It’s been said many times
that those who forget history tend to repeat it. Sadly it’s
true and that’s why we continue to have these economic
booms and busts. Talk has now moved from the “r”
word to the “d” word. Well, don’t you believe
it! Not even close. Fed-head Ben Bernanke is a student of
history and he knows what happened in the 1930s. He also witnessed
what happened in Japan in the 1990s. In both instances, money
supply was tightened in an attempt to curb speculation. Tight
money stopped economic growth in its tracks. These two instances
have not been lost on Bernanke. “Helicopter” Ben
once vowed to fly a helicopter over the US and drop money
if necessary to stimulate the economy. Although he has not
done this literally, he has infused the US economy with billions
of dollars. Most of those dollars have gone to financial institutions,
but now the Fed is even lending directly to businesses. The
Fed will likely cut interest rates next week, but the bond
market has factored that in already. So, the stage is set
with low interest rates and a plentiful supply of money. All
that is needed is a return of confidence to encourage lenders
to lend and borrowers to borrow. In the meantime, corporate
America is getting lean and mean by cleaning up their balance
sheets. Unfortunately, that has also meant eliminating thousands
of jobs both white and blue collar. However, once this economy
turns up, new jobs will be created. All we need is a spark
to ignite the next economic boom. President-elect Obama may
just be that spark. After eight years of the Clintons and
eight years of the Bushs, the country may welcome a change,
any change.
While the recent focus has been on the economy, there are
other issues that need to be addressed. One of them is energy.
Now that oil prices have dropped blow $50 a barrel from a
high of $147 a barrel, as recently as July, there is a complacency
that gasoline prices at the pump will remain below $2 a gallon.
Complacency can get one in trouble. When the next economic
boom begins, oil prices will rise as countries seek energy
to accommodate their growth. We need to focus on energy development
to lessen our dependence on foreign oil as many of these suppliers
are not our best friends. Also, OPEC (Organization of Petroleum
Exporting Countries) will meet December 17 and will cut production
in an attempt to force oil prices up. Make no mistake OPEC
controls the price of oil. Add to that the modern day buccaneers
who recently hijacked a 3,119 ton supertanker carrying $100
million in oil. That is about two million barrels of oil and
about a quarter of Saudi Arabia’s daily oil production.
We have discussed in previous market letters the extensive
amounts of untapped oil offshore, in Alaska and shale oil
fields out West.
These sources could give us oil independence for decades.
In the meantime, we can look to develop alternative sources
of energy which the new administration will emphasize. Hopefully,
any funds committed here will be well spent. We have been
down this road before. In 1977, the Department of Energy was
created. Its purpose was to discover ways to lessen our dependence
on foreign oil. Now, thirty-one years later, the budget for
this necessary department is at $24.2 billion a year. They
have 16,000 Federal employees. We are indebted to the Longwaves
Forum for this data. Clearly we need a more efficient method
of finding ways to wean us off foreign oil. Large government
departments or committees remind us of Buridan’s ass.
Jean Buridan was a 14th century French philosopher and physicist
(1295-1356) whose account of freewill was parodied with a
paradox. An ass standing equidistant between two bales of
hay is faced with the choice of feasting on one or the other.
All things being equal, the ass starves to death because there
is no rational reason for choosing one bale over the other.
For Buridan, freewill initiated the ability to withhold judgment
indefinitely due to a lack of certainty.
Most of our problems are not solved by committees, but by
individuals willing to make decisions and accept responsibility
for those decisions. Not everyone agrees with Treasury Secretary
Paulson or Ben Bernanke, but they are making decisions –
not all perfect, but they are moving us through this crisis.
Well, 2008 is drawing to a close, and it has been a very
challenging year to say the least. That is the nature of our
business and yours. We promise you a 100% effort to protect
and enhance your assets and not to be caught like Buridan’s
ass.
We pray that all of you have a safe and happy holiday
season.
Random thought for December 2008:
“This time, like all times, is a very good one, if
we but know what to do with it.”
- Ralph Waldo Emerson
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