OLEAN -- OK, already, stop pestering me. We'll talk about the price of gasoline. That's all I ever hear on the street or in the office or in the grocery aisles.
"Did you see what a gallon costs today?"
"Why is gasoline suddenly so costly?"
"Why is gas 24 cents a gallon cheaper just across the border in Pennsylvania?"
"Will I have to sell the SUV?"
"Will it keep going up? Will it ever get back to just three dollars a gallon?"
All good questions, but I don't know the answer to any of them, and -- if you watch the evening news, read the papers and magazines, take as gospel what Big Oil execs tell you, and keep track of recent windbag congressional hearings -- neither, apparently, does anyone else.
There are at least a dozen bills in Congress addressing the subject, and our august representatives seem to blame speculators -- the commodity traders and hedge fund hedgers who until recently have seemed to believe the price of a barrel of crude oil will go nowhere but up.
Italy and Austria are pushing the European Union to impose a tax on speculation. So are many members of Congress. Saudi Arabia (and other big producing nations) point at speculators rather than supply and demand as the cause of rocketing prices.
This is probably a good spot in the column to tell you: So do I.
Before all you bloggers, e-mailers, IMers, and letter writers who think I'm an ignorant jerk rush for your keyboards, let me tell you why.
At my advanced age, I don't believe much in coincidences anymore. Most of the futures trading in oil is done on the New York Mercantile Exchange -- the NYMEX. Most of the futures trading on crude began to swell in 2004. In the four years since, the NYMEX trading volume has tripled. Even pension funds and mom-and-pop traders have gotten involved. In the four years since, the price of crude oil has tripled. The lines are parallel on the chart. I take my clues where I find them.
I don't believe all this stuff about inadequate supply as global demand explodes. I suspect the planet is virtually awash in oil -- petroleum held back here and there in expectation the price will just keep on rising.
This has happened before with various commodities. Once one of these lemming-like investment waves begins, the avalanche of rocketing prices becomes a self-fulfilling prophecy.
The price goes up because professional gamblers think it will go up and act accordingly. Why would someone now pay you $1,000 for a gold coin you bought three decades ago for about a tenth of that? Because the geopolitical realities have convinced the buyer the price will just keep on rising.
Various sober-minded columnists, opinion writers and news reporters seek to convince me I'm full of baloney. As the usually insightful British magazine The Economist seeks to explain, buying futures are "in essence, bets on which way the oil price will move."
"Neither index funds nor other speculators ever buy any physical oil," the magazine continues in its July 11 edition. "Instead, they buy futures and options which they settle with a cash payment when they (the options contracts) fall due. ... Since the real currency of such contracts is cash, rather than barrels of crude, there is no limit to the number of bets that can be made. And since no oil is ever held back from the market, these bets do not affect the price of oil any more than bets on a football match affect the result."
Well, ahem. Isn't that nice and tidy? A bit too simple and smooth for my reckoning.
When I put some of my precious retirement money into this or that utility stock, for instance, am I not doing the same thing? Am I not "betting" the price of that stock will eventually go higher and soothe me in my old age when I finally sell it? If enough old geezers do the same on any given day, the price of that stock goes up.
My financial counselor does not call these "bets" but "investments" -- the very linchpin of our entire financial system. I'm not actually purchasing kilowatts, or a doodad on some powerful generator, or a blade in the rotors of a hydroelectric plant -- I am "betting" that all those things will continue to operate and function effectively and at a growing profit.
When you get right down to it, isn't our much-venerated stock market system, as important as it is to our economy, just a big casino, also?
Sure, sure, I own a "share" of the company I invest in, but to most Americans, that's just a piece of paper or an electronic assurance, not a ticket to really influence the future or decision-making processes of that company, except en masse. Go to an annual shareholders meeting sometime if you don't believe me. Try making yourself heard, much less influential.
The etymology of terms used in futures trading sheds some light. The very word "speculation" comes from ancient Latin that reveals true intentions here -- "speculatus" originally meant to spy from a watchtower. In other words, to see something coming because of your advantageous viewpoint or advance knowledge.
And what's all this blather about bets on a sporting event not influencing the outcome? Ask the 1919 Chicago White Sox if that one's accurate.
