Friday, July 24, 2009

Petro Dollars Flowing: US Boom is Here!

Only one year ago, petro dollars were flooding out of the USA. The chant in the summer before the election was "drill, drill, drill". Successful drilling that was done over the past several years has produced an abundance of domestically produced natural gas, 80 years worth of discoveries at current usage rates. The discoveries have been so large that gas drilling rigs are being moth balled.

A year ago, Russia was one of the nations that was accumulating huge caches of dollars. Today, Russian held dollars are flowing the other direction. In the next year, "The Next Big Future" web site estimates that Russia will spend 43.5 Billion of its 95.4 Billion Petro Dollars!

Thomas L. Friedman has posted a neat and seemingly accurate theory in his book, "Hot, Flat, and Crowded". History shows that when the oil rich nations are enjoying high prices, the powerful elite that control their governments do what ever they want. Friedman calls the situation one of "no taxation therefore no representation". History also shows that the people rise up in rebellion against oil rich oppressive governments and that freedom blooms during times when oil prices are low. The current situation in Iran supports Friedman's theory. Iranians are showing how tired they are of living under oppressive Islamic law. Democracy is going to continue to bloom around the world. We can only hope that the USA does not pass these other nations like a ship in the night.

I keep running into folk who believe that the price of gasoline is going to go "right back up". The continued rapid growth of China and India supports their argument but that is about all the support they can find. Most everything else points to lower gasoline consumption.

There will be lower fuel consumption because of requirements imposed by the US Congress and the Obama administration. As a strong advocate of FREEDOM, it galls me to see our government dictate what we can buy or if we can have a liver transplant or not, but I do not deny that government programs do reduce consumption.

Democrats have formed a firm blockade that is preventing the drilling for oil in US costal waters (certain deep water areas are being explored), but the billions of barrels of oil coming online in Angola, Brazil and Iraq will keep supplies plentiful while the switch to smaller cars will keep the demand down. Petro dollars are a function of both price and volume. In the past year, we have seen a significant decline in volume of oil imported and a huge decline in the total price of the oil imported. The recession has been largely responsible for the lower demand in the short run but the switch over to smaller cars and the flow of abundant new supplies is just beginning.

Where are those petro dollars going? Into technology! Which further lessons the demand for oil!
I cannot say it enough times that a major communications paradigm shift is underway. One that will cause an enormous amount of substitution of cheap resources for expensive resources. Take something as simple as a Monopoly Game as an example. You might be surprised to learn that the components to a Monopoly Board require the mining of ores, the drilling of oil, the cutting of trees and thousands of other expensive activities. It is a wonder of modern society that a Monopoly Board can be manufactured, shipped and sold for at a very affordable price. Still, think about the cost to distribute a software version of the game relative to the "hardware" version. The "hardware version" probably costs 1,000 times as much to manufacture and distribute as does the software version.

More incredibly, a growing number of Monopoly Games are going to be played online. Friends, family and strangers will increasingly get together online to play such a game rather than traveling. Indeed, in a number of online game parlors, there are players who have logged 10's of thousands of games played over the past 10 years or more. Most of these games have been played against strangers but new software is making it very easy to invite a friends or family "over" for a media rich game. A game where live audio and video makes the "get together" similar to "the real thing". Some folk, who cannot imagine "getting together" with friends to play a board game, already play games on a Sony Playstation or through Facebook or other means frequently.

In case you have not heard, there are now about 250 million people communicating via Facebook. About 50 million of these folk have joined in the last 3 months! Google, Apple and Facebook are three of the leaders who are tearing the old Microsoft Monopoly to bits. Innovation is hitting fifth gear. Within a couple of years, super high speed Internet communications will cause us to change the way we think. Instead of sending messages, we will "meet" with folk to discuss what we want to discuss. In one second we will be meeting with one group and in another we will speak to some other person without disrupting the ongoing meeting.

Many folk are resisting the change. Many have been "turned off" by "first generation vehicles" such as email. These folks will soon be forced to "climb back on" the "Internet wagon". When bookstores and video stores, as we know them today, disappear and when newspapers and magazines are no longer published on paper, other communications vehicles will become necessities.

The Bull Market in US stocks began on March 9, 2009. Many a stock is up 70% or more off the bottom. The games played by the powerful drove real estate prices down, and allowed the powerful to accumulated trillions of dollars worth. Now it is time for these "big boys" to sit back and enjoy the rise of the markets. Because the available supply of super cheap real estate is gone, dollars are now flowing into stocks. There will be bumps and grinds along the way but this is going to be one whopper of a BULL MARKET!