In the last few days, there were a few news reports that managed to sneak through the 24/7 coverage of some wedding in London that dealt with the Town Hall meetings being held by members of Congress during the current recess. The coverage talked repeatedly about how Republican congressmen were being faced with irate constituents who were angry about the plans to destroy Medicare. I even saw one segment on MSNBC in which a woman who had asked a question at one of these town halls was interviewed about the response from her congressman. The coverage was almost uniformly slanted towards the citizens who were angrily questioning their representatives.
The coverage here was particularly interesting because it is so easy to compare it to how the same media covered the town hall meeting in 2009 and 2010 when the subject was Obamacare. At that time, the main stream media first tried to ignore the meetings and then they switched to coverage that implied that the angry citizens were racist, uninformed or just plain crazy. In other words, the coverage was the complete opposite this time when the target was Republican rather than Democrat cocngressmen. Also interesting, however, is that in neither case do these segments ever mention the relevant national polling data. for Obamacare, the polls showed that a majority of Americans did not want that passed into law; the media ignored it. On the budget, the polls show that a majority of Americans support major budget cuts like the Ryan budget and they think that the Republicans can do a better job controling the budget than the Democrats can. The bias is clear once again.
Saturday, April 30, 2011
Friday, April 29, 2011
Udall falls off the Clift
Eleanor Clift is out with a puff piece praising senator Udall of new Mexico for his valiant fight against the evil of man made climate change. Clift is one of a diminishing group of true believers who still describe man made global warming as settled science. Udall is certainly one of the true believers.
The problem, of course, is that the science supporting global warming theory is far from settled. Indeed, essentially all of the models that predict warming due to human activity rely on the data supplied by East Anglia University in the UK. That data is the same information that was revealed to have been "adjusted" to meet the end requirements in the e-mail that hackers released on the web a few years back. Since that release, no one has come forward to offer a coherent explanation for the e-mails. Instead, the more folks have looked at the underlying data, the further the results got from supporting any sort of man made global warming conclusion. Indeed, things have moved so far from the old global warming meme that Al Gore and friends now talk about climate change rather than global warming. Of course, it also helped change the name when the world cooled for a few years in a row during the second half of the last decade.
Right now, rather than putting forth a new transparent set of data to support the climate record for the last hundred, five hundred or on thousand years, the Gore group (or as I call them the Gorenishts) have just moved forward with attacks on all who oppose them. It is "settled science" don't you know. Opponents are like flat earthers or those who deny the holocaust. In other words, the Gore group has gone to political invective since it has no new scientific data to offer.
Clift's piece on Udall needs to be read with this point of view in mind. She is preaching to the converted. Nothing in her article would convince a sceptic with an open mind. Indeed, the more I look for proof, the less I find.
The truth is that there are a certain number of incontrovertible truths that we do know about the world climate:
1) A thousand years ago, the earth was warmer than it is now. At least that was the case in the areas that kept records. There were vineyards in Sweden and Norway. Greenland was capable of supporting human agricultural settlements. All of the European records indicate a warmer climate than is currently the case.
2) About 800 years ago, the earth entered a cooling period; some would call it a mini ice age. All over the world the climate got colder. those same Viking settlements in Northern Europe were nearly wiped away by the cold. People driven indoors by the cold became available for attack by fleas that spread the plague which wiped out about a third of the inhabitants of Europe. This cold period continued for centuries. Indeed, at the time of the American Revolution, the climate was still quite cold. Remember the winter in Valley Forge, the ice floes in the Delaware river at Christmas at the time of the Battle of Trenton, etc. The cold culminated in the early 19th century when volcanic activity resulted in one final cold snap that lasted for an entire year.
3) Since about 1820, the earth has been warming. Temperature records in Europe, North America and elsewhere support this. We also know that human activity that would release greenhouse gases was much too small to have been the cause for this global temperatur rise. The warming has continued as a general trend since 1820 until today. There are ups and downs, but the overall trend has been up.
Given these facts, it is not difficult to explain global warming as a natural occurence which is not man made. The truth is that there needs to be clear evidence that the warming that began before man was producing the greenhouse gases that Gore and friend find so alarming was, in fact, caused by those gases.
My mind is open, but unless and until someone comes forward with something other than a computer model based upon assumptions about the effect of the human activity, I will not be a believer. In other words, it will not convince me that there is man made climate change until someone has proof that does not depend on the assumption that there is man made climate change.
The problem, of course, is that the science supporting global warming theory is far from settled. Indeed, essentially all of the models that predict warming due to human activity rely on the data supplied by East Anglia University in the UK. That data is the same information that was revealed to have been "adjusted" to meet the end requirements in the e-mail that hackers released on the web a few years back. Since that release, no one has come forward to offer a coherent explanation for the e-mails. Instead, the more folks have looked at the underlying data, the further the results got from supporting any sort of man made global warming conclusion. Indeed, things have moved so far from the old global warming meme that Al Gore and friends now talk about climate change rather than global warming. Of course, it also helped change the name when the world cooled for a few years in a row during the second half of the last decade.
Right now, rather than putting forth a new transparent set of data to support the climate record for the last hundred, five hundred or on thousand years, the Gore group (or as I call them the Gorenishts) have just moved forward with attacks on all who oppose them. It is "settled science" don't you know. Opponents are like flat earthers or those who deny the holocaust. In other words, the Gore group has gone to political invective since it has no new scientific data to offer.
Clift's piece on Udall needs to be read with this point of view in mind. She is preaching to the converted. Nothing in her article would convince a sceptic with an open mind. Indeed, the more I look for proof, the less I find.
The truth is that there are a certain number of incontrovertible truths that we do know about the world climate:
1) A thousand years ago, the earth was warmer than it is now. At least that was the case in the areas that kept records. There were vineyards in Sweden and Norway. Greenland was capable of supporting human agricultural settlements. All of the European records indicate a warmer climate than is currently the case.
2) About 800 years ago, the earth entered a cooling period; some would call it a mini ice age. All over the world the climate got colder. those same Viking settlements in Northern Europe were nearly wiped away by the cold. People driven indoors by the cold became available for attack by fleas that spread the plague which wiped out about a third of the inhabitants of Europe. This cold period continued for centuries. Indeed, at the time of the American Revolution, the climate was still quite cold. Remember the winter in Valley Forge, the ice floes in the Delaware river at Christmas at the time of the Battle of Trenton, etc. The cold culminated in the early 19th century when volcanic activity resulted in one final cold snap that lasted for an entire year.
3) Since about 1820, the earth has been warming. Temperature records in Europe, North America and elsewhere support this. We also know that human activity that would release greenhouse gases was much too small to have been the cause for this global temperatur rise. The warming has continued as a general trend since 1820 until today. There are ups and downs, but the overall trend has been up.
Given these facts, it is not difficult to explain global warming as a natural occurence which is not man made. The truth is that there needs to be clear evidence that the warming that began before man was producing the greenhouse gases that Gore and friend find so alarming was, in fact, caused by those gases.
My mind is open, but unless and until someone comes forward with something other than a computer model based upon assumptions about the effect of the human activity, I will not be a believer. In other words, it will not convince me that there is man made climate change until someone has proof that does not depend on the assumption that there is man made climate change.
Oliver North and what's really important
I am not a big fan of Oliver North. To me, he plays the loyal soldier role a little too often. Nevertheless, I thought that his column about the president's recent press conference is totally on the mark, well stated and a must read for every concerned citizen in the US. I am not going to try to paraphrase or discuss it. You should read it! You can get to the column by clicking on the title to this post.
Is there a split in the syrian Army?
Sky News is reporting that in the south of Syria, there have been clashes between army groups that are attacking protesters and other army units that are protecting the same protesters. Syrian government spokesmen deny this, and Sky has no reporter on the scene to verify that what it is being told is correct. If there are actually troops supporting the protesters, this is a major development and it may be the beginning of the end for the Assad regime.
The Most Outrageous Statement of the Day, Week and Year
Most people do not know who Bob Shrum is. He is a long time Democrat political consultant. Perhaps his most notable "achievement" has been working on numerous presidential campaigns and losing in every one of them. He is like the kiss of death for a Democrat presidential campaign. Writing in the Week, however, Shrum has come forward with a new reason for fame -- or more precisely, infamy. Here is the essence of what he said:
"But there remains real danger for the president and his party in the conscious if unconscionable GOP effort to dead end the recovery by playing on popular misconceptions about spending and deficits — cutting the federal budget far and fast on the pretext of restoring confidence, but with the darker purpose of reversing growth and raising unemployment. "
You may want to reread that quote. Here you have a national Democrat leader saying that the Republican goal of cutting government spending is intentionally designed to slow growth and raise unemployment. In short, Shrum says that the Republicans are trying to sabotage the American economy for political gain.
Shrum's statement is so outrageous that it needs to be condemned immediately by Democrats from Obama on down.
I could ask Shrum how it is possible that the US economy grew at only a 1.8% rate in the first quarter of this year despite the most massive fiscal stimulus in the history of the world coupled with the most massive monetary stimulus in the history of the universe. Shrum would probably blame the budget cuts in the deal reached just a few weeks ago. The truth is that the US has now had three years of pure Keynesian stimulus both in the form of tax cuts and enormous spending increases. It has also had the auto bailouts, cash for clunkers, the new home tax credit, the energy tax credits, and many other programs. If Keynesian economic theory is actually valid, the US economy should be growing at boom levels right now instead of just barely sustaining any growth at all. Shrum's "analysis" (which is no more than despicable name calling) is based upon the validity of this now discredited theory.
"But there remains real danger for the president and his party in the conscious if unconscionable GOP effort to dead end the recovery by playing on popular misconceptions about spending and deficits — cutting the federal budget far and fast on the pretext of restoring confidence, but with the darker purpose of reversing growth and raising unemployment. "
You may want to reread that quote. Here you have a national Democrat leader saying that the Republican goal of cutting government spending is intentionally designed to slow growth and raise unemployment. In short, Shrum says that the Republicans are trying to sabotage the American economy for political gain.
Shrum's statement is so outrageous that it needs to be condemned immediately by Democrats from Obama on down.
I could ask Shrum how it is possible that the US economy grew at only a 1.8% rate in the first quarter of this year despite the most massive fiscal stimulus in the history of the world coupled with the most massive monetary stimulus in the history of the universe. Shrum would probably blame the budget cuts in the deal reached just a few weeks ago. The truth is that the US has now had three years of pure Keynesian stimulus both in the form of tax cuts and enormous spending increases. It has also had the auto bailouts, cash for clunkers, the new home tax credit, the energy tax credits, and many other programs. If Keynesian economic theory is actually valid, the US economy should be growing at boom levels right now instead of just barely sustaining any growth at all. Shrum's "analysis" (which is no more than despicable name calling) is based upon the validity of this now discredited theory.
A Delusional Foreign Policy
I have written repeatedly about the unwillingness of president Obama to take a meaningful stand against the slaughter of protesters in Syria by the Assad regime. While the decision to take military action in Libya was agonizingly slow (with the result that Gaddafi remains in power today when he could have been toppled with quick action), the US position with regard to Syria moves at such a glacial pace that Obama has not even brought himself to withdraw the US ambassador for consultations, perhaps the weakest measure of condemnation available to the USA. Instead, Obama has been too busy raising campaign cash and releasing birth certificates (oh, and appearing on Oprah).
Now comes another area where US foreign policy seems frozen like the proverbial deer caught in the headlights. Hamas, the terrorist organization running Gaza, and Fatah which controls the Palestinian Authority in the West Bank have announced that they have reconciled and that they will form a unity government. Under US law, all American aid to such an entity is supposed to be ended since Hamas is a terror group. The Washington Post reported last evening, however, that the State Department does not rule out continuing aid to the new Hamas/Fatah entity. Let's put that into perspective. It is as if the Karzai government in Afghanistan which gets enormous support from the USA announced that it had reconciled with the Taliban and Al Qaeda and was forming a unity government with those two entities. Would the US then give aid to the Taliban and Al Qaeda? Before you decide that it would be a good move towards peace, remember that Hamas (like the Taliban and Al Qaeda) has not renounced its terrorist goals and actions. Hamas still stands for the destruction of Israel and the death of all its inhabitants. But Obama and the Obamacrats can't bring themselves to say out loud that the US will not support such an entity?
Luckily for the country, there is already a move afoot in Congress to cut off all funding for any entity that includes Hamas. Under existing law there is no need for Congress to take such an action, but the Obama administration seems to be trying to thwart that law. Obama and his regime are so dedicated to looking like they are "winning" (next year is an election year, you know) that they are ready to pretend that things are going as planned rather than taking the steps needed for the security of the USA.
No matter what your view is of Obama, I strongly urge everyone to contact their Congressman and Senators to call for cutting off any US funding to Hamas.
