Petroleum Permitorium

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The Daily Reckoning | Thursday, July 28, 2011 Durable goods orders fall...along with US stock markets, Government goons clamp down on energy industries across the pond, Plus, Bill Bonner with more on the Great Correction and the cost of the Empire's ongoing militarization... ------------------------------------------------------- Advertisement... They go up higher than stocks... They're cheaper to buy than stocks... And you can trade them with an 85% success rate. But hardly anyone uses them. Find out how to get started today. Who Will Be Proven Right? The Stock Market Squares Off Against the Economy Bill Bonner Reckoning today from Vancouver, Canada... Big down day for stocks. The Dow lost 198 points. Why? Are investors worried about gridlock in Washington? Or falling property prices in Beijing? Or maybe it's the European debt crisis that has them bugged? It doesn't matter. When Mr. Market wants to go down, he'll go down. He'll leave to us to come up with the 'reasons' afterward. The real reason? The US economy is sinking into a deeper Great Correction. No kidding. Here's the latest: WASHINGTON (AP) – Businesses cut back on orders for aircraft, autos, heavy machinery and computers in June, sending demand for long- lasting manufactured goods lower for the second month in the past three. The Commerce Department says orders for durable goods fell 2.1 percent in June, with the weakness led by a big drop in orders for commercial aircraft. A number of other categories also showed weakness including autos and auto parts. A key category that tracks business investment plans fell 0.4 percent in June. But domestic sales of durables is much worse...the lowest in 20 years. For the last year and a half, the stock market has been signaling 'recovery.' Prices rose from a Dow low on March 9, 2009 below 7,000 to a high over 12,500. But while stocks recovered, the economy didn't. The rich got richer – those who owned stocks. The middle classes – who tend to own houses, but not stocks – got poorer. So, the big question: who's right? The stock market? Or the economy? Which way is it going to go? Is the stock market going to fall to meet the real economy? Or is the economy finally going to recover to justify the kind of stock prices people are paying? Our money is on falling stock prices. For all the many reasons we've told you in these Daily Reckonings, we don't think you can turn this economy around ...not anytime soon. This is a debt contraction. It takes time. Years. In fact, at the present rate – about 5% of GDP per year – we'll have to wait another 36 years before consumer debt to GDP is back to the 100% level. For reference, it was about 33% when then expansion began after WWII. We've been waiting a long time for the stock market to prove we are right. Until now, neither it nor the economy was willing to give. Stocks stayed high. The economy stayed low. Maybe yesterday, stocks began to ebb lower. Maybe they are just bouncing around. We'll have to wait to find out. Investors are probably a little jittery...waiting for a deal on the debt ceiling. When the deal is announced, stocks will probably rise again. But maybe not. Sooner or later they'll have to come to terms with the Great Correction. Maybe they'll do now. Stay tuned. America's Last Judgment Judgment, pestilence and bloodshed – are they headed for the USA? An extremely controversial "R-rated" report seeks to answer these urgent, historic questions. Don't wait – read on now. The Daily Reckoning Presents Petroleum Permitorium Matt Insley Did you hear the news? This year's government budget included a new tax on oil producers. Bad timing, if you ask me. What, with oil prices sitting around $100 a barrel, the last thing I'd think the government would want to do is reduce incentive for oil producers. But hey, who am I to say? I'll let the numbers have the podium... Already, drilling is down 43% compared with last year. Even though it may be a little early to start tallying drill stats, it's easy to see that many large drillers are now concerned about the fiscal practices of the government. What's next? Nationalization? Funny thing, though, if you weren't a tuned-in Outstanding Investments reader, you'd think I was talking about the U.S. government and drilling in the Gulf of Mexico. Luckily, the news above comes to us direct from our neighbors across the pond in the U.K. And the drilling stats are coming straight from the North Sea, where drilling is slowing and prices are rising. It paints quite a picture, doesn't it? The government increases taxes from 50% to 62% on oil producers' profits. Thinking shortsightedly, as most governments do, this is an attempt to boost tax revenue and help spur the economy and lower debt. But in the long run – with sound economics as our guide – all they are going to do is create higher oil prices. Companies like BP and BG Group have already gone on the record saying this may significantly decrease investment in the U.K.'s North Sea. In our global energy economy, these big oil companies can look elsewhere – places with less tax and more oil. Unfortunately, I feel this story coming from the U.K. is a precursor to what's set to happen in the U.S. What's the Real Price of Oil – WTI or Brent? There's been a big ole hullabaloo over the difference in price between Brent crude oil and West Texas Intermediate (WTI) crude. The price difference at some points has been nearly $20 a barrel between the two geographically separated markets. For instance, earlier this year, Brent prices were close to $115, while WTI was