I wasted 30 minutes this morning watching Treasury Secretary John Snow give us his standard line of everything's great, and the economy is strong. If you are one of the many corporate executives cashing in your stock grants and options, I'm sure everything is rosy posey. But, if you are part of the middle class on down, you are beginning to feel an economic pinch.
Higher oil prices are beginning to eat into consumers wallets, but not enough to cause real concern. As energy prices continue to climb, consumers will begin to pile on more debt to feed their insatiable appetites to keep up with the Joneses. To show you how blind the average consumer really is, the US Government gave big tax breaks to small businesses that purchased large gas guzzling SUV's before the end of December 2004. Of course, the politicians did this as a favor for the auto industry, but buyers of these vehicles were essentially suckered into purchasing these vehicles at top dollar, and are now paying $60 to fill them up. Since there is virtually no demand for gas guzzlers nowadays, if a buyer were to trade their newly acquired vehicle for a fuel efficient one, they would get creamed on the trade in.
Now John Snow wants us to believe that selling a US oil company (Unocal) to a country that aided Vietnam and Korea in the killing of thousands of Americans is ok. This US currently consumes over 20 million barrels of oil per day, and 45% is used by cars and light trucks. Our daily consumption is more than the daily consumption of China, Japan, Russia, Germany and India combined. Energy prices began to spike in 2004 as 40% of the rise in oil demand came from China. Since the US only has 3% of the worlds proven reserves, why would we even consider the sale of Unocal to CNOOC which is 70% owned by a communist government? Lets name a few:
1) China can help us keep North Korea from launching nukes at Japan, and maybe us.
2) China has good relations with Iran, and Russia.
3) China may hold off on attacking Taiwan.
4) China won't crater our economy by selling our debt in the open market. Insted, they will continue to buy our debt, and keep interest rates low.
5) China (CNOOC) agreed the merger with Unocal would not cost US workers their jobs.
Ok, it looks as if the Chinese have us by the "short hairs". Maybe they will get Unocal after all.
I am expecting our economy to continuing slowing as oil prices continue to rise. Texas oilman T. Boone Pickens recently said that the economy is less dependent on oil today than it was in the 1970s and that it can apparently handle oil in the $50 range, but was unsure what effect $60 or $70 oil would have on future economic growth. This morning, Morgan Stanley raised their average price for oil from $43/bbl to $50. They went on to say that based on $50/bbl oil, the integrated oil companies are 15% undervalued. Continue to hold CVX, SLB, XOM, VLO, MRO, COP, and SUN.