Now comes another area where US foreign policy seems frozen like the proverbial deer caught in the headlights. Hamas, the terrorist organization running Gaza, and Fatah which controls the Palestinian Authority in the West Bank have announced that they have reconciled and that they will form a unity government. Under US law, all American aid to such an entity is supposed to be ended since Hamas is a terror group. The Washington Post reported last evening, however, that the State Department does not rule out continuing aid to the new Hamas/Fatah entity. Let's put that into perspective. It is as if the Karzai government in Afghanistan which gets enormous support from the USA announced that it had reconciled with the Taliban and Al Qaeda and was forming a unity government with those two entities. Would the US then give aid to the Taliban and Al Qaeda? Before you decide that it would be a good move towards peace, remember that Hamas (like the Taliban and Al Qaeda) has not renounced its terrorist goals and actions. Hamas still stands for the destruction of Israel and the death of all its inhabitants. But Obama and the Obamacrats can't bring themselves to say out loud that the US will not support such an entity?
Luckily for the country, there is already a move afoot in Congress to cut off all funding for any entity that includes Hamas. Under existing law there is no need for Congress to take such an action, but the Obama administration seems to be trying to thwart that law. Obama and his regime are so dedicated to looking like they are "winning" (next year is an election year, you know) that they are ready to pretend that things are going as planned rather than taking the steps needed for the security of the USA.
No matter what your view is of Obama, I strongly urge everyone to contact their Congressman and Senators to call for cutting off any US funding to Hamas.
Thursday, April 28, 2011
Question of the day?
So here is the question of the day: President Obama is once again talking about electric cars and how they will create green jobs in the USA. Would someone please ask Obama this question: Mr. President, where will the electricity which fuels these cars come from? Believe me, that question is a show stopper.
Here's the answer: Just under 50% of the electricity generated in the USA comes from coal. About 20% of the electric energy comes from natural gas. A similar amount of electricity comes from nuclear energy. Most of the rest comes from hydroelectric sources. That means that electric cars will run mainly on coal with a big side helping of natural gas and nuclear energy.
Here's the importance of that answer: No matter what gets done to it, coal is nowhere near as clean as gasoline when it is burned. That means that the switch to electric cars will actually result in more pollution rather than less. Now it is true that nuclear energy is less polluting than gasoline as is also the case with natural gas. Nevertheless, the total pollution will rise with a shift to electric cars. There is also the issue of ozone production from electric cars, a much bigger problem with electric rather than gasoline powered cars.
And here is the rational solution to America's high use of gasoline made from imported oil: the USA needs to switch to vehicles powered by natural gas. Nat gas is abundant in the USA and much less expensive than oil. Switching 5 million cars per year to natural gas would reduce oil imports by at least a third in ten years. Further, nat gas cars could easily get up to 250 or 300 miles per tank while electric cars still require a charge every 50 to 100 miles. Indeed, the only advantage for electric cars is that every home has the power needed to charge them while only those homes with gas lines could have home filling capacity for nat gas.
Maybe if people began asking the president about nat gas cars and trucks he might actually realize their virtues and get on board to support them. Of course, that would required two very unlikely things: first the media would have to ask him about important issues rather than garbage like his birth certificate or his fund raising totals, and second, Obama would actually have to answer a question when he gets asked it rather than just giving a piece of his stump speech. Oh well, one can dream!
Here's the answer: Just under 50% of the electricity generated in the USA comes from coal. About 20% of the electric energy comes from natural gas. A similar amount of electricity comes from nuclear energy. Most of the rest comes from hydroelectric sources. That means that electric cars will run mainly on coal with a big side helping of natural gas and nuclear energy.
Here's the importance of that answer: No matter what gets done to it, coal is nowhere near as clean as gasoline when it is burned. That means that the switch to electric cars will actually result in more pollution rather than less. Now it is true that nuclear energy is less polluting than gasoline as is also the case with natural gas. Nevertheless, the total pollution will rise with a shift to electric cars. There is also the issue of ozone production from electric cars, a much bigger problem with electric rather than gasoline powered cars.
And here is the rational solution to America's high use of gasoline made from imported oil: the USA needs to switch to vehicles powered by natural gas. Nat gas is abundant in the USA and much less expensive than oil. Switching 5 million cars per year to natural gas would reduce oil imports by at least a third in ten years. Further, nat gas cars could easily get up to 250 or 300 miles per tank while electric cars still require a charge every 50 to 100 miles. Indeed, the only advantage for electric cars is that every home has the power needed to charge them while only those homes with gas lines could have home filling capacity for nat gas.
Maybe if people began asking the president about nat gas cars and trucks he might actually realize their virtues and get on board to support them. Of course, that would required two very unlikely things: first the media would have to ask him about important issues rather than garbage like his birth certificate or his fund raising totals, and second, Obama would actually have to answer a question when he gets asked it rather than just giving a piece of his stump speech. Oh well, one can dream!
The "reconcilliation" of Hamas and Fatah
Yesterday brought the news that the terrorists of Hamas who control the Gaza Strip have reached an agreement for reconcilliation with Al Fatah, the Palestinian party that is in control of the Palestinian areas of the West Bank. The two had come to blows four years ago when Hamas rose up and ousted the Fatah personnel from Gaza. According to the news, Egypt was instrumental in getting the two sides to agree to reconcile. Hamas made clear that its agreement with Fatah did not include either seeking peace with Israel or even recognizing the right of Israel to exist. In other words, a terrorist group with sworn enmity towards Israel is now supposed to take its place as part of teh palestinian government. All of the Hamas terrorists in Palestinian jails in the West Bank are supposed to be freed. Simply put, any chance for peace between Israel and the palestinians is dead for now.
So what are the Israelis to do about all this? Certainly, Israel will not stand by while the Hamas terrorists are released back into the population. Nor will Israel continue to turn over tax revenue which it collects for the Palestinian Authorizty; that would be giving money to arm its terrorist enemies. One wonders if the USA will cut off aid to the Palestinian Authority now that Hamas will be partially in control of it. My suspicion is that Obama will do nothing and that Congress will then act to cut off funding so long as Hamas remains part of the government.
So what are the Israelis to do about all this? Certainly, Israel will not stand by while the Hamas terrorists are released back into the population. Nor will Israel continue to turn over tax revenue which it collects for the Palestinian Authorizty; that would be giving money to arm its terrorist enemies. One wonders if the USA will cut off aid to the Palestinian Authority now that Hamas will be partially in control of it. My suspicion is that Obama will do nothing and that Congress will then act to cut off funding so long as Hamas remains part of the government.
The Economy in the near term
Today has brought some rather unsettling economic news. First, GDP for the first quarter is estimated to have risen at a rate of just 1.8%. This anemic growth is blamed by "economists" (according to the media) on higher gasoline prices and "other temporary factors", but the point is that it is a truly horrible result for an economy that is supposedly recovering from a deep recession. Indeed, The national average price for a gallon of regular gasoline was just about $3.00 at the start of the quarter and it rose to $3.20 at the atart of March. That means that for the first two thirds of the quarter, the rise in fuel prices was not that great. By the end of the quarter, a gallone of regular gas cost about $3.50, a thirty cent rise in the price during that last month. Of course, after just less than a month into the second quarter, the average price per gallon is up by another 38 cents. One has to wonder how the rise in gas prices is viewed as temporary when the rate of growth in the second quarter is much greater than it was during the first quarter. Further, there is no sign that the rise in gas prices is abating.
Second, the weekly new claims for unemployment benefits went up by 25,000 to a recent high of 429,000. The four week average is also above 400,000 for the first time in months. This higher unemployment is important since many of those "economists" who discuss the slow rate of growth say that job growth will power the economy forward. Again, one has to wonder how the economy can be powered by job growth when the rate of new unemployment is rising rather than falling.
Third, there has been a confirmation by the government that the rate of inflation is at a recent high. I am speaking about the rate including food and energy prices, a number that the government likes to eliminate to come to what it describes as the core rate of inflation. Core inflation is a nice rate to know if energy and food prices are gyrating up and down. On the other hand, when food prices and energy costs are both soaring, it is silly to eliminate them from the inflation calculations. Real people living real lives have to pay for food and energy. Millions of folks have to pay $50 or more to fill up their cars and that will inevitably mean less money spent on other purchases. If gas prices do not come down, the growth rate for the second quarter will need a big push from somewhere other than consumer spending if it is to resume growing at even a 3% rate.
There is no question that most of the reporters who cover these economic statistics have little idea what they really indicate. Right now, the US economy is showing many signs of slowing. Cheerleading reports that talk about growth ahead do not change the reality of the situation. I hope that there is some reason for the price of energy to decline, but there seems to be no effort by the government to achieve that end. That means that the US is left to market forces. Since the Saudis just cut their output to support the higher prices, it is not likely that we will see a decline soon enough to make a meaningful difference.
Second, the weekly new claims for unemployment benefits went up by 25,000 to a recent high of 429,000. The four week average is also above 400,000 for the first time in months. This higher unemployment is important since many of those "economists" who discuss the slow rate of growth say that job growth will power the economy forward. Again, one has to wonder how the economy can be powered by job growth when the rate of new unemployment is rising rather than falling.
Third, there has been a confirmation by the government that the rate of inflation is at a recent high. I am speaking about the rate including food and energy prices, a number that the government likes to eliminate to come to what it describes as the core rate of inflation. Core inflation is a nice rate to know if energy and food prices are gyrating up and down. On the other hand, when food prices and energy costs are both soaring, it is silly to eliminate them from the inflation calculations. Real people living real lives have to pay for food and energy. Millions of folks have to pay $50 or more to fill up their cars and that will inevitably mean less money spent on other purchases. If gas prices do not come down, the growth rate for the second quarter will need a big push from somewhere other than consumer spending if it is to resume growing at even a 3% rate.
There is no question that most of the reporters who cover these economic statistics have little idea what they really indicate. Right now, the US economy is showing many signs of slowing. Cheerleading reports that talk about growth ahead do not change the reality of the situation. I hope that there is some reason for the price of energy to decline, but there seems to be no effort by the government to achieve that end. That means that the US is left to market forces. Since the Saudis just cut their output to support the higher prices, it is not likely that we will see a decline soon enough to make a meaningful difference.
Will China cool?
There have been a number of articles written recently that put forth the heretical view that the Chinese economy may be about to cool big time. China has been growing rapidly for essentially all of the last decade (and more). The thesis of the articles is that such growth cannot continue. The main reason for this view is that too large a portion of the Chinese GDP is going into investments which will not be able to be utilized. China is building high speed rail lines (sound familiar?), but there are not enough riders on the finished lines to even pay for the operating costs. China is building homes and apartments at a fast clip, but there is still not enough of a middle class to occupy all that are being built. Airports are growing at a faster clip than air travel. Other types of public investments are also outstripping the ability of the country to use them. The expectation is that at a certain point there will need to be a slowdown in such investment with a concommitant slowdown in the Chinese economy. Alternatively, since Chinese GDP is devoted to investment rather than to providing consumer products for the people, there will be a crash in the Chinese economy as insufficient demand for Chinese goods causes the industrial portion of the economy to falter. Indeed, if the Chinese currency rises in relation to the Chinese overseas markets, this crash may be brought on quite suddenly.
In my view, this view of the future of the Chinese economy cannot be dismissed. Many folks will remember the Japanese juggernaut of the 1980's. Near the end of that decade, the growth of the Japanese economy was so strong and the world view that Japan would come to dominate everything was so ingrained that the value of the stocks on the Japanese stock market came to be about 55% of the total value of all stock on all of the world's exchanges. Land in Tokyo also rose to absurd valuations. I recall that the Tokyo office building owned by Northwest Airlines had a higher value than the rest of the airline. Of course, right after Japan reached this height, it stopped growing and has still not recovered. china could easily follow a course like this. More likely, the Chinese economy could see a recession and then a return to growth but at a slower pace.
So what is an investor to do? My view is that a prudent course of action contains two major componenets. First, reduce one's exposure to Chinese companies. For a long time, I have had minimal investments in companies with heavy Chinese exposure. This has been on the basis that the Chinese government is both all powerful and capricious. I do not like to invest in place where the government can decide one day to take an action that will result in the near destruction of my investment. Second, reduce one's exposure to commodities. For example, yesterday, I sold the last of my holdings in Vale, the Brazilian mining giant. Companies that depend on iron, copper, and other industrial commodities will see a major decline if the Chinese economy stalls. No other country is on the horizon to take up the demand if the Chinese stop buying. There could be a worldwide collapse of industrial commodity prices.
Obviously, no one knows where the Chinese economy will be in a year from now; there are many predictions, but there is no certainty. In my view, however, there is enough of a risk of a serious downturn in China that it makes sense to reduce one's exposure to the sectors that would be hardest hit by such a decline.
In my view, this view of the future of the Chinese economy cannot be dismissed. Many folks will remember the Japanese juggernaut of the 1980's. Near the end of that decade, the growth of the Japanese economy was so strong and the world view that Japan would come to dominate everything was so ingrained that the value of the stocks on the Japanese stock market came to be about 55% of the total value of all stock on all of the world's exchanges. Land in Tokyo also rose to absurd valuations. I recall that the Tokyo office building owned by Northwest Airlines had a higher value than the rest of the airline. Of course, right after Japan reached this height, it stopped growing and has still not recovered. china could easily follow a course like this. More likely, the Chinese economy could see a recession and then a return to growth but at a slower pace.
