The debt, the deficit, two wars without end, the banking crisis, the mortgage crisis, the worldwide economic slow down, Social Security, a deadlocked partisan congress, health care, a tax system that everyone thinks is unfair, collapsing US auto manufacturers, jobs being exported at light speed, the defense of our northern and southern borders, a recession, still no energy policy, and what appears to be a complete collapse of our image abroad.

Why would anyone want this job? It’s beyond me. The real question is now that he has done what seemed like the impossible, how will it affect the markets?

This is a long and short-term issue. In the short term, the markets should rally. If for no other reason than the media and press will ease up on the hugely negative pounding they have been delivering for the past two years.

A rally is also likely because, as everyone knows, the market hates uncertainty. Even though this race has been all but a certainty for a long time, it has added to the mood of “what’s next.”

More specifically, and on the bright side, we should see good things for the solar and alternative energy sectors, biotechnology, the health care industry, and if he makes good on his promises to restore jobs to the middle class, manufacturing could see a jump.

Long term is another issue. We are in several very tough spots. We have a full-blown recession and the last thing we need in this environment is a tax increase. It could be fatal.

On the downside, pharmaceuticals will most likely take a hit. He is pretty clear he wants to change how business is done in this area. Defense contractors stand to lose if he makes good on getting our troops out of Iraq and Afghanistan, and if he is as pro new energy sources, as he claims, traditional energy stocks could be in for a rough time.

All of Obama’s promises about increasing taxes on the so-called “wealthy individuals” could be the proverbial last straw. If the President elect makes good on his promise to redistribute wealth by increasing taxes in this economic environment, we could have a longer and deeper recession than anyone has predicted.

The key to all of this is that all of these were campaign promises. Campaigns to me are a lot like our first few years in college, and last few years of high school. We had all the answers and no responsibilities. It’s easy to talk change and promise the middle class another New Deal, but what he will actually do is anyone’s guess.

The best thing the markets have going for them is that Obama is a very, very smart guy. And as smart guys usually do, they surround themselves with smart people. Hopefully, these smart people will help the new president see that most of the ideas used in the campaign to get votes need to take a back seat to the realities we face as a nation.

If this “smart guy” scenario plays out, we could do very well with this administration. When it comes to the markets, recent Democrats actually have a better track record than Republicans. If Mr. Obama is enough of a politician to beat the odds and win this election, I have to believe he is also enough of a realist to look at the situation he has inherited and deal with it appropriately.

History has proven that the markets do well no matter who is President. Most conservatives expected the world to end when Clinton was elected. Liberals threatened to leave the country if Bush was elected. Everyone under the age of 30 had heart palpitations when Nixon won in ‘68. The markets always find a way to make it to the next election.

Source: Congratulations President Elect Obama

There were three news stories, although all are quite well understood. Dollar weakness, the unexpectedly large US unemployment report, and the Iranian “story” from Israel all conspired to trigger the upward move. So far, so good. But it’s the same news as we’ve seen many times before. Nothing new, really. (139th story about the impending attack on Iran, for example… Yeah, right. I’ll believe it when I hear the bombs explode.)

But then came the short-covering that drove what would have been a $2 or $3 move into an almost $11 move. Hence the melt-up.

The normal reaction to the excessive advance is a retreat… and this is what we’ve seen early week — when retreated about $3/bbl.

By definition, the “futures” markets are all about the future.

In general, in the future people expect to see a weaker dollar and tighter supplies of oil that cannot meet projected demand.

The way to break this cycle is with a clear signal from the US Federal Reserve that it will defend the dollar. I’d like to see a 1% interest rate increase, with language that if this does not get the dollar on track then there will be more rate increases. This will hurt some parts of the economy (like housing). But it will salvage the rest of the economy. As things now stand, high energy prices are just going to kill off the bulk of the economy and destroy the American middle class.

But this monetary action is only half of the solution.

The other half is that the US govt needs to adopt a strong, production-oriented energy policy. Yes, the new policy must include the usual tributes to conservation & efficiency… as if high energy prices do not enforce and drive home the import of such virtuous behaviors. And the new policy should give wide leeway to windmills, solar, geothermal and 2nd generation biofuels. It’s a true shame to waste good coal or oil on something that you can do with a windmill. But you cannot run an economy on windmills, solar, geothermal and biofuels alone.

U.S. Dependence on Oil…

The US needs to focus on North American energy production, via oil & gas drilling in Alaska and offshore, plus “clean coal” technology, coal-to-liquid, oil shale development, gas hydrates, next-generation nuclear, and anything else that will work in the next 10-20 year time frame.

Just the announcement that the US is adopting this pro-production policy will shape the marketplace and tend to drive long-term prices down. The worst case is that it will sure moderate any future price increases.

There is an astonishing amount of energy technology out there, already invented and workable. The great challenge of the future is systems integration, to bring it all together and apply it to our problems. Integrate it, make it work and scale it up. This just takes a lot of hard work, with direction and incentive to achieve.

The first energy “system” that is broken in the US is the lack of coherent, national energy policy. We have to fix that.

And if we don’t defend the dollar, what’s the use? The dollar will die, and we’ll be calculating our energy transactions with seashells or pretty stones.

Best,

Byron King

Note: Byron King is a frequent contributor to the free e-letter Whiskey & Gunpowder. To receive daily insights into energy, oil, commodities and other natural resources sign up here!

Source: The Oil ‘Melt-Up’ and Why the U.S. Economy Won’t Run On Windmills Alone.

In Russia, they elect the former president of Gazprom as president of the country.

Hmmm… Russia or the USA… Which country does not have an “energy crisis?”

