What Will Obama Do to Stop Big Oil From Popping His Bubble?

“Oil down to !”

A year ago, that headline was extraordinary, since crude futures had been hanging out all around 4 a barrel, and had been on their way to . Speak about blood on the trading floor! Now that’s the sort of rich stuff a columnist can sink his teeth into.

The latest hiccough is merely a 4% cyclic dip inside a bigger rising trend that has observed crude futures rise some 71% over the previous nine months. Really frankly, the oil cost could drop to the bottom of the increasing trend at , and I still wouldn’t be impressed. Heck, I halfway anticipate it.

Nevertheless, this tiny tempest in a teacup did get me thinking about energy charges et al. I’ve lengthy maintained that energy fees are the mosquitoes of inflation. That is to say, they are the disease vector that makes it possible for the theoretical destruction of the dollar to burrow down deep into standard folk’s pockets.

The Pin in the Bubble

You can make a good argument that spiking gasoline, heating and electricity fees at the prime of most each boom are the agents that most straight trigger the subsequent bust. We all blame that last huge crash on failing true estate and banks. But what really brought the country up quick was that whopping 282% enhance in the value of guzzlelene. That is when we saw people place their Escalades up on blocks and abandon their McMansions to the banks.

So if you want to know how extended this celebration has to run, the correlation between gasoline and stocks is a darned good spot to commence.

I’ve carried out this chart before, but I can in no way lay my hands on it when I need to have it. So I drew it up again for today’s column, and the moment once again I was gob-smacked by a most peculiar set of correlations.

There is, of course the coincident tops in gas and the blue chips in both of the current boom and bust cycles. But what actually got me thinking this week had been the differences in between the Clinton and Bush cycles.

The Amazing Difference

From 1995 to 2000, we saw the markets rise some 250%. Throughout the same cycle, gas at the pump gained 78%. Funny point is, boy did I whine about it every time I filled up the Ford pickup I was driving in these days. If only I had identified!

Although that disparity among stock gains and gas gains may possibly have been thin compared to what was coming, it did indeed presage the collapse we usually credit to the unwinding of overpriced tech stocks.

By now, you have almost certainly noticed that I have labeled the two cycles with the names of the presidents who presided more than them, fairly than the usual “Tech Bubble” and “Real Estate Bubble” tags. This will, no doubt, result in a boatload of e-mails from the typical homers who bristle at any imprecations against “their guy.”

I Am an Equal-Opportunity Hater

Please. Let’s get a single thing straight: I am not and never ever have been a massive fan of Bill Clinton. I do not know if he shot Vince Foster, slept with the Chinese ambassador in the Lincoln Bedroom, or any of the other rot that was so liberally bandied about in those days.

Nonetheless, I am a dad, and I do know that Bubba utilized his power and prestige to pry his way into young women’s pants. If he had been merely the local school principal or such, he’d possibly be serving time or be dead and buried in the potter’s area.

Much more saliently, it was his crew that completely politicized the economy and institutionalized the complete “plunge protection” idea, and quite much abandoned any pretense of financial sanity so as to foster the train wreck that we came to call “The Tech Bubble.”

Saint George

Now, one particular thing you can say about George Bush is that he did not preside more than such an extraordinary expansion of the economic climate. I will concede that he started with a bit of a handicap, each from the excesses of the Clinton era and the injury accomplished to the financial system from the 9/11 attacks and their aftermath.

That is not to say that there wasn’t development under Bush, even unbelievable growth. Even so (and this should come as no shock really, in view of his background), most all of it came in the oil patch. During the second great boom of the past 12 many years or so, blue chip stocks “only” grew some 90%.

I put in these tiny “Air Quotes” due to the fact prior to Clinton, any president who presided over a 90% increase in stock prices would be immortalized in our pantheon of heroes. But power charges – and oil stocks – did a heck of a lot greater than that. As I mentioned earlier, gasoline gained some 282% from 2002 to 2008. And share rates for businesses like Exxon Mobil (XOM:NYSE) and Chevron (CVX:NYSE) fairly considerably tripled.

And even though we can ponder whether or not or not power popped the tech bubble, I will state for a categorical truth that it is what tipped us into the banking abyss of 2008.

How Far Will He Let It Go?

So, what of the following cycle? We are once again seeing the identical profligate destruction of the dollar that was employed by each Clinton and Bush. And I have no doubt that, sooner or later, we will see that habit lead to inflation that will finish this rising cycle. But will we see the dichotomy amongst power prices and stocks broaden or reverse?

I have a hunch here. I don’t know this for a fact however, but I would like to point out Mr. Obama’s predilection toward “strong central control.” (You know, the habits some are labeling “socialist.”) I suspect that the moment he feels that “his” financial system is threatened, he will act to rein in the large oil giants, either by means of punitive redistribution by way of taxes, or by way of cost controls.

Historically, we know that that sort of mucking about never performs. But we also know that President Obama firmly believes that he is historically distinctive.

Heck, it wouldn’t even shock me if we engaged in some military adventurism in and close to the international oil patch. Indeed, I must like to remind readers squealing that the Democrats are the “peace celebration,” that such efforts have happened far a lot more usually below democratic regimes.

War. Price controls. Rationing. Punitive taxes.

Ewwww!

Remember: You study it right here initial, people.

Yours really,

Adam

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