So what is an investor to do? My view is that a prudent course of action contains two major componenets. First, reduce one's exposure to Chinese companies. For a long time, I have had minimal investments in companies with heavy Chinese exposure. This has been on the basis that the Chinese government is both all powerful and capricious. I do not like to invest in place where the government can decide one day to take an action that will result in the near destruction of my investment. Second, reduce one's exposure to commodities. For example, yesterday, I sold the last of my holdings in Vale, the Brazilian mining giant. Companies that depend on iron, copper, and other industrial commodities will see a major decline if the Chinese economy stalls. No other country is on the horizon to take up the demand if the Chinese stop buying. There could be a worldwide collapse of industrial commodity prices.
Obviously, no one knows where the Chinese economy will be in a year from now; there are many predictions, but there is no certainty. In my view, however, there is enough of a risk of a serious downturn in China that it makes sense to reduce one's exposure to the sectors that would be hardest hit by such a decline.
More Bias from the Media
In a truly amazing article, the AP this morning is proclaiming that the Democrats are thankful to Paul Ryan and his budget proposals for providing them with ammunition to attack the GOP. Ryan's budget proposal calls for a change to Medicare which will change the program from one run by the government to one where the government provides vouchers for private insurance beginning with those who reach 65 in 2022 and thereafter. The size of the vouchers would be reduced for those with high incomes and the retirement age would be raised gradually over more than a decade until it hit 67. According to the article, Democrats are calling these "Medicare cuts" since their polling indicates that using that phrase plays best to the public. The article also then tells us that this strategy is allowing the Democrats to make real inroads in their fight with the GOP.
But here's the kicker. In paragraph 19 of the piece, the AP reports that recent polling shows that the public including seniors approve the Ryan plan and prefer it to the position of the Democrats. What is AP's answer? AP then reports about an "unscientific annecdotal" poll that found real upset with the Ryan plan. AP also reports that there have been confrontations at some town hall meetings held in the last week or so, particularly one in Florida. A bit later, AP admits that it covered the town hall where the confrontation took place after it was told by Democrat activists that they planned to attend and disrupt it. So we have an article by AP proclaiming that the Ryan plan is hurting the GOP based upon an unscientific annecdotal poll and the preplanned disruption of a town hall by some Democrat activists. The actual scientific poll which shows the opposition is basically ignored.
Congratulations to the AP for being even more partisan than usual.
But here's the kicker. In paragraph 19 of the piece, the AP reports that recent polling shows that the public including seniors approve the Ryan plan and prefer it to the position of the Democrats. What is AP's answer? AP then reports about an "unscientific annecdotal" poll that found real upset with the Ryan plan. AP also reports that there have been confrontations at some town hall meetings held in the last week or so, particularly one in Florida. A bit later, AP admits that it covered the town hall where the confrontation took place after it was told by Democrat activists that they planned to attend and disrupt it. So we have an article by AP proclaiming that the Ryan plan is hurting the GOP based upon an unscientific annecdotal poll and the preplanned disruption of a town hall by some Democrat activists. The actual scientific poll which shows the opposition is basically ignored.
Congratulations to the AP for being even more partisan than usual.
Wednesday, April 27, 2011
The media has lost its mind (if it ever had one)
So we learned today that Leon Pannetta will be the new Secretary of Defense and General Petreus will come home from Afghanistan to head the CIA. We also learned that the Federal Reserve will maintain interest rates at their current low and will continue to reinvest the proceeds of bonds which come due in new bonds. There is also news that the Egyptian natural gas pipeline that supplies fuel to Jordan, Israel and Syria was bombed, although no one knows yet for sure who did this. There are a bunch of other stories in the news as well. And what is the media covering? That's right, the birth certificate release by Obama. Will the BS ever end? Is there such a thing as a serious journalist?
Let's hope this ends the nonsense
So the president has released his birth certificate. Let's hope this ends the nonsense about where he was born. There is too much out there that is actually important.
Tuesday, April 26, 2011
Regulating Shale Gas -- More Unnatural gas from Obama
President Obama and the Obamacrats are trying onced again to hide the truth about energy production in the USA. The latest is the call by Obama's economic adviser Gene Sperling for federal regulation of the use of fracking for completing wells in shale formations. According to Sperling, the industry should welcome federal regulation to make sure that development is done properly. Indeed, according to the AP, "Sperling said the Obama administration, which has made natural gas a cornerstone of its energy policy, was working to develop a framework for promoting shale gas production. He did not offer specifics on what type of regulation the adminstration would support."
Sperling's statement is wrong on many levels. First, it is ridiculous for Obama or any of his people to claim that they have made "natural gas a cornerstone of [their] energy policy". In speech after speech, Obama has talked about solar and wind energy but never mentioned natural gas. When discussing American fossil fuel reserves, Obama always talks about how the US has such a small amount of proven reserves of oil, but he never mentions the vast shale gas deposits that could easily provide decades or centuries of energy to America. Obama has pushed repeatedly for the production of electric cars (which ultimately are powered by burning coal) but has never once spoken about the need for vehicles powered by natural gas. In short, Obama has always ignored natural gas even though it represents the most abundant, clean and useful energy source available to US consumers.
Second, everyone knows what it means for the feds to "regulate" fracking. We can all see the results of the federal regulation of off shore wells in the Gulf of Mexico or off Alaska. Obama has had a moratorium preventing any deep water drilling in the Gulf for the last year. Just this week, the feds also denied a permit to Shell to drill in Alaska in an area that is supposed to have twenty five billion barrels of oil (or close to a five year supply for US needs.) Shell spent $4 billion to buy the rights to drill in the area, money already paid to the federal government, but the same government is now "regulating" Shell so as to prevent any drilling in the area. Next time Obama denounces the $4 billion subsidy that big oil gets from the USA, maybe someone should mention the $4 billion subsidy that Shell oil gave to the USA for drilling rights that it cannot use. Federal regulation of fracking would just mean higher cost, less production and no protection for the environment. The regulation is about government control, not protecting the environment.
Third, only an Obamacrat could call for industry to support federal regulation of fracking without even bothering to state what the regulations would be. Think of it! what if the governor of your state called upon you to support higher taxes without ever telling you what those taxes would be. There would be a big difference between raising sales taxes by one half of one percent and raising the top income tax bracket to 78%. Most folks would like to know what the proposal is before deciding whether or not it makes sense. I guess this goes back to the basic Obamacrat line of reasoning: we have to enact the regulaitons to find out what is in them.
All of this makes clear that Obama and his cronies are not serious about wanting to promote higher energy output. These statements are all for show. But, the American people are not as dumb as obama and his cronies think they are. Obama will get that message clearly in November of 2012.
If I haven't said it lately, let me add once again: "Obama has got to go!!!!!!!"
Sperling's statement is wrong on many levels. First, it is ridiculous for Obama or any of his people to claim that they have made "natural gas a cornerstone of [their] energy policy". In speech after speech, Obama has talked about solar and wind energy but never mentioned natural gas. When discussing American fossil fuel reserves, Obama always talks about how the US has such a small amount of proven reserves of oil, but he never mentions the vast shale gas deposits that could easily provide decades or centuries of energy to America. Obama has pushed repeatedly for the production of electric cars (which ultimately are powered by burning coal) but has never once spoken about the need for vehicles powered by natural gas. In short, Obama has always ignored natural gas even though it represents the most abundant, clean and useful energy source available to US consumers.
Second, everyone knows what it means for the feds to "regulate" fracking. We can all see the results of the federal regulation of off shore wells in the Gulf of Mexico or off Alaska. Obama has had a moratorium preventing any deep water drilling in the Gulf for the last year. Just this week, the feds also denied a permit to Shell to drill in Alaska in an area that is supposed to have twenty five billion barrels of oil (or close to a five year supply for US needs.) Shell spent $4 billion to buy the rights to drill in the area, money already paid to the federal government, but the same government is now "regulating" Shell so as to prevent any drilling in the area. Next time Obama denounces the $4 billion subsidy that big oil gets from the USA, maybe someone should mention the $4 billion subsidy that Shell oil gave to the USA for drilling rights that it cannot use. Federal regulation of fracking would just mean higher cost, less production and no protection for the environment. The regulation is about government control, not protecting the environment.
Third, only an Obamacrat could call for industry to support federal regulation of fracking without even bothering to state what the regulations would be. Think of it! what if the governor of your state called upon you to support higher taxes without ever telling you what those taxes would be. There would be a big difference between raising sales taxes by one half of one percent and raising the top income tax bracket to 78%. Most folks would like to know what the proposal is before deciding whether or not it makes sense. I guess this goes back to the basic Obamacrat line of reasoning: we have to enact the regulaitons to find out what is in them.
All of this makes clear that Obama and his cronies are not serious about wanting to promote higher energy output. These statements are all for show. But, the American people are not as dumb as obama and his cronies think they are. Obama will get that message clearly in November of 2012.
If I haven't said it lately, let me add once again: "Obama has got to go!!!!!!!"
Hedge Funds and the WSJ
In an interesting article, the Wall Street Journal describes the change in political contributions from the hedge fund industry. In 2008, Obama and the Obamacrats got the bulk of contributions from that industry. In 2010, the GOP took the lion's share of the contributions. The Journal then describes the reason for this switch this way: "Managers of hedge funds—private investment partnerships that cater to institutions and wealthy people—are reacting to what some criticize as Mr. Obama's populist attacks on Wall Street, as well as to Democrat-led efforts to raise their tax bills. They had hoped to be protected from such a tax move by their relationships with prominent Democratic members of Congress. 'Hedge funds bankrolled the Democrats in the 2006 and 2008 elections, and the very people they helped put in power turned around and screwed them,' said Sam Geduldig, a former Republican congressional staffer who is a Wall Street lobbyist."
This seems too simplistic by far to me. Sure, there are undoubtedly hedgies who are angered by the attacks of the president on them and their industry. There are also certainly others who resent the push by Obama and his party to raise taxes on their industry. Nevertheless, it would be foolish not to realize that the hedge fund industry contains a big chunk of people who actually understand economics and how it works. They are not taken in by class warfare rhetoric that calls for certain types of spending or taxes even though the results will harm the economy. They are lookinig for policies that will actually help the US economy, something Obama has not ever provided. The WSJ should realize that not everyone acts out of just their own self interest. Many folks try to do what will be best for the country. Certainly, that would mean the rejection of Obama and the Obamacrats who have done much to undermine the US economy over the last two years.
This seems too simplistic by far to me. Sure, there are undoubtedly hedgies who are angered by the attacks of the president on them and their industry. There are also certainly others who resent the push by Obama and his party to raise taxes on their industry. Nevertheless, it would be foolish not to realize that the hedge fund industry contains a big chunk of people who actually understand economics and how it works. They are not taken in by class warfare rhetoric that calls for certain types of spending or taxes even though the results will harm the economy. They are lookinig for policies that will actually help the US economy, something Obama has not ever provided. The WSJ should realize that not everyone acts out of just their own self interest. Many folks try to do what will be best for the country. Certainly, that would mean the rejection of Obama and the Obamacrats who have done much to undermine the US economy over the last two years.
Tax Subsidies for the oil industry?
Today's news is that Obama is now calling for the end of tax "subsidies" for the oil companies. Wouldn't it be nice if Obama actually said what the subsidies are to which he is referring. It would also be nice were he to tell us all why removal of these supposed subsidies will not raise oil prices. The truth is that removal of the $4 billion will just result in higher gas prices at the pump. Let me explain. There are a great many wells in this country that produce just a few barrels of oil each day or even each week. For many of them, the revenue brought in from the oil is not all that much more than the ongoing cost to produce the oil. If the tax structure for oil producers is changed, many of these small producers will no longer be profitable and will just shut down. That will reduce domestic oil production at a point when the USA is supposedly trying to reduce the need for imported oil. For larger producers, wells that are marginally profitable will also be shut down. That means a further reduction in domestic oil supplies. Apparently most Americans understand that reducing supply of oil will raise prices. Unfortunately, Obama either does not understand this or he thinks that his class warfare rhetoric requires that he attack wealthy oil companies even if the net result is that the average American pays higher prices at the pump.
Obama has got to go!
Obama has got to go!
Trump is a jerk
the big item from the Donald yesterday was his statement that Obama probably was not qualified to go to an Ivy league school. Trump was relying on Obama's failure to release his college transcript. According to Trump, that makes him a questionable student. Trump should know better.
Obama graduated from Harvard Law School magna cum laude. I graduated from Harvard law school a few years earlier than Obama, so I am familiar with what the magna cum laude designation means. Based strictly on his grades, Obama was at least in the top 15% of his class. Harvard Law School is one of the most selective institutions in the country, so just being admitted there is a sign that one is an outstanding student. Graduating in the top of the class, however, means that one has a great legal mind. In other words, Trump is full of it.
Of course, I said that being at the top of the class at HLS means one has a great legal mind; it does not mean that one can lead or that one has common sense. There is no question, however, that president Obama is a very bright individual.
I just wish that Donald Trump would find some other method for promoting his TV show.
Obama graduated from Harvard Law School magna cum laude. I graduated from Harvard law school a few years earlier than Obama, so I am familiar with what the magna cum laude designation means. Based strictly on his grades, Obama was at least in the top 15% of his class. Harvard Law School is one of the most selective institutions in the country, so just being admitted there is a sign that one is an outstanding student. Graduating in the top of the class, however, means that one has a great legal mind. In other words, Trump is full of it.
