Yikes… what a difference from two years ago.
While polls… which show the Democrats taking a drubbing today on the Federal and State level… can be wrong, auction markets rarely are. That is to say, polls and auctions are somewhat similar: they are both designed to predict the outcome of an event – be it what the value of crude oil will be one month hence, the result of last night’s World Series game or who will control the U.S. Congress in January.
However, there is one crucial difference.
A poll is based on the mood of the public at a frozen moment in time. Thus, while the Democrats’ base (read: sycophants of the Daily Show) might seemingly be frustrated with this White House at present… hence Obama’s lousy approval rating… numerous reasons exist why a significant number of Democrats would rather stick a pin in their eye than vote Republican.
Politically, today is the mirror image of 2006. Then, Democrats surged (justly) as a result of Republican incompetence. After all, you do not get a Jimmy Carter without a Richard Nixon and you cannot get an Obama without a Dubya.
The point here is that polls are just a snapshot in time of the dynamic whim of the public. An auction market, however, requires the public to wager on their whim. In other words, as opposed to a poll, the public has a vested interest in the outcome of their prediction.
In this vein, Democrats ought to be concerned with what the market is telling them. As of late last night the Intrade prediction market was giving odds of 20-to-1 that the Democrats will hold the House and 5-to-4 they will hold the Senate. In other words, chances are overwhelming the Democrats have lost the House and maybe even the Senate.
How did it come to this? As the last Democrat who resided at 1600 Pennsylvania Avenue would tell you, it’s the economy. This White House failed to appreciate the true mess they inherited and instead focused its energy on exploiting the financial crisis to further its redistributionist mission to transfer money from the haves to the have-nots, i.e. from the productive side of the economy to the unproductive side of the economy.
The oil and gas industry is the last bastion of U.S. manufacturing might. It is an industry than can compete anywhere on the globe. As such, it employs over 160,000 Americans with an average weekly salary of around $1,400 — nearly twice the national average.
Even before the White House began spewing its vitriol in the wake of the BP oil spill in the Gulf of Mexico (to cover up its poor response), it animus towards the industry was well established.
To wit, Treasury Secretary Timothy Geithner’s testimony to a Senate Finance Committee Hearing on March 04th, 2009 sums up this Administration’s goals:
“U.S. oil and natural gas producing companies should not receive federal subsidies in the form of tax breaks because their businesses contribute to global warming…”
“We don't believe it makes sense to significantly subsidize the production and use of sources of energy (like oil and gas) that are dramatically going to add to our climate change (problem). We don't think that's good economic policy and we think changing those incentives is good for the country…"
We do not think Mr. Geitner’s, and therefore, the White House’s, views on our industry are good economic policy and we do not think they are good for the country. After all, how is the generation of rent seeking beneficial to our energy security?
Mr. Obama’s DNC acceptance speech on August 28th, 2008 was 4,697 words long. He dedicated 10% of it (458 words) to energy. He promised us that he would “… invest 150 billion dollars over the next decade in affordable, renewable sources of energy – wind power and solar power and the next generation of biofuels; an investment that will lead to new industries and five million new jobs that pay well and can’t ever be outsourced”.
This White House is creating uncertainty regarding its energy policy. For example in March, (pre- Deepwater Horizon oil spill) the Administration announced its decision to allow drilling in previously protected waters off the coast of the United States. In April (post Deepwater Horizon) the Administration backed away.
It is therefore playing fast and loose with an industry whose success is the linchpin of the U.S. economy. All on the academic assumption that five million jobs will somehow materialize because we pledge to beat our smokestacks into photovoltaic panels.
That is not practical. While alternative fuels certainly have a place, albeit a small place, in our energy future, domestic resources of hydrocarbons have to be maximized. Like it or not, oil is going to be a major driver of our economic success well into the future.
Instead of castigating the industry, we should be working with it. Without a strong domestic oil and gas industry we cannot have a strong economy. And, as far as those five million jobs renewable energy sources will allegedly generate, consider this: three of the ten largest manufacturers of windmill turbines are in China and already garner 23% of the global market and 43% of the global solar panel market is controlled by Chinese manufacturers.
If you believe the U.S. can catch up to China then Uncle Sam has a car company you might be willing to buy.
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Stephen Schork is the Editor of The Schork Reportand has more than 17 years experience in physical commodity and derivatives trading, risk systems modeling and structured commodity finance.