has promised. Our country is at the tea cup phase; we can only store more oil we build new storage facilities. Not counting SPR, our inventories are not dramatically higher than those reached in the past but the difference this time is that the price is going up at the same time inventories are growing!
The recent closing of the British and US Embassies in Saudi Arabia were made due to unspecified terrorist threats. It is no secret that the terrorist would love to sabotage the production or distribution of oil. By stockpiling supplies in railroad tank cars and every other available "tea cup", the US has in effect doubled up on the SPR. Hayes Advisory reports that many other oil consuming nations have stockpiled as much oil as they can.
The good news is that the price of any commodity can only move so far until supply and demand are altered. When the price of sugar finally broke down, my Grand-Father did not buy sugar for month after month. By the time he used the sugar purchased at $1.69 he could buy all he wanted at $.69.
The risk of an attack by terorist is real. However, if there is not a disruption in production or supply, the laws of supply and demand are about to force a price correction. No one is going to buy oil at $64 to store in a tank car if they can't find a tank car to rent. No doubt there has been tremendous growth in the consumption of oil in China, India and other developing nations. There has also been an increase in the supply.
The invisible hand of Adam Smith is clearly at work. Most of the changes taking place are minor but the sum of all the changes is major. For example, the change to daylight savings time is a very marginal savings. Indeed the start and end dates have been pushed so far that many folks will be using more electricity in the morning than they will save in the evening. Never-the-less, the change is important in that it reflects the focus on cutting the use of energy. The same attitude is showing up in the purchase of higher mileage vehicles, in the rapid development of coal fired electricical plants and in the development of tar sand fields in Canada. The total oil available in Canada is huge. At the current price, there are huge profits to be made extracting the oil. Producing companies are investing in producttion because even a decline back to $40 would leave these new projects a nice profit margin.
Liberals are disappointed that the recently passed energy bill did not mandate higher mileage vehicles--not necessary! This is one of those areas that would be a good study for the Freakonomics folks. When the government mandates savings, the savings are ultimately far less than when individuals know that they must be responsible citizens. Citizens who have a clear choice are more likely to learn the cost of making bad choices. One bad choice leads them to make many more good choices down the road. On the other hand if the government forces "savings" upon us, we learn that we don't have to worry about savings and indeed many look for ways around the "oppressive" government regulation. The mandates of years gone by lead to the production and purchase of millions of gas guzzling SUVs. Had the government not put mandatory standards on cars, many a truck would not have been purchased!
The fact of the matter is that markets work, 100% of the time. Are markets perfect? No! Are they better than government regulation? Yes! Are there times when governments need to reset the rules of the market? Yes! Should the government generally stay out of the energy business? Yes!
The recent bill highway bill and energy bills are filled with examples of pork spending. Congress has again passed laws that are self serving. The energy bill requires the use of ethanol even though it is an extremely costly and inefficient source of fuel. Again, the bill would not have been passed without a major shift in attitude about energy. The bill made a number of important changes. One very important change was that it got the government out of the way of electricity consolidation. The production and distribution of electricity will be much improved and the historical savings through the use of electricity has been huge. There is not a single day when millions of individual energy savings occur through the use of electricity versus the use of an internal combustion engine.
Even the internal combustion engine is about to be replaced with electric motors in cars! It will take years but the process has started. The process includes the invention and use of electronic devices that reduce the use of energy. High tech stocks are leading the market. Oil companies will make high profits off the high price but the risk to investors here is great that the price of oil will go down and future oil profits will be lowered.
Distribution of electricity is less expensive than the distribution of gasoline. In the future, electricity will be used "at the location" to charge fuel cells. The need for tank trucks will be deminished.
BUY THE BULL! LOOK AT THE PRICE ACTION IN EVERYTHING FROM MSFT TO LU--TXN TO INTC!
THE TEA CUPS ARE FULL! I PRAY THERE WILL NOT BE ANOTHER TERRORIST ATTACK BUT I AM A REALIST. THE TERRORIST ARE ATTACKING DAILY IN IRAQ. PRESSURE IS BEING APPLIED TO IRAN AND SYRIA TO HELP STOP THE CARNAGE. THE LOSS OF LIFE--ESPECIALLY THE LOSS OF INNOCENT CIVILIANS IS HORRIBLE. I CRY DAILY FOR THE FAMILIES OF AMERICAN SOLDIERS. TERRORISM IS NOT ABOUT OIL BUT OIL IS A BIG TARGET. THERE ARE NO GUARANTEES BUT MARKETS WORK! WE CURRENTLY HAVE EXCESS OIL IN SUPPLY; A DISRUPTION OF EVEN A MAJOR FACILITY WOULD NOT "KILL" OUR ECONOMY. REDUCE YOUR INVESTMENT EXPOSURE TO OIL STOCKS AND INCREASE YOUR EXPOSURE TO TECHNOLOGY. THE BULL IS ALIVE AND WELL!
When I was still a pup, the price of sugar went on a multi-year run. I was hardly aware until I visited Papaw Miller who had a cabinet full of 5 and 10 pound bags of sugar. He had noted the price was rising sharply and bought a few extra bags on sale . When the price rose again he bought more and so on. He was pleased to show bags marked $.69, $.89, 1.29 and $1.69. He was using the oldest sugar first and was pleased to note that the sugar he was using in his coffee that morning was $.49 sugar.
All the folks who lived through the great depression can appreciate the actions of my grand-father. Even his tea cups were full of sugar.Today we have a similar situation in regard to oil. My brother, an executive with CSX railroad, tells me that every spare tanker in the yard is full of oil. He says the Governor of the Florida has encouraged the railroad company to store all the oil they can. There is no storage capacity that is not full to the brim.