Of course, I said that being at the top of the class at HLS means one has a great legal mind; it does not mean that one can lead or that one has common sense. There is no question, however, that president Obama is a very bright individual.
I just wish that Donald Trump would find some other method for promoting his TV show.
Monday, April 25, 2011
Yawn -- Ron Paul is running again; Haley Barbour is not
So by now you probably have heard that Texas congressman Ron Paul is running for the GOP nomination for president and Mississippi governor Haley Barbour has decided not to run. Too bad that they could not have reversed their decisions. Paul is a joke. He has no chance of winning. Barbour at least would have been a creditable candidate. With Barbour out, the likelihood increases that Mitch Daniels, governor of Indiana, will get into the race. He is probably the GOP candidate best situated to raise the issue of spending cut, cuts in taxes and job creation. After all, he has accomplished much in Indiana. His record there is almost the exact opposite of Obama's in Washington. While it does not follow the conventional wisdom, my prediction is that the race will narrow down to a choice between Tim Pawlenty and Mitch Daniels. Romney will not fare any better than last time and his Romneycare past will haunt him through the entire race. Palin is unlikely to actually run. Trump is just a buffoon who will make a lot of noise but not win the votes. Huckabee will probably not run. Of course, everything will change at least five times between now and november of 2012.
Unserious about Syria -- 2
Things continue to get worse in Syria. Now, there is reported to be indiscriminate firing by snipers in two southern cities where the protests began. The snipers are shooting at anything that moves; the identity of the victims is not important, only that their deaths terrorize the population into capitulation. In short, the Assad government has done everything but use chemical weapons on its people, a measure that Assad's father employed in the 1980 on the city of Homa. I assume that the chemicals will reappear soon if the protests continue.
Today, we also learned that president obama is consiering taking action regarding Syria. The USA may freeze the assets of Syrian leaders in the USA; that is the threat. Of course, it is not much of a threat since the Syrian leadership does not have assets in the USA and any small amount that may be here is already in the process of being wired out of the country. That will let Obama freeze the assets without doing anything to pressure the Syrians. In other words, it will be a show for the American people but it will have no effect. Obama is also talking about seeking a resolution at the UN to condemn the Syrian actions. Boy is that a tough move. I bet Assad is shaking in Damascus just thinking about it.
The sad fact is that Syria is a country in which a leadership change would have a great effect for the positive. Assad supports terrorists and is allied with Iran. Why doesn't the White House do what it can to get rid of him? At the very least, Obama should explain US policy. Oh, wait, there is no US policy, so Obama cannot explain it.
Today, we also learned that president obama is consiering taking action regarding Syria. The USA may freeze the assets of Syrian leaders in the USA; that is the threat. Of course, it is not much of a threat since the Syrian leadership does not have assets in the USA and any small amount that may be here is already in the process of being wired out of the country. That will let Obama freeze the assets without doing anything to pressure the Syrians. In other words, it will be a show for the American people but it will have no effect. Obama is also talking about seeking a resolution at the UN to condemn the Syrian actions. Boy is that a tough move. I bet Assad is shaking in Damascus just thinking about it.
The sad fact is that Syria is a country in which a leadership change would have a great effect for the positive. Assad supports terrorists and is allied with Iran. Why doesn't the White House do what it can to get rid of him? At the very least, Obama should explain US policy. Oh, wait, there is no US policy, so Obama cannot explain it.
The media won't be able to hide the truth
In an amazing report, it was disclosed that since the BP oil spill, only 3 out of 280 network news reports on the rising price of oil have even mentioned the White House actions to cut off drilling and other federal restrictions on the search for oil. Let's see, Obama takes an action that cuts domestic oil production by an estimated 600,000 or more barrels per day and the networks see no connection between that production cut and the rising price of oil. There is no way that this is unintentional. Even worse, the number of network stories discussing oil "speculators" has been substantial as has the stories about the high profits of big oil. Of course, so-called big oil do not actually produce most of their own oil anymore; that is the province of the various national oil companies like those in Saudi Arabia, Iran and elsewhere. Companies like Exxon-Mobil are more refiners than producers. That means that the bulk of their revenue comes from selling the final product like gasoline and not from producing crude oil out of the ground. And, the speculators don't trade in the spot market where nearly all oil used for refining is bought. Speculators trade in futures so that they will never have to take delivery of the oil they buy and sell. Indeed, the spot market has a strong effect on the futures market -- much more so than the reverse.
The good news is that no matter what the media does, they cannot hide the truth from the American people. It does not take long to realize that something is very wrong when the price of gasoline more than doubles in the two years since Obama took office. Now, when Obama is saying that there is nothing that can solver the problem in the short run, it becomes even clearer that what Obama has done so far has just made things substantially worse. Indeed, if the price of oil keeps rising, it seems likely that no matter what Obama says or does, his chances for re-election will go down the drain.
The good news is that no matter what the media does, they cannot hide the truth from the American people. It does not take long to realize that something is very wrong when the price of gasoline more than doubles in the two years since Obama took office. Now, when Obama is saying that there is nothing that can solver the problem in the short run, it becomes even clearer that what Obama has done so far has just made things substantially worse. Indeed, if the price of oil keeps rising, it seems likely that no matter what Obama says or does, his chances for re-election will go down the drain.
A voice from Fantasyland -- Paul Krugman speaks
In one of the most unintentionally funny piece I have read in a long time, supposed economist Paul Krugman comes out in favor of solving the current budget crisis by raising taxes on everyone while maintaining all domestic and entitlement spending at current levels. Let's be clear what this means. Taxes on the middle class and the wealthy would rise. Over the next ten years, the additional tax revenues are projected to be about 6 billion dollars just from the changes to the income tax and the social security contributions. On top of this, there would be a surtax on the wealthiest Americans that would bring in a bit more and raise the top rate on income well above 50%. There would also be the abolition of many of the current tax deductions. Business taxes would also rise. Spending cuts would be focused principally on defense. Just imagine this. Krugman wants to take about 5% of GDP out of the hands of the people and give it to the government so that all those federal programs could continue an as before. Krugman understands that pulling 5% out of GDP in additional taxes will reduce consumer demand in a drastic manner. Right now, government already takes over 25% of GDP, so an increase of another 5% will take that number over 30% of GDP. A big chunk of the funds kept by the people go for major items like housing, medical care and food. That means that the tax increases Krugman advocates will reduce discretionery spending by consumers by something like 12-15%. In other words, if the taxes are increased to that extent, we may soon see a depression rather than just a recession. More folks will lose their jobs. More people will depend on governement handouts. Less revenue will be collected by the government than Krugman expects. And then, Krugman can advocate for raising taxes still further.
Simply put, Krugman is a fool. His call for tax increases is a call for the destruction of the US economy.
Simply put, Krugman is a fool. His call for tax increases is a call for the destruction of the US economy.
Sunday, April 24, 2011
Unserious about Syria
The latest from the protest front in Syria is that the government of Bashir Assad is using snipers to kill random people attending funerals of those who were killed during the protests on Friday. I think that needs to be repeated: the government of Syria is trying to terrorize its citizens into submission by carrying out random killings at funerals!
When Gaddafi used aircraft against Libyan protests, the Western governments took action. The US, UK and France wanted to protect the protesters from their own government. Now that argument haunts the West. Can it be that just because Libya has oil that Western Europe uses, there is a higher standard for its leader? Can it be that the geniuses in the US State Department and the White House did not think what would happen once they used the "protect the population" reasoning for intervening in Libya. For the last two and a half years, we have been told over and over how smart Obama is. His advisors are all brilliant and he is a genius according to the media. Well now these same "geniuses" are basically impotent in Libya and ridiculous with regard to Syria. If demonstrators were killed in clashes with police in Syria, it might be possible for the USA to ignore it. When the Assad government carries out a national terror campaign against its own populace with random killings at funerals, it cannot be ignored if the USA meant what it said with regard to Libya.
The truth is that the downfall of Assad would be a much bigger plus for the USA than the departure of Gaddafi. Gaddafi is crazy and has caused much trouble over the years. Syria under Assad, however, has been the prime source of infiltrators into Iraq to fight American troops, the prime source of weapons for the terrorists of Hezbollah and Hamas, the perpetrator of assassinations in Lebanon that have subverted that country's independence, and the only predominantly Sunni ally of Iran in the Arab world. Even chaos in Syria is an improvement over Assad and the Baathists. Indeed, it is hard to imagine an outcome in Syria worse than the continuation of the Assad rule.
So what has Washington done so far? Obama did say that the attacks on those protesting must stop. Not too effective so far! The US has not even withdrawn its ambassador from the murderous regime in Damascus. Hillary is still calling Assad a reformer. In short, the only real answer is that USA has done nothing. It is a disgrace.
When Gaddafi used aircraft against Libyan protests, the Western governments took action. The US, UK and France wanted to protect the protesters from their own government. Now that argument haunts the West. Can it be that just because Libya has oil that Western Europe uses, there is a higher standard for its leader? Can it be that the geniuses in the US State Department and the White House did not think what would happen once they used the "protect the population" reasoning for intervening in Libya. For the last two and a half years, we have been told over and over how smart Obama is. His advisors are all brilliant and he is a genius according to the media. Well now these same "geniuses" are basically impotent in Libya and ridiculous with regard to Syria. If demonstrators were killed in clashes with police in Syria, it might be possible for the USA to ignore it. When the Assad government carries out a national terror campaign against its own populace with random killings at funerals, it cannot be ignored if the USA meant what it said with regard to Libya.
The truth is that the downfall of Assad would be a much bigger plus for the USA than the departure of Gaddafi. Gaddafi is crazy and has caused much trouble over the years. Syria under Assad, however, has been the prime source of infiltrators into Iraq to fight American troops, the prime source of weapons for the terrorists of Hezbollah and Hamas, the perpetrator of assassinations in Lebanon that have subverted that country's independence, and the only predominantly Sunni ally of Iran in the Arab world. Even chaos in Syria is an improvement over Assad and the Baathists. Indeed, it is hard to imagine an outcome in Syria worse than the continuation of the Assad rule.
So what has Washington done so far? Obama did say that the attacks on those protesting must stop. Not too effective so far! The US has not even withdrawn its ambassador from the murderous regime in Damascus. Hillary is still calling Assad a reformer. In short, the only real answer is that USA has done nothing. It is a disgrace.
Saturday, April 23, 2011
GasFrac -- an interesting update
One of the readers of this blog, Don Giles, left an important comment that merits repeating as a full post. Mr. Giles mentions an estimate done by the Oklahoma Independent Petroleum Association that says that there will be a total of about 12 million horsepower of equipment in use in the field of fracking by the end of 2011. You can see that estimate in detail by clicking on the title to this post. Mr. Giles makes the valid point that GasFrac is only going to have about 150,000 horsepower by the end of this year or about 1.25% of the total. As a result, GasFrac does not have to take the field by storm and dominate fracking in order to become extremely profitable.
There is no question that the fracking industry is large and quickly growing larger. Even with all of the current hysteria being aimed at hydrofracking, it is not going to disappear. There is simply too much at stake for the USA. The allure of GasFrac, however, is that use of its LPG process does away with essentially every major complaint that the environmentalists raise about hydrofracking. There is no excessive water use. There is no need to get rid of supposedly contaminated waste water after the process is complete. Underground radioactive minerals are not dissolved in the facking media and brought to the surface. The somewhat silly notion that water injected many thousands of feet below the surface will contaminate aquifers located thirty to fifty feet below the surface is also eliminated with the use of LPG. So, for all these reasons, Gasfrac has a major push forward from the environmentalists.
In truth, I think that the GasFrac process is actually a better, more efficient one than hydrofracking. There are certain costs avoided and production is better. The problem faced by the company has been to get more E&P companies to try the LPG method. That is where the environmentalists come in. The series of hit pieces that the New York Times did on hydrofracking last month was, to me, like an advertisement for GasFrac.
We should see some great things from GasFrac over the next two years.
UPDATE: I received a few e-mails pointing out my error in the previous post. I said that GasFrac would have about 150,000 horsepower by the end of the year, and that, of course, is too low. The company expects to have over 200,000 horse power if all of its sets come on line by the end of the year. The truth is that I tend to think of this in terms of sets rather than horsepower. Thanks to those who caught my mistake.
Disclosure: I remain long GasFrac with a substantial position in the company.
There is no question that the fracking industry is large and quickly growing larger. Even with all of the current hysteria being aimed at hydrofracking, it is not going to disappear. There is simply too much at stake for the USA. The allure of GasFrac, however, is that use of its LPG process does away with essentially every major complaint that the environmentalists raise about hydrofracking. There is no excessive water use. There is no need to get rid of supposedly contaminated waste water after the process is complete. Underground radioactive minerals are not dissolved in the facking media and brought to the surface. The somewhat silly notion that water injected many thousands of feet below the surface will contaminate aquifers located thirty to fifty feet below the surface is also eliminated with the use of LPG. So, for all these reasons, Gasfrac has a major push forward from the environmentalists.
