Issue 33

06/30/05

The Futile Exercise

Issue #33 - The Futile Exercise

1. The Futile Exercise

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Dear Friends,

Early last month I got the following e-mail from an old friend of mine.

Now normally, I don't bother with chain e-mail forwards, even though I
appreciate those friends who are thinking of me enough to send me an
e-mail in the first place, but this one was special.

This particular chain e-mail preyed upon people's financial fears and
combined them with the occasional xenophobic attitude to make for a
particularly small-minded economic outlook.

The only changes I have made are to remove the all capitalized format
of the original e-mail. I have not changed the grammer, spelling, or
punctuation, of this particularly well-thought piece of analytical
writing.

Hopefully you'll see the holes that are rampant throughout this
e-mail, but in case you don't I'll give the best explanation I can at
the end.

Enjoy!

Subject: Plan on supporting this and I hope you do
too. Mark your calendars for May 19th!

Plan on supporting this and I hope you do too. Mark
your calendars for May 19th! It has been calculated
that if everyone in the United States did not
purchase a drop of gasoline for one day and all at
the same time, the oil companies would choke on
their stockpiles.

At the same time it would hit the entire industry
with a net loss of over 4.6 billion dollars which
affects the bottom lines of the oil companies.

Therefore May 19th has been formally declared "stick
it up their behind" day and the people of this
nation should not buy a single drop of gasoline that
day.

The only way this can be done is if you forward this
e-mail to as many people as you can and as quickly
as you can to get the word out.

Waiting on this admiinstration to step in and
control the prices is not going to happen. What
happened to the reduction and control in prices that
the arab nations promised two weeks ago?

Remember one thing, not only is the price of
gasoline going up but at the same time airlines are
forced to raise their prices, trucking companies are
forced to raise their prices which effects prices on
everything that is shipped. Things like food,
clothing, building materials, medical supplies etc.
Who pays in the end? We do!

We can make a difference. If they don't get the
message after one day, we will do it again and again.

So do your part and spread the word. Forward this
email to everyone you know. Mark your calendars and
make May 19th a day that the citizens of the United
States say "enough is enough"

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Okay, let's approach these very interesting and highly persuasive
arguments one by one.

First of all, when has it ever been calculated that the "oil companies
would choke on their stockpiles"? One day's production is just a blip
to the oil industry and in all actuality would help the oil industry
more than anything else.

The oil industry is currently running flat out and refineries are at
maximum capacity, which is why refinery explosions, like the one in
Texas City, Texas a couple of months ago, can cause major kinks in the
supply chain.

If the oil industry ever got a day where nobody bought any gasoline,
they'd finally be able to catch up and might not feel as stretched as
they currently are, but the reality is they wouldn't even notice.

The reason they wouldn't even notice is quite simple, although I
didn't buy any gas on May 19th, I bought on May 18th, 21st and 22nd!

Why?

Because I was driving all over the place and needed the gas. So even
though I wasn't participating in the gas boycott, I still needed to go
places and do things and thus I never bothered to truly curtail my
consumption.

Secondly, one day's consumption would cause the oil industry to lose
$4.6 Billion?? Where did that number come from? Never mind, let's just
take a quick look at whether $4.6 billion would hurt anyone's bottom
line.

I've discussed large cap companies versus small cap companies before
and since that discussion was in regards to the oil industry, this is
the perfect opportunity to follow up on that earlier discussion.

ExxonMobil (XOM - NYSE) is one of the largest company on the US stock
exchanges on the basis of market capitalization with a total market
cap of around $370 billion and is the largest company in the Major
Integrated Oil and Gas Industry. Just this industry alone has a total
market cap of just under $1,400 billion, for which $4.6 billion is
nothing but a blip on a computer screen.

Next, let's talk price controls. We're supposed to be the world's
ultimate capitalist society, so why would anyone in their right mind
suggest that the administration should even consider, let alone be
interested in, price controls.

What a bunch of nonsense!

Anybody remember the 70's? Rationing? Gas lines? Anyone?

I can't imagine anyone wanting to go back to that dark place, but if
they do there's a couple of nice vacation spots I'd like to recommend
with all kinds of price controls.

Let's start with the most hospitable, North Korea.

Want something a little more tropical, okay how about Cuba?

I'm sure you'll enjoy the government's intrusion into your personal
life that will come with that price controlled gasoline, and that's
assuming you can even get any gas.

After all, why in the world would you need gas unless you are a
subversive, capitalist enemy of the state?

As for the Arabs and OPEC, they couldn't control the price of oil
anymore than tell the earth to stop quaking in California.

They lost that ability several years ago, they just haven't wanted to
admit it and Wall St. is too scared to reveal it.

Wall St. stating that OPEC can no longer control the price of oil will
cause a major spike in the short term cost of oil, which they are
loathe to do.

It's easier to just fail to acknowledge that the King has no clothes
and hope that the markets move up slowly enough that nobody notices.

If we ever do realize exactly how precarious our situation really is,
then we would see an overnight spike to $65/barrel, with continued
appreciation in the price of oil until we exceed $80/barrel, because
there will be no way to stop the escalation in price.

In the meanwhile, I return to my first point and to borrow from the
Rolaids commercial, this is how I spell relief:

R E F I N E R I E S

We need more of them and the only plan put forth by any politician has
been the proposal to turn military bases into refineries, which is
probably the only politically motivated suggestion that would actually
work.

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A comment regarding Bull's Eye Investing:
"This book has more wisdom per page than any reader has the right to
ask for. John Mauldin knows the score and tells the reader how to join
him in keeping count."
--Peter L. Bernstein, author of the bestseller Against the Gods
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For the last 25 years or so, America has been held hostage by Not In
My BackYard (NIMBY) activists who are the true culprits of the
nationwide mess in which we currently find ourselves.

When the NIMBY activists get started on bashing the proposal to place
refineries on ex-military bases, go picket/boycott the NIMBY movement
and their supporters!

What the NIMBY movement must be made to understand is that they are
going to personally force the rest of America to pay $5/gallon within
the next 5 years if we don't get some refineries built.

Now maybe the uber environmentalists amongst ourselves want that to be
the situation, but if anyone else really wants to pay $5/gallon for
gas, I have yet to meet them.

And as they say down here in Texas, we need these refineries "mas
rapido"!

Additionally the NIMBYists are also costing Americans their jobs! I
mean afterall, what is the biggest challenge facing any community that
is in the process of losing one of the bases that the Pentagon is
about to phase out?

Losing the biggest employer of the local economy.

But what if there could be a new employer that would be redeveloping
the bases and reemploying large portions of the community that would
otherwise be without their only source of revenue.

So, the next time a well-meaning but uninformed friend forwards a
boycott big oil e-mail, send them a link to this article. Maybe they
will be able to understand that refineries hold the key, not boycotts.

Actually maybe this issue of the newsletter should become a chain
email in order to ensure that the most people possible get to read it.

With that in mind, feel free to pass this on to anyone and everyone.

In the meanwhile, have a happy and safe 4th of July.

Investments good for my mom and you,
Andy Prior

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