sitting closer to $95. What's the reason? In this case, it's just simple story of supply and demand. In Cushing, Okla., where WTI oil is piped and stored, there's a glut of supply. Oil being piped down from Canada's oil sands, along with other marginal North American production units, is weighing down WTI prices. In the meantime, North Sea production is stuttering, so naturally, Brent prices are a healthy bit higher. With overregulation running rampant in the Gulf of Mexico and Alaska – along with a lot of greedy government eyes looking for any revenue stream they can find – the big oil companies operating in the U.S. seem to have big targets on their backs. Indeed, there's already quite a buzz growing around Washington whether or not to repeal the Bush-era tax breaks that oil companies receive. Repealing those tax breaks would give us the same doomed situation that the U.K. is starting to experience. It's clearly not the best policy action to take. This all brings me to my main point: If you get away from energy, you lose. The energy sector creates jobs, increases GDP and lowers the cost of living (among other things.) That's a triple-whammy you won't find in any other industry. Take the natural gas industry, for example. With increased shale gas coming online, massive amounts of jobs are being created, revenue streams are flowing and the price of natural gas has dropped for customers. Win. Win. Win. This applies to both onshore and offshore oil and gas. Without a "permitorium" or increased taxes, these industries can give the U.S. the lift it needs. Looking at the big picture, here's what the American Petroleum Institute's president and CEO Jack Gerard had to say: Total employment related to offshore Gulf of Mexico oil and natural gas industry operations could reach 430,000 jobs in 2013 if the permitting slowdown is reversed. As large as the jobs numbers are, however, they are just a fraction of all the jobs our industry could create with more forward-looking development policies in all federal onshore and offshore areas. And along with the increased jobs and energy production could come hundreds of billions of dollars of desperately needed additional revenue to the government. Policymakers now debating tax increases on the industry should understand that producing at home more of the oil and natural gas our nation will need is a far better way to help fix our economy and pay down our debt. Clearly, there's a bright future for American energy. But it's up in the air if the current administration along with Congress can make this best-case scenario a reality. Regards, Matt Insley, for The Daily Reckoning Joel's Note: In addition to heading up the Daily Resource Hunter, Matt is also a contributor to Byron King's Outstanding Investments research service, Hulbert's top ranked financial newsletter over the past five years. You'd have a tough time finding a better font of resource-related, wealth generating ideas than frequently appear in this service. Learn about what these guys are calling "Oil's New War" in this video presentation. Do You Stay or Go? That's the question we're asking at this year's Agora Financial Investment Symposium in Vancouver, Canada. Today's all-star line-up included Alan Knuckman, Gary Shapiro, Chris Mayer, the inimitable Doug Casey, and a slew of others. And what they had to say may surprise you... Of course, we understand that Vancouver isn't right around the corner for most of you. That's why we've decided to record all of their insight and expertise and make it available to you on both MP3 and CD formats. So even if you weren't able to join us at this year's event, you don't have to miss out on a single piece of advice or recommendation. And right now, while the event is still going on, they're available at a nice discount. Click here to get yours now. But hurry, the price will go up shortly after the conference ends. Bill Bonner Faith in Guns and Political Stupidity Bill Bonner Reckoning from Vancouver, Canada... You might think Americans would be making fun of their soldiers, not idolizing them. It's one thing to get bread from the feds. But overseas, never- ending circuses are getting expensive. The Guardian reports: ...a Brown University study released last month, estimates at $3.7tn for the Afghanistan and Iraq wars. Our military presence – to say nothing of our reconstruction and stabilisation expenses – costs the American taxpayer a whopping $1m per soldier per year. We'll spend almost $120bn in Afghanistan in 2011 alone. Recently, the nonpartisan congressional budget office noted that ending our current wars would save the American taxpayer over $1.4tn ... Why are our wars so costly? Despite the Pentagon-friendly Rand Corporation citing policing, intelligence and negotiations as the most effective strategies in ending or dismantling 84% of terrorist movements, we continue to rely on heavy military and air presence, including big-ticket items like the $40bn Joint Strike Fighter. These strategies are ineffective against increasingly mobile and amorphous groups. Why the reliance? Because the defence industry has built operations in every state and almost every congressional district, and because its lobby is extremely powerful in Washington. That's right, even the military has been zombified. It's run to benefit people in the defense industry, not to defend the nation. Present wars – if you can call them that – are already scheduled to cost the US $4 trillion. That's about $40,000 per household. You can buy a lot of big screen home entertainment centers for that kind of money. Why don't the people back home object? They