In truth, I think that the GasFrac process is actually a better, more efficient one than hydrofracking. There are certain costs avoided and production is better. The problem faced by the company has been to get more E&P companies to try the LPG method. That is where the environmentalists come in. The series of hit pieces that the New York Times did on hydrofracking last month was, to me, like an advertisement for GasFrac.
We should see some great things from GasFrac over the next two years.
UPDATE: I received a few e-mails pointing out my error in the previous post. I said that GasFrac would have about 150,000 horsepower by the end of the year, and that, of course, is too low. The company expects to have over 200,000 horse power if all of its sets come on line by the end of the year. The truth is that I tend to think of this in terms of sets rather than horsepower. Thanks to those who caught my mistake.
Disclosure: I remain long GasFrac with a substantial position in the company.
Thinking the Unthinkable
For as long as I can recall, it has been an article of faith that a failure to raise the debt ceiling would be a national disaster. As the latest vote on the subject approaches, however, there are some who are now questioning if this is the case. Simply put, would the failure to raise the debt ceiling result in a US default? Here is the essence of what senator Toomey of Pennsylvania has to say:
"[C]ongressional delay in raising the debt limit will in no way cause a default on our national debt. If Congress refuses to raise the debt ceiling, the federal government will still have more than enough money to fully service our debt. Next year, about 7 percent of all projected federal government expenditures will go to interest on our debt. Tax revenue is projected to cover at least 70 percent of all government expenditures. So, under any circumstances, there will be plenty of money to pay our creditors."
Of course, there would be the pressing question of how to cut 30% of all federal expenditures once debt was no longer available. What do we do? The US could withdraw from all foreign bases and wars and cut defense spending. There could be an end to federal construction projects. Social Security and Medicare could be cut. The truth is that it is well near impossible to cut 30% of federal spending without cutting payments under Medicare, Social Security, Medicaid and the Defense Department. So, the truth is that what senator Toomey says is interesting, but it is nonsensical at the same time. There is no question that all three of the big entitlement programs need to be modified so that they will stop growing so quickly. Indeed, maybe Medicaid could actually be cut back to the levels of coverage that existed in 2008 or even earlier. Cuts of that nature, however, cannot be made in a three week period while the debt ceiling is being debated. Similarly, a decision to pull US troops out of foreign bases to save money is one that could well make sense. It should only be done after all the costs and benefits are studied. National security should be handled in a responsible fashion, not as an afterthought in a debt ceiling debate.
In short, senator Toomey makes about as much sense to me as Michael Moore does when he claims that the national debt is just like a mortgage and the US need not worry about it. Strangely, Moore seems to want to change the national debt into a sub-prime mortgage.
"[C]ongressional delay in raising the debt limit will in no way cause a default on our national debt. If Congress refuses to raise the debt ceiling, the federal government will still have more than enough money to fully service our debt. Next year, about 7 percent of all projected federal government expenditures will go to interest on our debt. Tax revenue is projected to cover at least 70 percent of all government expenditures. So, under any circumstances, there will be plenty of money to pay our creditors."
Of course, there would be the pressing question of how to cut 30% of all federal expenditures once debt was no longer available. What do we do? The US could withdraw from all foreign bases and wars and cut defense spending. There could be an end to federal construction projects. Social Security and Medicare could be cut. The truth is that it is well near impossible to cut 30% of federal spending without cutting payments under Medicare, Social Security, Medicaid and the Defense Department. So, the truth is that what senator Toomey says is interesting, but it is nonsensical at the same time. There is no question that all three of the big entitlement programs need to be modified so that they will stop growing so quickly. Indeed, maybe Medicaid could actually be cut back to the levels of coverage that existed in 2008 or even earlier. Cuts of that nature, however, cannot be made in a three week period while the debt ceiling is being debated. Similarly, a decision to pull US troops out of foreign bases to save money is one that could well make sense. It should only be done after all the costs and benefits are studied. National security should be handled in a responsible fashion, not as an afterthought in a debt ceiling debate.
In short, senator Toomey makes about as much sense to me as Michael Moore does when he claims that the national debt is just like a mortgage and the US need not worry about it. Strangely, Moore seems to want to change the national debt into a sub-prime mortgage.
Thursday, April 21, 2011
Drones for Libya
CNN is reporting that Defense Secretary Gates confirmed that the US is now using predator drones in Libya on the direct authorization fo president Obama. This is the next step in the drip, drip, drip method of warfare that Obama seems to favor. Under this method, the US adds strength little by little and periodically takes some away as well. In this way, the overwhelming superiority of US forces is never brought down upon the Gaddafi forces. It pretty much guarantees a stalemate.
The simple truth that Obama does not seem to understand or that he does not want to acknowledge is that when the president decides to commit US forces to a battle, he should do so only if he is going to allow those forces to use all means necessary to win. I am old enough to recall the "escallations" in Vietnam, repetative increments to US fighting power that were stretched out long enough to allow the North Vietnamese to recover from each blow and eventually to triumph. Contrast this with the overwhelming force used by the coalition in Kuwait that enabled the US and its allies to oust the Iraqis from Kuwait in 100 hours of fighting. Some day Obama will hopefully learn that war is not something to be discussed in theory in the faculty lounge, but rather it is a terrible ordeal that needs to be fought in a way that will bring it to a conclusion as quickly as possible.
The simple truth that Obama does not seem to understand or that he does not want to acknowledge is that when the president decides to commit US forces to a battle, he should do so only if he is going to allow those forces to use all means necessary to win. I am old enough to recall the "escallations" in Vietnam, repetative increments to US fighting power that were stretched out long enough to allow the North Vietnamese to recover from each blow and eventually to triumph. Contrast this with the overwhelming force used by the coalition in Kuwait that enabled the US and its allies to oust the Iraqis from Kuwait in 100 hours of fighting. Some day Obama will hopefully learn that war is not something to be discussed in theory in the faculty lounge, but rather it is a terrible ordeal that needs to be fought in a way that will bring it to a conclusion as quickly as possible.
A milestone or a millstone?
It is way too early to put much stock in the polling data regarding the 2012 presidential election. Right now, the common view among the punditry seems to be that president Obama should be highly favored for re-election. There is, however, polling data that ought to give those pundits pause before they repeat the easy re-election mantra. Specifically, I refer to the president's job approval ratings. Real Clear Politics lists all of the recent polls and keeps a running average of the latest ones. The RCP average eliminates many of the jumps and falls which appear in individual polls; after all, by combining polls, the sample size is increased from 1000 to 8000 people, thereby improving accuracy. Further, if an individual poll has a bias towards one side or the other, the combination eliminates nearly all of that bias. As of today, the RCP average shows that Obama's job approval rating is 45.4% while 50.0 percent of the population disapprove. This is Obama's lowest rating since the month before the November elections. Indeed, all of the bounce that Obama got from reaching the tax compromise and speaking of the need for civility after the attack against congresswoman Giffords has evaporated. Also important is that each of the seven recent polls that were combined to reach the RCP average showes Obama with more people disapproving than approving. Those seven polls include ones taken by both Republican and Democrat pollsters.
Another interesting point in these polls is that Obama's approval numbers have strongly tanked since Obama made his slashing negative "budget" speech last week in which he attacked Republican proposals to cut spending and outlined his own vague plan for major tax increases coupled with certain undefined spending cuts. If Obama and his advisers thought that the budget speech would appeal to the majority of the American people, they were mistaken. On the other hand, if the advisers thought that the speech would allow Obama to secure his base amoung the far left of the Democrat party so that he could later reach out to moderates and independents, then they may have miscalculated the extent of damage that the speech did to Obama's standing with these groups. After all, at a certain point, folks will just tune out Obama and it will be too late for him to recover.
Another interesting point in these polls is that Obama's approval numbers have strongly tanked since Obama made his slashing negative "budget" speech last week in which he attacked Republican proposals to cut spending and outlined his own vague plan for major tax increases coupled with certain undefined spending cuts. If Obama and his advisers thought that the budget speech would appeal to the majority of the American people, they were mistaken. On the other hand, if the advisers thought that the speech would allow Obama to secure his base amoung the far left of the Democrat party so that he could later reach out to moderates and independents, then they may have miscalculated the extent of damage that the speech did to Obama's standing with these groups. After all, at a certain point, folks will just tune out Obama and it will be too late for him to recover.
The Armanino Earnings
Armanino Foods of Distinction (symbol AMNF on the pink sheets) is out today with its earnings report for the first quarter. Sales and earnings both set records for the first quarter of the year. Sales were $5,864,470, an increase of 17% over the sales levels of the same quarter last year. Earnings per share were 1.6 cents, up from 1.1 cents in the same quarter a year ago. It is worth noting that the actual earnings per share were more than 1.6 cents but the number was rounded down. Further, the number of shares used for the calculation does not reflect much of the substantial share buyback that the company did during the first quarter. If the end of quarter numbers were used, the EPS would rise to 1.7 cents.
The trend for the first quarter over the last four years is EPS of 0.3, 0.7, 1.1 and now 1.6 cents. The EPS for the quarter just completed was also essentially the same as the number for the fourth quarter of last year, a good sign that the growth story for the company remains intact.
The report issued with the numbers, however, has both good and troubling aspects. First the good: the company reports that it is continuing to open new industrial and chain accounts, the type of account that contributes heavily to sales increases. The company is also working on new products and reengineering of older products in order to expand into new markets. Here is the not so good: According to the company, "first quarter results were significantly enhanced by sales booked late in March possibly taking sales from April. It is premature to compare [Armanino's] prospects for Q2 2011 to that of the second quarter of 2010, which was the highest sales and profits quarter...ever achieved in the Company’s twenty five year history." This cryptic comment could indicate that the second quarter may not be as good as expected. Nevertheless, the company concludes by saying, "based on the momentum we have achieved, we remain optimistic regarding our accomplishments for the full year of 2011."
So how can one translate the company's statements into numbers? My view is this: Sales per month during the quarter came to about 1.9 million dollars. That is a weekly rate between $400,000 and $450,000. It seems highly unlikely that more than a full week's worth of sales could have been moved forward from the second into the first quarter. The company's net profit rate was about 9% during the quarter just completed. If the profit on the maximum sales moved into the quarter was much higher, say 15%, the extra profit for the quarter was still only about $60,000. That comes to .17 cents per share. Of course, in the next quarter, the number of shares used to comput EPS will be lower, so the movement of sales into the quarter will have a lesser impact, if it has any at all. When one puts these figures together with the company's own optimism for the year as a whole, the question mark placed on next quarter by this sentence in the earnings report is reduced to a rather small one.
The key to the current earnings is that Armanino has turned in another outstanding quarter to add to the string of good results over the last three years. The company has made clear with its results that the sales and earnings growth is both robust and continuing. Despite the company's small size, its record of continuing profitable growth should earn it an increase in the price/earnings multiple. Large and mid cap food stocks get multiples in the area of 14. Right now, Armanino is selling for a multiple of between 9 and 11 based upon differing earnings expectations. Over the next year, the stock should move closer to the higher multiple provided it continues, as expected, to turn in consistent growth in its results.
Disclosure: I am long Armanino with substantial holdings in the company.
The trend for the first quarter over the last four years is EPS of 0.3, 0.7, 1.1 and now 1.6 cents. The EPS for the quarter just completed was also essentially the same as the number for the fourth quarter of last year, a good sign that the growth story for the company remains intact.
The report issued with the numbers, however, has both good and troubling aspects. First the good: the company reports that it is continuing to open new industrial and chain accounts, the type of account that contributes heavily to sales increases. The company is also working on new products and reengineering of older products in order to expand into new markets. Here is the not so good: According to the company, "first quarter results were significantly enhanced by sales booked late in March possibly taking sales from April. It is premature to compare [Armanino's] prospects for Q2 2011 to that of the second quarter of 2010, which was the highest sales and profits quarter...ever achieved in the Company’s twenty five year history." This cryptic comment could indicate that the second quarter may not be as good as expected. Nevertheless, the company concludes by saying, "based on the momentum we have achieved, we remain optimistic regarding our accomplishments for the full year of 2011."
So how can one translate the company's statements into numbers? My view is this: Sales per month during the quarter came to about 1.9 million dollars. That is a weekly rate between $400,000 and $450,000. It seems highly unlikely that more than a full week's worth of sales could have been moved forward from the second into the first quarter. The company's net profit rate was about 9% during the quarter just completed. If the profit on the maximum sales moved into the quarter was much higher, say 15%, the extra profit for the quarter was still only about $60,000. That comes to .17 cents per share. Of course, in the next quarter, the number of shares used to comput EPS will be lower, so the movement of sales into the quarter will have a lesser impact, if it has any at all. When one puts these figures together with the company's own optimism for the year as a whole, the question mark placed on next quarter by this sentence in the earnings report is reduced to a rather small one.
The key to the current earnings is that Armanino has turned in another outstanding quarter to add to the string of good results over the last three years. The company has made clear with its results that the sales and earnings growth is both robust and continuing. Despite the company's small size, its record of continuing profitable growth should earn it an increase in the price/earnings multiple. Large and mid cap food stocks get multiples in the area of 14. Right now, Armanino is selling for a multiple of between 9 and 11 based upon differing earnings expectations. Over the next year, the stock should move closer to the higher multiple provided it continues, as expected, to turn in consistent growth in its results.