Ask the NBA referee who's going to prison for calling any foul he could possibly imagine to affect the outcome of over-and-under bets on total score wagers. If there's money to be made, someone will try to affect the outcome of any activity.
The Economist also seeks to convince its readers that "despite their dismal reputation, oil speculators provide a vital service. They help airlines and other big oil consumers to hedge against rising prices, and so to reduce risk -- a massive boon amid the economic turmoil."
A bit of truth to this. Southwest Airlines was smart enough to purchase voluminous crude oil futures at $51 a barrel, and so can still offer reasonable and cut-rate airfares while its competitors pay thrice that and price themselves into bankruptcy with outrageous ticket prices and ridiculous add-ons for stowing luggage and serving flat soda drinks. But to attribute this side effect to charitable inclinations by futures traders is as logical as attributing your successful trip to New York City to the three-card monte hustler outside your hotel who let you win one just to draw in more gawking sidewalk suckers. Vital public service, indeed.
What the futures market in crude does do is provide cover for the dissembling Big Oil executives who continue to insist they have nothing to do with gasoline prices. To listen closely to their recent congressional testimony is to believe commodity prices are influenced by the alignment of the planets, or by interpretations of the Kabbala, or by conniving gnomes in Switzerland who come out of their caves every five years, a combination of all three, or by anything except Big Oil.
In any case, don't get your hopes up that Congress -- or the White House -- will regulate the NYMEX or any other commodities futures market within your lifetime. What Congress does best is produce enough hot air to solve the winter heating problems of everyone in the Northeast.
First of all, Congress is the vehicle that willingly and stupidly bought into massive federal deregulation three decades ago -- selling it with gossamer promises of cheaper fares, bills, levies and taxes, all born of increased competition, and thus lower prices and economic health -- thus subjecting you to just the opposite: skyrocketing and unfair costs in all sectors of the economy, a torrent of individual bankruptcies and corporate failures, and a centralization of business and industry through mindless mergers and acquisitions that has given Big Business and Corporate Greed the governing hand over all of us, even our so-called federal leaders. Congress loves deregulation.
Second, there's no fiscal incentive for our corrupt politicians to do anything about this under the current upside-down system of greased palms and corporate campaign financing -- all under the ridiculous judicial guise of protecting free speech.
Example: The reliable Center for Responsive Politics, a Washington public affairs outfit that keeps track of such things, discovered, as quoted in the July issue of Harper's Magazine, that in this time of much-decried war and costly foreign troop deployment, the total value of personal investments in major U.S. military contractors that are owned by members of Congress reaches $150 million. Do the long division on that one.
And those are only the investments listed on public disclosure forms -- in other words what Congress persons are will to admit to. Which way do you think those elected representatives are also "betting" on the price of oil?
I drive about four miles to work. On my route, I can count at least half a dozen gas-hogging pickup trucks -- in seeming good condition and parked in driveways and on front lawns with handmade "For Sale" signs in sad recognition that this financial headache of over-the-moon gasoline prices isn't going away anytime soon, probably never.
Third, Big Oil put $1.8 million into Bush-Cheney coffers in the 2000 presidential campaign. It made $104 million in campaign contributions to federal candidates since. The payoff was $12 billion in federal tax credits and subsidies and the current gasoline prices. ExxonMobil made $40.6 billion in net profits last year, and is headed for twice that in 2008. Do you seriously think Congress dares to interrupt the flow from that generous political funding teat?
Soon, our shortsighted American carmakers -- once the soul and heart of our healthy economy -- will be broke, and taken over by foreign interests. That process has already started.
The only comfort I can find is best expressed in a recent New York Times column by author Thomas Friedman, who writes that a real leader in the White House instead of "our addict-in-chief" would be stressing how oil is poisoning both our climate and our geopolitics, and that perhaps these high gasoline prices will "help drive conservation, open the door to new nuclear power plants, and trigger massive investments" in renewable energy such as wind, solar and thermal sources.
If I were you, I wouldn't buy futures in that prospect, either.
| Niagara Falls Reporter | www.niagarafallsreporter.com | July 22 2008 |