should be fed up. You'd at least expect them to hiss or snigger when a soldier walks by. After all, they mocked soldiers returning from Vietnam in the '60s and '70s. In Vietnam, US troops faced a real enemy in a real war – even if it was a stupid one. Now, troops fight 'terrorists,' not an opposing army. Nobody understands who the enemy is...or why it is worth going to war with him. But Americans are neither embarrassed by their men in arms nor ashamed of them. They say prayers for them in church...and let them board airplanes first. In America, circa 2011, people put their faith in guns...and the men carrying them. The soldier, the policeman, even CIA operatives are given the respect once accorded to clergymen, doctors, and bartenders. Go figure. *** We are not a 'ladies man.' But nor are we a man's man. We don't hang out with other men. We don't follow sports. We have no interest in politics or hunting or automobiles, or any of the other things men are supposed to be interested in. The trouble with men is that they are too predictable. You admire a smart man for the speed and agility of his brain. But you always know where he is headed. A smart woman is different. Her brain works fast too. But her destination is a mystery. You only know where she is going when she arrives. And then you are astonished by how she got there. But last night we enjoyed a good night with a small group of men and a large group of wine bottles. Included in the first group were 3 Texans, one New Yorker, two Irish Americans, and one Sicilian. Included in the second group were two white French, two red Italians...and many others we can't remember. We won't bore you with the evening's discussions. Instead, here is a tally of the group's conclusions (we merely listened...having no opinion or experience to contribute): On Sex – Cialis is better than Viagra. On Sports – Mark Cuban is not a bad guy. On Money – the average guy is going to be whacked; if the bear market doesn't get him inflation will. On Pretty Women – don't hire them; it will lead to trouble in the office. On Politics – Rick Perry is a nice guy, but too dumb to be president. This last item touched off a lively debate. "What do you mean, too 'dumb' to be president? Didn't you Texans send us George W. Bush, the biggest disappointment since Bill Clinton?" "Hold on. George is not stupid. He just pretends to be dumb. Like you pretend to be smart. It's just his stage role. He's actually very smart." "Then, what about Perry? Maybe he just pretends to be stupid too. Texans like bonehead politicians. Especially if they're wealthy too. They figure they're too dumb to lie. And too rich to steal." "No Perry is the real McCoy. He's as dumb as he appears. Maybe dumber." Regards, Bill Bonner for The Daily Reckoning ------------------------------------------------------- Here at The Daily Reckoning, we value your questions and comments. If you would like to send us a few thoughts of your own, please address them to your managing editor at joel@dailyreckoning.com More Debt for Your Money According to the papers, investors are on the edge of their seats. They're waiting to see what happens in Washington. Everybody knows that a default would be disastrous. That's why everybody also doesn't worry about it; 'they won't let it happen,' they say to themselves. Political Paralysis Brought on By Government Spending In Defense of the Empire China: Where Money Is Treated Best I am sure that Mr. Pento is right because every country on the Face Of The Planet (FOTP) is desperately creating more and more money, and the money will eventually find its way to the place where it is treated best and/or has the best prospects, which is, in this case, Bob. Oops! I meant "China." Buying Gold on the Price Inflation Guarantee Awaiting the "Zero Hour" of Available Credit 2011 Halftime Report: The Cues for Copper Copper slightly disappointed investors, ending the first half of the year with a decline of 3.50 percent. Worries about global inflation and, more specifically, the potential slowing of China's economy weighed on copper's price. The red metal rose 5 percent quickly in the new year, but similar to zinc, lead, palladium and platinum prices, declined... On US Credit, Rating Agencies are "Out of Their League" Jim Rogers: The US is the Largest Debtor Nation in History The Daily Reckoning: Now in its 11th year, The Daily Reckoning is the flagship e-letter of Baltimore-based financial research firm and publishing group Agora Financial, a subsidiary of Agora Inc. The Daily Reckoning provides over half a million subscribers with literary economic perspective, global market analysis, and contrarian investment ideas. Published daily in six countries and three languages, each issue delivers a feature-length article by a senior member of our team and a guest essay from one of many leading thinkers and nationally acclaimed columnists. Cast of Characters: Bill Bonner Founder Addison Wiggin Publisher Eric Fry Editorial Director Joel Bowman Managing Editor The Mogambo Guru Editor Rocky Vega Editor Additional articles and commentary from The Daily Reckoning on: Twitter Facebook DR iPhone APP To end your Daily Reckoning e-mail subscription and associated external offers sent from Daily Reckoning, cancel your free subscription. If you are you having trouble receiving your Daily Reckoning subscription, you can ensure its arrival in your mailbox by whitelisting the Daily Reckoning. © 2010-2011 Agora Financial, LLC. All Rights Reserved. Protected by copyright laws of the United States and international treaties. 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