Disclosure: I am long Armanino with substantial holdings in the company.
Lobbying S&P
The news is leaking out that the White House was lobbying S&P for weeks not to issue its recent report in which it changed the US credit outlook from stable to negative. Think about that! When the market for mortgage backed securities collapsed, we heard repeatedly from the Democrats that the fault did not lie with their efforts to pressure lenders to make loans that were unlikely to be repaid. No, according to many Democrats, the fault was with bankers who made predatory loans and rating agencies who ignored the risks in mortgage backed securities while rating them triple A. It is hard for anyone other than a true believer to accept the idea of predatory lending. (Picture the evil banker forcing someone to accept tens or hundreds of thousands of dollars so that they can live in nicer place. After all, those evil bankers wanted to force the poor to take the money so that their banks could later be left with worthless loans.) That means that one of the principal complaints by the Democrats was that the ratings agencies had failed to do their jobs. Now, when the same ratings agencies are of the opinion that the US AAA credit rating is in jeopardy, Obama and the Obamacrats are lobbying the agencies to lie to the public and keep their opinions to themselves.
Why does this story get so little coverage in the media? This is not a minor item. It is a clear demonstration of the hypocracy of Obama and the Obamacrats.
Why does this story get so little coverage in the media? This is not a minor item. It is a clear demonstration of the hypocracy of Obama and the Obamacrats.
Wednesday, April 20, 2011
Who ever thought they would miss Larry King
A friend of mine just sent me the ratings for cable news shows for Tuesday April 19th. The really amazing thing is not that Fox News is so far ahead ; everyone has come to expect that. The real news is the near total collapse of piers Morgan on CNN. In what is always described as the "key demographic" which is viewers between ages 25 and 54, Morgan's show drew an audience of 77 thousand at 9 PM Eastern. Amazingly, Morgan's ratings went up slightly to 80 thousand when the show was repeated at midnight eastern time. Morgan's ratings were so pathetic that he fell behind every other show in prime time other than Joy Behar on Headline News. That means that Morgan now has the lowest rated news show in prime time show hosted by a human being.
CNN just continues to sink lower and lower. The network seems devoid of ideas. I wonder what is next. Will they start a show hosted by former New York mayor Rudolf Giuliani so that the network will have a Rudolf to go with Blitzer and Spitzer? The reality is that were it not for tvs tuned to CNN at places like airports, CNN's audience would be so low that it would even be outdrawn by Behar's show. Imagine, shows that actually lose to Joy Behar in the ratings; CNN is accomplishing the unthinkable.
CNN just continues to sink lower and lower. The network seems devoid of ideas. I wonder what is next. Will they start a show hosted by former New York mayor Rudolf Giuliani so that the network will have a Rudolf to go with Blitzer and Spitzer? The reality is that were it not for tvs tuned to CNN at places like airports, CNN's audience would be so low that it would even be outdrawn by Behar's show. Imagine, shows that actually lose to Joy Behar in the ratings; CNN is accomplishing the unthinkable.
Ignorance and ideology do not combine to form knowledge
I got some rather hysterical comments submitted today about my views on Obama and the economy. One person told me that the best way to close the budget gap is to hike the top income tax rate to the high 40's while also ending the Bush tax rates. So let's look at that possibility. If the Bush rates were allowed to expire and no other changes were made, the tax revenues for the next decade would rise by about 4 trillion dollars under a static scoring method. A little over 80% of the total would come from the middle clase. if there were also a rise to 45% for the top rate, there would be yet another 800 billion dollars in revenue again using static scoring. Sounds like it would work doesn't it?
The answer, however, lies with the phrase "using static scoring". Nearly all of the Democrats like to use static scoring when they talk about the budget. Unfortunately, there is no such thing as static scoring in the real world. Static scoring means figuring out the revenue achieved by a tax change without considering the effect that the tax change would have on growth in the economyh. In other words, if the economy is growing now at 2.5% and there is a large tax increase which sucks billions of dollars out of consumer demand, static scoring assumes that the growth rate remains unchanged. Indeed, in the numbers that president obama set forth in his speech the other day, not only did he use static scoring, but he also assumed that the growth rate for the decade would be about 5%, a rate we have not seen for a long time.
The opposite of static scoring is called dynamic scoring. Using dynamic scoring, an attempt is made to determine the effect of the tax change on the rate of growth in the economy and then the numbers are computed. It is undisputed that a large increase in taxes will slow economic growth or lead to a recession. Of course, under static scoring, that is just not considered. The truth is that a tax increase like that being pushed by the hysterical liberals who made comments today would actually cause an economic slowdown that would reduce and not increase government revenue. That's right, raising taxes brings in less revenue. The opposite is also true; lowering taxes can bring in more revenue.
I realize that many liberals live by the ideology that says that having wealth is a bad thing. After all, anyone who makes money must have gotten it by cheating the rest of the people. The rich are all evil, right. So most liberals love the idea of higher taxes on the wealthy. Sadly this ideology combined with a lack of understanding as to the effect on revenue of most tax increases makes for a dangerous brew that could lead to disaster for the country. It is imperative that growth be increased and jobs created. To accomplish this we need strong economic growth. There is no question that it will take tax restructuring to have an impact on the US growth rate.
The answer, however, lies with the phrase "using static scoring". Nearly all of the Democrats like to use static scoring when they talk about the budget. Unfortunately, there is no such thing as static scoring in the real world. Static scoring means figuring out the revenue achieved by a tax change without considering the effect that the tax change would have on growth in the economyh. In other words, if the economy is growing now at 2.5% and there is a large tax increase which sucks billions of dollars out of consumer demand, static scoring assumes that the growth rate remains unchanged. Indeed, in the numbers that president obama set forth in his speech the other day, not only did he use static scoring, but he also assumed that the growth rate for the decade would be about 5%, a rate we have not seen for a long time.
The opposite of static scoring is called dynamic scoring. Using dynamic scoring, an attempt is made to determine the effect of the tax change on the rate of growth in the economy and then the numbers are computed. It is undisputed that a large increase in taxes will slow economic growth or lead to a recession. Of course, under static scoring, that is just not considered. The truth is that a tax increase like that being pushed by the hysterical liberals who made comments today would actually cause an economic slowdown that would reduce and not increase government revenue. That's right, raising taxes brings in less revenue. The opposite is also true; lowering taxes can bring in more revenue.
I realize that many liberals live by the ideology that says that having wealth is a bad thing. After all, anyone who makes money must have gotten it by cheating the rest of the people. The rich are all evil, right. So most liberals love the idea of higher taxes on the wealthy. Sadly this ideology combined with a lack of understanding as to the effect on revenue of most tax increases makes for a dangerous brew that could lead to disaster for the country. It is imperative that growth be increased and jobs created. To accomplish this we need strong economic growth. There is no question that it will take tax restructuring to have an impact on the US growth rate.
Time to act in the Middle East
In a great many polls, the American people have been asked which country is the best ally of the US in the Middle East. The answer is always the same and has remained that way for forty years: Israel. Israel is the only functioning democracy in the area. It has the only developed economy in the area (which it achieved without having major oil revenues.) It has done much to help US efforts in the region; indeed, it has on occasion taken steps which it considered ill advised just to satisfy the request of the USA. A good example is the "settlement" freeze that president obama demanded of the Israelis when he first took office. Even though Israel did not want to stop construction of homes and workplaces for its citizens in certain areas, the Israelis agreed to a nine month freeze on construction to meet the demands of the Obama administration. Of course, the freeze was supposed to lead to the resumption of meaningful peace talks with the Palestinians according to obama. Instead, the Palestinians delayed any talks until the freeze was just about over, and then, their demands at the talks were for a permanent freeze or the cessation of talks. Not surprisingly, the freeze ended and no progress was made. Israel, however, had complied to the US wishes.
Now, however, there is a move on the horizon that threatens serious harm to Israel and the word is that the US is lining up on the side working against the Israelis. Specifically, there is a plan to have the United Nations vote to create a Palestinian state next September. According to media reports, the State Department is leaking word that the US will vote for the creation of such a state. This is a momentous step, both for the UN and for the US. Look at it this way:
1) The Palestinians previously agreed that they would negotiate with the Israelis to bring about the creation of a Palestinian state. In the last years of the Clinton Administration, the Israelis offered Yassir Arafat about 99% of what he wanted. Israel was willing to cede control to Arafat's state of essentially all the land captured by Israel in 1967 with the exception of certain areas in Jerusalem where hundreds of thousands of Israelis now live. Arafat's response was to say no and to launch the terror campaign that killed hundreds of Israelis and thousands of Palestinians. Since then, the Palestinians have never negotiated seriously about the establishment of a state, despite their agreed commitment to do so.
2) In an attempt to avoid having to negotiate with Israel, the Palestinians now want the UN to declare the existence of their state. this will not change the facts on the ground. It will, however, have a big impact worldwide. Israel will officially become a state occupying the territory of another state. The focus of all discussions will be on withdrawal by Israel and not the formation of the Palestinian state. The legal basis for countries to declare Israeli actions as violations of international law will be created. A whole host of problems will be created for Israel. In short, the Palestinians will get their state without ever having to agree to Israel's right to exist.
3) It needs to be understood who will be in charge in that Palestinian state. Half of the state will be in the Gaza strip. that portion is ruled by the terrorist group Hamas. For the last month, Hamas has been launching rockets into Israel every day, a move which has brought on Israeli counterstrikes. Hamas has also been killing its opponents in Gaza. The dead include members of Fatah which governs the West Bank and also of other smaller groups. So, if the US participates in forming a Palestinian state, it will be establishing a state ruled by terrorists which can act as a safe haven for terrorists of all sorts.
4) The US could veto any resolution in the security council establishing the Palestinian state, so there is no question that the creation of such a state needs US approval. Indeed, even were the resolution to be offered and passed in the General Assembly, it would still carry much less weight if it were opposed by the US and its allies. Of course, such opposition would need a concerted effort by the US to help its ally Israel. Obama seems to be preparing to do just the opposite.
There are still five months until September. That means that americans have time to make their voices heard. Fortunately, Obama has already gone into campaign mode for the 2012 election. That means that if sufficient numbers of folks write to the White House and to their congressmen and senators, Obama might actually consider the views of the people. I urge everyone to write again and again on this issue. Maybe, just maybe, we can get Obama to back off. Once the US allows the creation of a Palestinian state, there can be no second chance. Even if Obama is bounced out in 2012, the facts will not change; Obama will have inflicted a great harm on Israel and also on US interests in the Middle East.
Now, however, there is a move on the horizon that threatens serious harm to Israel and the word is that the US is lining up on the side working against the Israelis. Specifically, there is a plan to have the United Nations vote to create a Palestinian state next September. According to media reports, the State Department is leaking word that the US will vote for the creation of such a state. This is a momentous step, both for the UN and for the US. Look at it this way:
1) The Palestinians previously agreed that they would negotiate with the Israelis to bring about the creation of a Palestinian state. In the last years of the Clinton Administration, the Israelis offered Yassir Arafat about 99% of what he wanted. Israel was willing to cede control to Arafat's state of essentially all the land captured by Israel in 1967 with the exception of certain areas in Jerusalem where hundreds of thousands of Israelis now live. Arafat's response was to say no and to launch the terror campaign that killed hundreds of Israelis and thousands of Palestinians. Since then, the Palestinians have never negotiated seriously about the establishment of a state, despite their agreed commitment to do so.
2) In an attempt to avoid having to negotiate with Israel, the Palestinians now want the UN to declare the existence of their state. this will not change the facts on the ground. It will, however, have a big impact worldwide. Israel will officially become a state occupying the territory of another state. The focus of all discussions will be on withdrawal by Israel and not the formation of the Palestinian state. The legal basis for countries to declare Israeli actions as violations of international law will be created. A whole host of problems will be created for Israel. In short, the Palestinians will get their state without ever having to agree to Israel's right to exist.
3) It needs to be understood who will be in charge in that Palestinian state. Half of the state will be in the Gaza strip. that portion is ruled by the terrorist group Hamas. For the last month, Hamas has been launching rockets into Israel every day, a move which has brought on Israeli counterstrikes. Hamas has also been killing its opponents in Gaza. The dead include members of Fatah which governs the West Bank and also of other smaller groups. So, if the US participates in forming a Palestinian state, it will be establishing a state ruled by terrorists which can act as a safe haven for terrorists of all sorts.
4) The US could veto any resolution in the security council establishing the Palestinian state, so there is no question that the creation of such a state needs US approval. Indeed, even were the resolution to be offered and passed in the General Assembly, it would still carry much less weight if it were opposed by the US and its allies. Of course, such opposition would need a concerted effort by the US to help its ally Israel. Obama seems to be preparing to do just the opposite.
There are still five months until September. That means that americans have time to make their voices heard. Fortunately, Obama has already gone into campaign mode for the 2012 election. That means that if sufficient numbers of folks write to the White House and to their congressmen and senators, Obama might actually consider the views of the people. I urge everyone to write again and again on this issue. Maybe, just maybe, we can get Obama to back off. Once the US allows the creation of a Palestinian state, there can be no second chance. Even if Obama is bounced out in 2012, the facts will not change; Obama will have inflicted a great harm on Israel and also on US interests in the Middle East.
