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The oil field is far from the only place in which consolidation has been
going on to regain pricing power! It's been happening in virtually every
industry under the watchful eye of a Democratic administration. I
remember about 30 years when many of the same economic ingredients were
in place: booming stock market, frothy IPO market in computer stocks,
booming housing market, rising interest rates, and rising oil prices.
Volker started raising rates in early 72 and it took 10 years to wring
the inflation out of the economy. I am not suggesting that we'll see an
exact repeat, but the seeds have already been sown. I also note the
corporate bond market has not seen the rate retracements seen in
treasuries.
Finally, I do not believe that the trend in oil prices will be instantly
reversed by production speak from this administration and OPEC. It takes
a long time for alternate fuels and discretionary usage to make an
impact and it will be years before all those gas guzzling SUV's and
sport trucks are rusting in some junk yard; not to mention increased
demand from recovering economies around the world.
Earl
----- Original Message -----
From: "Timothy Morge" <tmorge@xxxxxxxxxxxxxxx>
To: <realtraders@xxxxxxxxxxxxxxx>
Cc: <realtraders@xxxxxxxxxxxxxxx>
Sent: Wednesday, March 08, 2000 12:23 PM
Subject: [RT] Re: Alan Greenscam, Public ENEMY Number ONE
Bill:
Let me add just one small item here. Everyone is talking about OPEC
again Now, I am a proponent of
free market economics, so don't mis-read this. But at the turn of the
last century, the large US
oil companies were broken up into an entity called the 'Seven Sisters.'
For most of the 20th
century, the oil companies fragmented further and further into less
coherent and non cooperating
firms. Late in the 1990's, some very shrewd CEOs used the plummeting
price of oil to do the best
sort of inventory control possible: They turned from oil exploration to
oil field inventory
consolidation. While most of the world is busy reading articles about
OPEC, there are very few
stories written about the piecing together of these once mighty oil
companies. The Seven Sisters
have basically been reunited and are certainly in control of oil
inventories that are much larger
than the state controlled oil fields of OPEC. These firms ate each other
up after driving down the
price of crude and now, after emerging as a few large multinationals,
are more than willing to
allow the price of oil to rise. And if OPEC gets the blame...why should
they complain?
Best,
Tim Morge
Bill Bancroft wrote:
> Norman,
>
> One amendment to your theory---Al Gore is the executor of his father’s
estate, which holds
> nearly $500,000 worth of Occidental Petroleum stock. So it would seem
OPEC can't lose (ABC
> news ran a story on this two days ago).
>
> OPEC does not want to hurt the world economy with excessively high oil
prices, but at the same
> time, OPEC does not want oil prices to crash back down to $10-----OPEC
wants its own version of
> a "soft landing".
>
> nwinski wrote:
>
> > The dilemma I see is that this huge spike in oil prices is
threatening the
> > world economy. $30 + for
> > oil is inflationary and the price of just about everything will be
going up in
> > the next few months. Given the outlook for both inflation and
recession, which
> > dragon should Greenspan fight? Should he raise interest rates to
fight
> > inflation and possibly exacerbate any possible recession? Or does he
do
> > nothing and risk letting inflation get out of hand? That is a
dilemma that is
> > a very real possibility and no one is talking about it.
> >
> > Now, let's think about why OPEC would want to jack up oil price
to the
> > point it could cause a recession or economic slowdown in an election
year?
> > They have been aware that the high oil price could be a problem for
the world
> > economy for several weeks, but have done nothing but pay minor lip
service.
> > Could it have anything to do with a Texas (read Oil friendly)
governor is
> > running for President and a nice little recession could help plant a
Bush in
> > the White House? I wonder?
> >
> > Cheers,
> >
> > Norman
> >
> > P.S. Gore says he invented the internet and Bush is Gov. of Texas
and was in
> > the oil biz. This Gore vs. Bush race seem to me like an interesting
metaphor
> > for our society and economy as the "new ecomomy i.e. internet"
battles the old
> > economy i.e. Oil do battle for supremecy.
> >
> > Daniel Goncharoff wrote:
> >
> > > It is important to understand the problem faced by Greenspan.
> > >
> > > The market goes up in an 'irrationally exuberant' way. He says he
will
> > > take away the punch bowl as soon as he sees signs of the party
getting
> > > out of hand, ie, when he sees inflation rise.
> > >
> > > The economy keeps growing at a healthy pace. But inflation doesn't
rise.
> > > Instead, the increase in wealth from the stock market is
reinvested, not
> > > spent.
> > >
> > > This leaves Greenspan with a dilemma. Does he raise interest rates
> > > anyway, risking stifling the economy and creating a deflationary
> > > environment? Or does he wait for signs of the stock market bubble
> > > translating into artificially higher asset prices?
> > >
> > > Obviously, he has done the latter. But inflation is not there. The
> > > wealth effect is much smaller than economists would have expected.
> > >
> > > The FT recently had an article saying that spending patterns of
> > > individuals reflect a 75% expectation of a serious market
downturn.
> > >
> > > Perhaps it would have been better to assume that raising interest
rates
> > > would not have an important economic impact. Perhaps not...
> > >
> > > Regards
> > > DanG
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