Farrell: Can $36 Billion Dollars Buy Peace in Saudi Arabia?
It's like a parent giving into a kid's whim every time and spoiling the child. I often think when I hear and read stuff about China and its one child policy to control population growth, they are condemning their country to a big setback when the current overindulged, spoiled generation reaches the age of responsibility. They won't be responsible and the drive won't be there.
Good King Abdullah of Saudi Arabia figures that $36 billion will buy off any potential unrestin his realm of Saudi Arabia.
That's an expensive piece of cake he's dishing up.
History tells us Marie Antoinette never really said "let them eat cake," but at the end she and Louis XVI lost their heads.
The King is fearful of a Shiite controlled country (Bahrain) on his border. While the Saudi ruling family is Sunni, so is most of the population. But the King and Princes have still long tried to get ahead of any dissent with their checkbook. Remember, fifteen of the nineteen 9-11 murderers were from Saudi Arabia. "Something is rotten in the State of Denmark" (Hamlet, Act I, scene 4). The big bucks might work now to quell what could be growing dissatisfaction, but no amount of money is ever enough. Oddly, the King is popular and the people of Saudi Arabia generally conservative, but he must fear something.
If the unrest were to spread further, and touch Saudi Arabia, the price of oil would soar. (Check Oil Prices Here) For such a little place economically, the Mid East and North Africa cause a disproportionate share of trouble. The two regions account for about 6% of the world's population and maybe 4% of world GDP. But of course the area is one-third of world oil production (Saudi Arabia alone about 9%) and almost half of global exports. We are hearing the usual noise about drilling more and whatever. Tom Friedman (and regular readers know I admire him) had a column in the New York Times the other day calling for an energy tax to be imposed. The tax would make energy more expensive therefore curtailing usage. The proceeds from the tax, says Friedman, could be used to pay off the deficit. I think Friedman is a wonderful thinker but far too optimistic. A flow of money like an energy tax would be diverted by our craven politicos like water into the desert. I remember the first call for "energy independence" came from the ultimate trickster, Richard Nixon, in the 1970's and we are further from that goal now than we were then.
The truth is high prices, whether from a tax or economic activity, curb usage. An interesting factoid I read somewhere (and I apologize to whoever figured this out. I forgot to write down the source) is that it takes the average US worker four work hours to earn enough to fill an average gas tank with oil close to $100 a barrel. That was two weeks of work a few months ago. And by the way, not that you care, I would be for an energy tax to pay the deficit if the money could go into an Al Gore "lock box". Remember that during his Presidential campaign? He was going to put social security into a lock box. I am convinced he had no idea what he was talking about (Can you imagine? A politician not knowing what he was talking about!) since we used/needed the (at that time) excess social security payments to run the government. We have crossed the Maginot line and are now paying out more than we take in. That's another issue. The problem with an energy tax (like an extra tax on gas, for example) is it is regressive and hits lower incomes harder. But it isn't going to happen so we'll save that debate.
Since the US uses about 7.5 million barrels of oil a day, a $10 increase in the price of oil would cost $75 billion. Half of that is imported, but figure we use the domestic half "first", then $75 billion goes overseas and a small pittance would be recycled back into the US. But you know the story. We have been hostage to foreign oil interests for decades and there is no end in sight. Higher oil and rising interest rates will equal lower GDP estimates. Although, next week's updated guess on Q4 2010 GDP will be higher than the last +3.2% estimate as inventory build looks like it was higher. A lot of revised estimates are 3.5-3.8%.
My pal, Sydney Williams who labors at Moness, Crespi, dug up the following: The new Republican governor of Wisconsin, Scott Walker, won with 52% of the vote. The State Assembly went from 50 to 45 in favor of the Democrats, to 60-38 Republican. The State Senate shifted from 18-15 in favor of the Democrats, to a Republican majority of 19-14. Like it or not, the Republicans won big. And they said what they were going to do and have since tried to do it.
Democracy is rule by the majority.
I don't like the idea of eliminating collective bargaining. But, that is what the courts are for. To cut and run because you don't like the way the vote is going to go is denying the democratic process. I live in New York and have a lot of liberal friends who think the Wisconsin democrats are correct. But then again, that's why there is a bid and an offer and why we have elections.
In the 1960's, our troubadour was Bob Dylan:
Come senators, congressmen
Please heed the call,
Don't stand in the doorway
Don't block up the hall.
For the times they are a 'changing. (1964)
The older generation didn't like it then, but things changed.
Union representation is now only 7% in the private sector. It is 42% among state and local municipal workers. I think it is wrong to try and take collective bargaining rights away, but public union benefits are too expensive and we are going broke. We are not going broke, we are broke. The attitude has changed and to try to deny it is similar to denying the wave sweeping across North Africa.
Bob Dylan's hymns were first used to call for civil rights and to end the war in Vietnam. It would have been hard to imagine a situation where , with a lot of poetic license, they could be used to defend the Pharisees, uh, I mean Republicans.
Vincent Farrell, Jr. is chief investment officer at Soleil Securities Group and a regular contributor to CNBC.