Obama does not understand basic rules of economics
Here is an excerpt from a report from the French news agency AFP:
"US President Barack Obama blamed oil "speculators" on Tuesday for soaring gasoline prices that risk weighing down the US recovery and could dampen his 2012 election hopes.
"It is true that a lot of what's driving oil prices up right now is not the lack of supply. There's enough supply. There's enough oil out there for world demand," Obama said at a campaign-style event not far from Washington.
"The problem is, is that oil is sold on these world markets, and speculators and people make various bets, and they say, 'you know what, we think that maybe there's a 20 percent chance that something might happen in the Middle East that might disrupt oil supply,'" he said.
So, is Obama correct? Is the rise of oil prices due to speculation? Are their evil fat cats who are stealing money out of the hands of the poor around the world by their nefarious schemes to drive up oil prices? the simple and clear answer is NO! Oil prices have been going up since Obama became president. In the first months of Obama's term, the price of a barrel of oil was about $38. That low price was the result of a sharp decline in demand for oil around the world due to a world wide recession. think of it this way, unemployed people drive less since they cannot afford the gasoline. Businesses that sell less have less need for fuel since they are doing less. As the world began to recover from the recession and the world economy began to grow again, the demand for oil recovered a bit. At the same time, the lower oil price discouraged some drilling in certain parts of the world so the supply did not go up any further. All of this led to a gradual rise in oil prices from their depressed levels at the start of 2009.
Of course, two other things happened that made quite a difference as well. The first event was the oil spill in the Gulf of Mexico. The immediate reaction from Obama and the Obamacrats was a hysterical directive to stop all offshore drilling. Imagine, every other country with oil off of its shores was drilling, but the USA stopped. There are billions of barrels of oil off of US coasts, but Obama said to stop. To this day, deep water drilling offshore has not recommenced because Obama has prevented the issuance of drilling permits even after two separate courts have ruled the actions of the federal government illegal. (Just imagine what the press would have done if Bush had blatantly disregarded rulings by a federal court.) The result of the stoppage of drilling off the US coast has reduced world oil production by just under one percent. for most commodities, such a decline would have little effect, but oil is produced from sources that do not get turned on and off; once a well is drilled, it just keeps producing. That means that a 1% shortfall builds up over time and eventually has a major effect on the price. So, Obama's folly in preventing the US from drilling off shore has driven up the world price of oil.
The second event that has caused oil to spike so high is the decline of the US dollar. Oil is priced in dollars when it is traded around the world. As the dollar declines in relation to other currencies, the price of oil rises. Buyers in Europe or Japan have seen price rises but no where near as large as those in the US. The fall of the dollar is tied in great measure to the creation by the Federal Reserve of hundreds of billions of extra dollars during its quantitative easing 2 and earlier programs. The oil price inflation comes in part from that government action.
We then get to the question of whether or not there are speculators who drive up prices. There certainly are investors who buy and sell oil; these folks, however, mostly buy and sell oil futures. They are not interested in buying actual physical oil which has to be stored and handled. If a hedge fund decides to buy oil, it would much rather buy a contract for delivery of the oil in six months or a year. That purchase is just a paper transaction; no oil is delivered and none needs to be dealt with by the hedge fund. The actual oil that is refined into gasoline, however, is produced from oil purchased on the spot market. In other words, the refinery is not buying oil for delivery in six months, it is purchaseing oil for delivery today. Speculators are just not in that market. while there is a relationship between the futures and the spot prices, it is a not infrequent event for the spot price to move in one direction while the futures go the other way.
What all of this means is that Obama's blast at speculators is an attempt by Obama to cover up the true reality as to why oil prices have soared, a reality where Obama and his minions get much of the blame. Since Obama is a president who frequently blames the rich for problems, his attempt to foist his own problems off onto the scapegoat of speculators is not surprising. It remains untrue, however.
"US President Barack Obama blamed oil "speculators" on Tuesday for soaring gasoline prices that risk weighing down the US recovery and could dampen his 2012 election hopes.
"It is true that a lot of what's driving oil prices up right now is not the lack of supply. There's enough supply. There's enough oil out there for world demand," Obama said at a campaign-style event not far from Washington.
"The problem is, is that oil is sold on these world markets, and speculators and people make various bets, and they say, 'you know what, we think that maybe there's a 20 percent chance that something might happen in the Middle East that might disrupt oil supply,'" he said.
So, is Obama correct? Is the rise of oil prices due to speculation? Are their evil fat cats who are stealing money out of the hands of the poor around the world by their nefarious schemes to drive up oil prices? the simple and clear answer is NO! Oil prices have been going up since Obama became president. In the first months of Obama's term, the price of a barrel of oil was about $38. That low price was the result of a sharp decline in demand for oil around the world due to a world wide recession. think of it this way, unemployed people drive less since they cannot afford the gasoline. Businesses that sell less have less need for fuel since they are doing less. As the world began to recover from the recession and the world economy began to grow again, the demand for oil recovered a bit. At the same time, the lower oil price discouraged some drilling in certain parts of the world so the supply did not go up any further. All of this led to a gradual rise in oil prices from their depressed levels at the start of 2009.
Of course, two other things happened that made quite a difference as well. The first event was the oil spill in the Gulf of Mexico. The immediate reaction from Obama and the Obamacrats was a hysterical directive to stop all offshore drilling. Imagine, every other country with oil off of its shores was drilling, but the USA stopped. There are billions of barrels of oil off of US coasts, but Obama said to stop. To this day, deep water drilling offshore has not recommenced because Obama has prevented the issuance of drilling permits even after two separate courts have ruled the actions of the federal government illegal. (Just imagine what the press would have done if Bush had blatantly disregarded rulings by a federal court.) The result of the stoppage of drilling off the US coast has reduced world oil production by just under one percent. for most commodities, such a decline would have little effect, but oil is produced from sources that do not get turned on and off; once a well is drilled, it just keeps producing. That means that a 1% shortfall builds up over time and eventually has a major effect on the price. So, Obama's folly in preventing the US from drilling off shore has driven up the world price of oil.
The second event that has caused oil to spike so high is the decline of the US dollar. Oil is priced in dollars when it is traded around the world. As the dollar declines in relation to other currencies, the price of oil rises. Buyers in Europe or Japan have seen price rises but no where near as large as those in the US. The fall of the dollar is tied in great measure to the creation by the Federal Reserve of hundreds of billions of extra dollars during its quantitative easing 2 and earlier programs. The oil price inflation comes in part from that government action.
We then get to the question of whether or not there are speculators who drive up prices. There certainly are investors who buy and sell oil; these folks, however, mostly buy and sell oil futures. They are not interested in buying actual physical oil which has to be stored and handled. If a hedge fund decides to buy oil, it would much rather buy a contract for delivery of the oil in six months or a year. That purchase is just a paper transaction; no oil is delivered and none needs to be dealt with by the hedge fund. The actual oil that is refined into gasoline, however, is produced from oil purchased on the spot market. In other words, the refinery is not buying oil for delivery in six months, it is purchaseing oil for delivery today. Speculators are just not in that market. while there is a relationship between the futures and the spot prices, it is a not infrequent event for the spot price to move in one direction while the futures go the other way.
What all of this means is that Obama's blast at speculators is an attempt by Obama to cover up the true reality as to why oil prices have soared, a reality where Obama and his minions get much of the blame. Since Obama is a president who frequently blames the rich for problems, his attempt to foist his own problems off onto the scapegoat of speculators is not surprising. It remains untrue, however.
Tuesday, April 19, 2011
One of us must be missing something
Writing in the Daily Beast, Eric Alterman describes president Obama's budget speech last week as one of his best, a brilliant exposition of philosophical first principles. I listened to the speech on TV and my reaction was that it was one of the nastiest, meanest most dishonest efforts from Obama yet. Now I realize that Alterman may think that a speech filled with nasty, dishonest statements about the positions taken by Republicans is a masterpiece of liberal principles, but I truly doubt that to be the case. Rather, my best guess is that Alterman actually accepts the idea that a budget proposal from the Ryan led budget committee that calls for changes in ten years to the way new Medicare applicants are handled is the same as throwing all of the elderly out onto the street for them to handle all of their medical care with no help from the government. Alterman probably also accepts that tax increases are actually spending reductions in another form. Alterman probably is also willing to accept that there is so much waste in medicare that the fderal government will be able to wring another half trillion dollars of savings out of current spending levels even though there is supposedly an effort already underway to do just that which has yet to save so much as a single dollar after a full year's efforts. Indeed, Alterman probably believes that there actully is an effort to save money from Medicare, not just a bunch of speeches in which Obama claims that the effort is underway.
It is indeed sad that national media has gone so far in accepting the full Obama line that none of Obama's doubletalk is exposed to the public. sure, Alterman would accept just about anything that Obama said. Nevertheless, the American people are not that gullible. They deserve the truth.
It is indeed sad that national media has gone so far in accepting the full Obama line that none of Obama's doubletalk is exposed to the public. sure, Alterman would accept just about anything that Obama said. Nevertheless, the American people are not that gullible. They deserve the truth.
Obama and the Budget
Today, president Obama told an audience of community college students in Virginia that unless the federal governement stopped spending more than it takes in, there will be serious damage to the US economy. He also said that the government is looking for every conceivable place to save money and lower spending. This is the first "town hall meeting" in the Barack Obama "Say Anything Mean Nothing Tour" of 2011. It is amazing that the press never seems to take obama on when he says things like this. Look at the record:
1) During the 2008 campaign and, indeed, during the presidential debates, candidate Obama said that he would go "line by line through the federal budget" to find programs that were wasting funds or that were ineffective. His promise was to reduce federal spending by cutting waste, fraud and ineffectual programs. Obama repeated this promise right after taking office in 2009. In the nearly two and a half years since Obama has taken office, he has done nothing at all to remove wasteful federal programs. He has done nothing to cut fraud and abuse in federal spending. Indeed, there has been no effort made to even identify programs that could be tightened or cut.
2) Just a month ago, the Democrats described the small cuts that the Republicans wanted to make in spending for the remainder of fiscal 2011 as "draconian" with the GOP wanting to prevent women from getting healthcare and the like. Obama and the Democrats had to be drageed kicking and screaming to agree to 38.5 billion dollars of cuts, about half of which came from programs and funds that were unlikely to be spent in any event. Two months ago, Obama proposed a budget that actuallly called for an increase in spending rather than any cuts at all. Now Obama wants the USA to believe that he is suddenly in favor of cutting spending. Of course, he has yet to give any details as to what programs he wants to cut. Such details would have required Obama and his staff to look at the current spending programs and to determine which need to be cut. Since Obama's purported conversion from wanting more spending to cutting spending just happened, it is too soon for Obama to even come up with any specifics. In fact, it is unlikely that Obama will ever propose the specifics. So long as Obama talks about amorphous cuts, he will never have to defend any actual cuts. Only a fool would believe that Obama actually plans to cut anything.
3) During the Obamacare debate, Obama said that waste and fraud in medicare would be cut to save a half a trillion dollars over the following ten years. This savings would be used to finance the cost of Obamacare. During the debate, Obama also said that the savings would be used to rescue medicare from insolvency. Of course, that was double counting, but then again no one ever called Obama a math whiz. Now, Obama is attacking Paul Ryan for trying to save Medicare and Obama's proposed solution is to cut half a trillion dollars of waste and fraud out of the system over the next ten years. That's right, Obama is now trying to use that same half a trillion dollars for the third time. Obviously, this is nonsense, but Obama keeps right on with these claims. I guess Obama assumes that the American people are just too distracted to realize that he is blatantly lying to them.
The problem with Obama's medicare fix gets worse when one looks at the performance of the federal government over the last year. It is over a year since the feds were supposed to begin getting the savings from reducing waste and fraud in medicare. There should have been about 50 billion dollars in savings already. quick, can you tell me how much has been saved so far by Obama's effort to reduce waste and fraud in medicare? If you said NOTHING, you get a gold star for the correct answer. In other words, not only does Obama count the same half trillion dollars of savings three times, he also does nothing to actually come up with even a penny of savings.
4) The deficit reduction commission recommended savings of 4 trillion over ten years. The GOP budget put forth by Ryan and passed by the House, calls for savings of 6.2 trillion dollars over ten years with substantial savings after that. The vague generalities offered by Obama call for savings of ten trillion dollars over twelve years. Even so, Obama and his cronies consistently say that the three plans all amount to around the same savings. So why does Obama use 12 years rather than ten like the other two proposals? the answer is because over one trillion buck of supposed savings come in years 11 and 12. Under Obama outline, the savings over the next ten years is just under three trillion bucks. That is less than half of the GOP proposal for the next decade. Further, since a big chunk of Obama's savings come from the non-existent reduction of waste in medicare, the obama plan is much less than half of the GOP plan. So Obama and his cronies are once again lying to the American people.