The reported oil market inventory numbers verify that it is not just the great state of Florida where oil is being stockpiled. In the past 5 months, the US has put 6 million barrels per month in the Strategic Petroleum Reserve. In addition, oil inventories in other storage has soared. There has been a disconnect between oil prices and inventories for about a year now. Normally, when oil stockpiles grow, the price of oil goes down. In the past year, US inventories have grown by more than 60 million barrels while the price has risen steadily. In the early 70's, many a consumer installed a second fuel tank, particularly on pick up trucks. Many a consumer became a "farmer" with an extra fuel storage tank out by the barn. The evidence suggest that the US is currently making a last minute push to get the SPR filled by August as Mr. Bush has promised. Our country is at the tea cup phase; we can only store more oil we build new storage facilities. Not counting SPR, our inventories are not dramatically higher than those reached in the past but the difference this time is that the price is going up at the same time inventories are growing! The recent closing of the British and US Embassies in Saudi Arabia were made due to unspecified terrorist threats. It is no secret that the terrorist would love to sabotage the production or distribution of oil. By stockpiling supplies in railroad tank cars and every other available "tea cup", the US has in effect doubled up on the SPR. Hayes Advisory reports that many other oil consuming nations have stockpiled as much oil as they can.
The good news is that the price of any commodity can only move so far until supply and demand are altered. When the price of sugar finally broke down, my Grand-Father did not buy sugar for month after month. By the time he used the sugar purchased at $1.69 he could buy all he wanted at $.69.
The risk of an attack by terorist is real. However, if there is not a disruption in production or supply, the laws of supply and demand are about to force a price correction. No one is going to buy oil at $64 to store in a tank car if they can't find a tank car to rent. No doubt there has been tremendous growth in the consumption of oil in China, India and other developing nations. There has also been an increase in the supply.
The invisible hand of Adam Smith is clearly at work. Most of the changes taking place are minor but the sum of all the changes is major. For example, the change to daylight savings time is a very marginal savings. Indeed the start and end dates have been pushed so far that many folks will be using more electricity in the morning than they will save in the evening. Never-the-less, the change is important in that it reflects the focus on cutting the use of energy. The same attitude is showing up in the purchase of higher mileage vehicles, in the rapid development of coal fired electricical plants and in the development of tar sand fields in Canada. The total oil available in Canada is huge. At the current price, there are huge profits to be made extracting the oil. Producing companies are investing in producttion because even a decline back to $40 would leave these new projects a nice profit margin. Liberals are disappointed that the recently passed energy bill did not mandate higher mileage vehicles--not necessary! This is one of those areas that would be a good study for the Freakonomics folks. When the government mandates savings, the savings are ultimately far less than when individuals know that they must be responsible citizens. Citizens who have a clear choice are more likely to learn the cost of making bad choices. One bad choice leads them to make many more good choices down the road. On the other hand if the government forces "savings" upon us, we learn that we don't have to worry about savings and indeed many look for ways around the "oppressive" government regulation. The mandates of years gone by lead to the production and purchase of millions of gas guzzling SUVs. Had the government not put mandatory standards on cars, many a truck would not have been purchased!
The fact of the matter is that markets work, 100% of the time. Are markets perfect? No! Are they better than government regulation? Yes! Are there times when governments need to reset the rules of the market? Yes! Should the government generally stay out of the energy business? Yes!
The recent bill highway bill and energy bills are filled with examples of pork spending. Congress has again passed laws that are self serving. The energy bill requires the use of ethanol even though it is an extremely costly and inefficient source of fuel. Again, the bill would not have been passed without a major shift in attitude about energy. The bill made a number of important changes. One very important change was that it got the government out of the way of electricity consolidation. The production and distribution of electricity will be much improved and the historical savings through the use of electricity has been huge. There is not a single day when millions of individual energy savings occur through the use of electricity versus the use of an internal combustion engine.
Even the internal combustion engine is about to be replaced with electric motors in cars! It will take years but the process has started. The process includes the invention and use of electronic devices that reduce the use of energy. High tech stocks are leading the market. Oil companies will make high profits off the high price but the risk to investors here is great that the price of oil will go down and future oil profits will be lowered.
Distribution of electricity is less expensive than the distribution of gasoline. In the future, electricity will be used "at the location" to charge fuel cells. The need for tank trucks will be deminished.
BUY THE BULL! LOOK AT THE PRICE ACTION IN EVERYTHING FROM MSFT TO LU--TXN TO INTC!THE TEA CUPS ARE FULL! I PRAY THERE WILL NOT BE ANOTHER TERRORIST ATTACK BUT I AM A REALIST. THE TERRORIST ARE ATTACKING DAILY IN IRAQ. PRESSURE IS BEING APPLIED TO IRAN AND SYRIA TO HELP STOP THE CARNAGE. THE LOSS OF LIFE--ESPECIALLY THE LOSS OF INNOCENT CIVILIANS IS HORRIBLE. I CRY DAILY FOR THE FAMILIES OF AMERICAN SOLDIERS. TERRORISM IS NOT ABOUT OIL BUT OIL IS A BIG TARGET. THERE ARE NO GUARANTEES BUT MARKETS WORK! WE CURRENTLY HAVE EXCESS OIL IN SUPPLY; A DISRUPTION OF EVEN A MAJOR FACILITY WOULD NOT "KILL" OUR ECONOMY. REDUCE YOUR INVESTMENT EXPOSURE TO OIL STOCKS AND INCREASE YOUR EXPOSURE TO TECHNOLOGY. THE BULL IS ALIVE AND WELL!
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