5) There has been criticism of the GOP plan from people like S&P and other ratings agencies on the basis that the GOP plan results in balancing the budget too slowly. Cutting 6.2 trillion dollars over the next decade is not enough for these folks. Obama, of course, is cutting the deficit by less than half of the GOP amount, so the ratings agencies will certainly not approve of the Obama plan.
6) Obama made clear not long ago that it will be impossible to come to any resolution with regard to spending if either side were to demagogue the issue. Neither side should accuse the other of bad things or insensitivity according to Obama; that would mean the deathknell for a deal. Of course, Obama and the obamacrats used their first opportunity to make ridiculous attacks on Ryan and the GOP. The Ryan budget proposal does not affect medicare for anyone older than 55. Of course, Obama and his cronies claim that Ryan and the GOP want to balance the budget on the back of poor granny. Forgettiing the lies coming from Obama, there is the awful additional fact that Obama is scaring many gullible seniors into fearing that their Medicare benefits are about to be taken away. For someone who claims to have compassion for the little guy, Obama certainly does his best to inflict maximum harm on them.
Obama has got to go!
1) During the 2008 campaign and, indeed, during the presidential debates, candidate Obama said that he would go "line by line through the federal budget" to find programs that were wasting funds or that were ineffective. His promise was to reduce federal spending by cutting waste, fraud and ineffectual programs. Obama repeated this promise right after taking office in 2009. In the nearly two and a half years since Obama has taken office, he has done nothing at all to remove wasteful federal programs. He has done nothing to cut fraud and abuse in federal spending. Indeed, there has been no effort made to even identify programs that could be tightened or cut.
2) Just a month ago, the Democrats described the small cuts that the Republicans wanted to make in spending for the remainder of fiscal 2011 as "draconian" with the GOP wanting to prevent women from getting healthcare and the like. Obama and the Democrats had to be drageed kicking and screaming to agree to 38.5 billion dollars of cuts, about half of which came from programs and funds that were unlikely to be spent in any event. Two months ago, Obama proposed a budget that actuallly called for an increase in spending rather than any cuts at all. Now Obama wants the USA to believe that he is suddenly in favor of cutting spending. Of course, he has yet to give any details as to what programs he wants to cut. Such details would have required Obama and his staff to look at the current spending programs and to determine which need to be cut. Since Obama's purported conversion from wanting more spending to cutting spending just happened, it is too soon for Obama to even come up with any specifics. In fact, it is unlikely that Obama will ever propose the specifics. So long as Obama talks about amorphous cuts, he will never have to defend any actual cuts. Only a fool would believe that Obama actually plans to cut anything.
3) During the Obamacare debate, Obama said that waste and fraud in medicare would be cut to save a half a trillion dollars over the following ten years. This savings would be used to finance the cost of Obamacare. During the debate, Obama also said that the savings would be used to rescue medicare from insolvency. Of course, that was double counting, but then again no one ever called Obama a math whiz. Now, Obama is attacking Paul Ryan for trying to save Medicare and Obama's proposed solution is to cut half a trillion dollars of waste and fraud out of the system over the next ten years. That's right, Obama is now trying to use that same half a trillion dollars for the third time. Obviously, this is nonsense, but Obama keeps right on with these claims. I guess Obama assumes that the American people are just too distracted to realize that he is blatantly lying to them.
The problem with Obama's medicare fix gets worse when one looks at the performance of the federal government over the last year. It is over a year since the feds were supposed to begin getting the savings from reducing waste and fraud in medicare. There should have been about 50 billion dollars in savings already. quick, can you tell me how much has been saved so far by Obama's effort to reduce waste and fraud in medicare? If you said NOTHING, you get a gold star for the correct answer. In other words, not only does Obama count the same half trillion dollars of savings three times, he also does nothing to actually come up with even a penny of savings.
4) The deficit reduction commission recommended savings of 4 trillion over ten years. The GOP budget put forth by Ryan and passed by the House, calls for savings of 6.2 trillion dollars over ten years with substantial savings after that. The vague generalities offered by Obama call for savings of ten trillion dollars over twelve years. Even so, Obama and his cronies consistently say that the three plans all amount to around the same savings. So why does Obama use 12 years rather than ten like the other two proposals? the answer is because over one trillion buck of supposed savings come in years 11 and 12. Under Obama outline, the savings over the next ten years is just under three trillion bucks. That is less than half of the GOP proposal for the next decade. Further, since a big chunk of Obama's savings come from the non-existent reduction of waste in medicare, the obama plan is much less than half of the GOP plan. So Obama and his cronies are once again lying to the American people.
5) There has been criticism of the GOP plan from people like S&P and other ratings agencies on the basis that the GOP plan results in balancing the budget too slowly. Cutting 6.2 trillion dollars over the next decade is not enough for these folks. Obama, of course, is cutting the deficit by less than half of the GOP amount, so the ratings agencies will certainly not approve of the Obama plan.
6) Obama made clear not long ago that it will be impossible to come to any resolution with regard to spending if either side were to demagogue the issue. Neither side should accuse the other of bad things or insensitivity according to Obama; that would mean the deathknell for a deal. Of course, Obama and the obamacrats used their first opportunity to make ridiculous attacks on Ryan and the GOP. The Ryan budget proposal does not affect medicare for anyone older than 55. Of course, Obama and his cronies claim that Ryan and the GOP want to balance the budget on the back of poor granny. Forgettiing the lies coming from Obama, there is the awful additional fact that Obama is scaring many gullible seniors into fearing that their Medicare benefits are about to be taken away. For someone who claims to have compassion for the little guy, Obama certainly does his best to inflict maximum harm on them.
Obama has got to go!
Monday, April 18, 2011
The Results of Obama's Foreign Policy
Today's media has a story which has gotten almost no coverage; yet, it is probably the most important news of the day. CNBC is reporting that the Oil Minister of Saudi Arabia announced Sunday that the Saudis have cut their oil output by about 10% because the market was "oversupplied". Let's translate this news into English. Oil prices have soared over the last two months. Oil returned to prices around $110 per barrel for the first time since the days before the great recession. Oil was about $38 per barrel when Obama took office two years ago; it has risen by 175% during his term in office. The recent oil price rise (from about $80 to $110) was driven primarily by the removal of Libyan oil output from the market and the fear that further reductions would take place. Thus, it makes no sense for the Saudis to reduce output with the claim that there is too much oil in the marketplace. So what is really happening.
To understand the Saudi action, one needs to look at the history of US - Saudi relations. Since the first oil shock in 1973, the USA has courted the Saudis and formed a close alliance with them. The first Gulf War to oust the Iraqi from Kuwait was as much about reassuring and protecting Saudi Arabia from Saddam Hussein's army as it was about liberating Kuwait. The Saudi royal family came to understand that the US would protect them and it did what was necessary to keep that alliance close. Much of the cost of that first Gulf War was actually paid for by the Saudis. When the USA invaded Iraq eight years ago, the Saudis again were pleased. The action was taken with their private approval. After all, the USA was removing a madman from their borders.
Since Obama took office, however, there has been a shift in US-Saudi relations. First of all, if the Wikileaks cables are to be believed, the Saudis begged the US to take action to prevent the Iranians from gaining nuclear weapons. Nothing scares the Saudis more than a nuclear armed Shiite Iran. The Saudis are Sunnis and their fundamentalist Wahabi version of Sunni Islam looks at the Shia as heretics. Iran has close to ten times the number of people as Saudi Arabia, so a nuclear Iran would be an existential threat to the Kingdom. The Obama answer, of course, was to bargain from weakness with the Iranians and to stop the Israelis from taking out the Iranian facilities. Obama was (and is) sure that with the force of his personality he can convince Iran to forego nuclear weapons. He would rather concentrate on the construction of apartment buildings in Jerusalem (the dreaded Israeli "settlements") than on stoppin Iran. Oh, he got some weak sanctions through at the UN, but they are just an annoyance to Iran since their buddies in Russia and China prevented the passage of any resolution with teeth. So the Saudis were ignored by Obama on Iran.
Next came the so called Arab Spring. The Saudis were horrified as Obama helped bring down Hosni Mubarak in Egypt. After all, Mubarak was a long time US ally, and the US was driving him from power. What, the Saudis wondered, would save them from a similar fate if Obama decided to help an uprising in the kingdom. Indeed, when there were protests in Bahrain, the home of the US fifth fleet and a neighbor of Saudi Arabia, the US began to "deplore" the government actions. The Saudis decided that they could not stand by idly and sent in Saudi troops to put down the protests. As of this writing, things in Bahrain are under control and there seems little chance that the government of that country will fall. Washington's reaction, however, was to condemn the Saudi incursion.
A few weeks ago, we heard that the Saudis were furious with the USA and had come to believe that they could no longer rely on the USA as an ally. According to news reports, the Saudis were approaching the Russia and China about forming alliances with them. These approaches may be warnings to the Obama administration that it cannot rely on the good graces of the Saudis. Indeed, the cut in oil production may be seen in the same way. but that is the good interpretation. The truly dire interpretation is that the Saudis are not posturing, but that they have decided that they need new allies other than the USA. That would mean that the Saudis will be pulled into the Chinese or other camp. It would mean that the Saudis will no longer worry about the effect of high oil prices on the economy of the West. In short, it would be a body blow to US properity and power.
The sad thing is that a deft administration in Washington could easily have prevented this from happening. Unfortunately, instead of people with experience in foreign relations, we have a government in Washington that functions according to ideology. There are lots of former professors who have expounded in their classrooms about theories that ought to work in their view. Indeed, some of these folks are so certain that their theories/ideologies work that they cannot see the actual reality. the real question now is whether or not Obama is capable of recognizing the disaster of the Saudi actions. If he can, then it will be possible to minimize the damage. If he cannot (which I fear is the case), then it is going to be a bumpy ride for the US in the next two years.
To understand the Saudi action, one needs to look at the history of US - Saudi relations. Since the first oil shock in 1973, the USA has courted the Saudis and formed a close alliance with them. The first Gulf War to oust the Iraqi from Kuwait was as much about reassuring and protecting Saudi Arabia from Saddam Hussein's army as it was about liberating Kuwait. The Saudi royal family came to understand that the US would protect them and it did what was necessary to keep that alliance close. Much of the cost of that first Gulf War was actually paid for by the Saudis. When the USA invaded Iraq eight years ago, the Saudis again were pleased. The action was taken with their private approval. After all, the USA was removing a madman from their borders.
Since Obama took office, however, there has been a shift in US-Saudi relations. First of all, if the Wikileaks cables are to be believed, the Saudis begged the US to take action to prevent the Iranians from gaining nuclear weapons. Nothing scares the Saudis more than a nuclear armed Shiite Iran. The Saudis are Sunnis and their fundamentalist Wahabi version of Sunni Islam looks at the Shia as heretics. Iran has close to ten times the number of people as Saudi Arabia, so a nuclear Iran would be an existential threat to the Kingdom. The Obama answer, of course, was to bargain from weakness with the Iranians and to stop the Israelis from taking out the Iranian facilities. Obama was (and is) sure that with the force of his personality he can convince Iran to forego nuclear weapons. He would rather concentrate on the construction of apartment buildings in Jerusalem (the dreaded Israeli "settlements") than on stoppin Iran. Oh, he got some weak sanctions through at the UN, but they are just an annoyance to Iran since their buddies in Russia and China prevented the passage of any resolution with teeth. So the Saudis were ignored by Obama on Iran.
Next came the so called Arab Spring. The Saudis were horrified as Obama helped bring down Hosni Mubarak in Egypt. After all, Mubarak was a long time US ally, and the US was driving him from power. What, the Saudis wondered, would save them from a similar fate if Obama decided to help an uprising in the kingdom. Indeed, when there were protests in Bahrain, the home of the US fifth fleet and a neighbor of Saudi Arabia, the US began to "deplore" the government actions. The Saudis decided that they could not stand by idly and sent in Saudi troops to put down the protests. As of this writing, things in Bahrain are under control and there seems little chance that the government of that country will fall. Washington's reaction, however, was to condemn the Saudi incursion.
A few weeks ago, we heard that the Saudis were furious with the USA and had come to believe that they could no longer rely on the USA as an ally. According to news reports, the Saudis were approaching the Russia and China about forming alliances with them. These approaches may be warnings to the Obama administration that it cannot rely on the good graces of the Saudis. Indeed, the cut in oil production may be seen in the same way. but that is the good interpretation. The truly dire interpretation is that the Saudis are not posturing, but that they have decided that they need new allies other than the USA. That would mean that the Saudis will be pulled into the Chinese or other camp. It would mean that the Saudis will no longer worry about the effect of high oil prices on the economy of the West. In short, it would be a body blow to US properity and power.
The sad thing is that a deft administration in Washington could easily have prevented this from happening. Unfortunately, instead of people with experience in foreign relations, we have a government in Washington that functions according to ideology. There are lots of former professors who have expounded in their classrooms about theories that ought to work in their view. Indeed, some of these folks are so certain that their theories/ideologies work that they cannot see the actual reality. the real question now is whether or not Obama is capable of recognizing the disaster of the Saudi actions. If he can, then it will be possible to minimize the damage. If he cannot (which I fear is the case), then it is going to be a bumpy ride for the US in the next two years.
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