“People we represent are hurting,” says Sen. Leahy of Vermont to the oil company executives. “The companies you represent are profiting.”

Yeah? So what? Oil companies make about 4-cents per gallon gas. The federal govt makes at least 18-cents, and state govts make much more than that. Besides, most oil companies are actually “losing” money on downstream operations. The refining margins just plain suck right now.

And whose fault is it that people “are hurting?” People in the US have made several generations of bad choices in energy policy, to include electing guys like Patrick Leahy to the US Senate. The Patrick Leahys of the world have never done a darn thing to increase the energy supply of this country. They just sit back, pass legislation to lock up areas the size of Maine — as well as 85% of the US Outer Continental Shelf — and then take potshots at the people who put gas into the fuel tanks of America.

Really, Senator… Would you trade the management team of Chevron or Exxon for the mangers of Pemex? You want gas lines? Try that, genius.

Here is the scoop, if you missed the story.

Until we meet again

Byron King

Note: Byron King is a frequent contributor to the free e-letter Whiskey & Gunpowder. To receive daily insights into energy, oil, commodities and other natural resources sign up here!

Source: Congress Beats Up On Oil Execs…

We seem to have a history of identifying a problem and rushing to solution before really taking the necessary steps to find a real fix. Have we set ourselves back when it comes to alternative energy?

It seems that every time you pick up the paper or switch on the TV, someone is talking about a new way to make his car run on biodiesel or ethanol:

“I converted my car to run on old McDonald’s french fry oil, and the mileage is pretty darn good.”

Well, there we have it…energy crisis solved…right? Wrong. You see, for every good idea and every well-thought-out plan that may work on a small scale, there are always problems on a widespread level. Ethanol from corn is a perfect example. We will examine why ethanol has failed in a moment. And why even bother with alternative fuels? Do we really need them?

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Let’s think about some alternative fuels and energy sources. Think of nuclear, solar, hydrogen, geothermal, coal and biodiesel. While we’re at it, let’s think about ideas like recycling, conservation, smaller cars, efficient homes and even walking. Yes, walking. These ideas are no longer just for polite cocktail party talk. These things will now be necessities if the world — and, most certainly, the U.S. — is going to continue to function in the face of dwindling easy-to-get-to sources of oil.

One thing is for sure. The vast petroleum needs of a growing planet are not slowing down. In fact, quite the opposite.

We suddenly have a whole new ballgame, as millions and millions of new drivers hit the road in India and China. The economic boom in those places has spurred a new middle class. These are not the regimented masses of just a few decades ago. The new middle-class citizens of the developing world are not content with meager rations, bare-bones quarters and Mao or Nehru jackets. Instead, they are demanding more luxury items and a far superior standard of living. And you know what? They have the money to pay for these things.

So we have a problem. There are a lot of people competing for the world resource pie. But the pie is not growing very fast. In many ways, the size of the pie is static, and in some respects, it’s actually shrinking. Thus, we get the golden rule of supply and demand, which is that those who have the gold make the rules.

The idea of ethanol from corn or other feedstock is not new. Byron King and I have talked about this in our Outstanding Investments letter many times before. Farmers have used ethanol from corn for years on a local basis, and it has served them well.

I visit many farms every year. One small town in Minnesota is a perfect example of how corn-based ethanol’s evolution went from a simple small-scale solution to a nationwide disaster.

In the small southern Minnesota town of Waseca lives a good friend of mine, Geb. Geb is a lifelong farmer and resident. Geb made his career in farming, and his hands tell the tale of many years of hard work and toil. Geb now enjoys retirement and investing, and his son Scott handles the day-to-day operations of the farm.

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I visited Geb and Scott’s farm about two years ago. As we walked over his farm, Scott was nice enough to show me the incredible advancements in farming technology. Global Positioning Systems (GPS) in the tractors and combines enable the driver to know exactly which parts of the fields he has already sprayed with fertilizer, in order to save money. And this level of technology is just a start. There are many other things that make this not your father’s farm. Different seeds, different irrigation methods, different weather forecasting. I was impressed.

Later that day, the discussion of ethanol turned into more of a history lesson and led me to realize that corn-based ethanol on a nationwide scale was going to be a disaster. (Remember, this was about two years ago.)

Wouldn’t it be great to grow enough of something in your yard and then have a machine turn it into fuel you could put in your car? What could be better than taking a small portion of your corn crop and converting it into ethanol at either your farm or the locally owned farmers’ co-op down the road? You could then use the ethanol to run your farm vehicles. And if you didn’t need all of it, you could sell a little to the local gas station or your neighbor. It makes an incredible amount of sense on that small-scale level, and it worked like that in the Corn Belt for many years. Fast-forward to 2008 and we find a much different story.

The idea was simple at first. We would use ethanol for fuel, just as they do “back on the farm.” But when the time came to scale it up, everything became super complex. Oil prices surged year over year, and the idea emerged that alternative fuels — like ethanol — would start to replace oil, just as they had done in Brazil years earlier. It was a nice idea. However, without any real planning or study, it was doomed to fail. And now we know that it has failed.

Regards,
Kevin Kerr

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Some truckers, on CB radios and trucking Web sites, had called for a strike Tuesday to protest the high cost of diesel fuel, saying the action might pressure President Bush to stabilize prices by using the nation’s oil reserves. But the protests were scattered because because major trucking companies were not on board and there did not appear to be any central coordination.

On New Jersey’s Turnpike, southbound rigs ‘as far as the eye can see’ were moving at about 20 mph near Newark, said Turnpike Authority spokesman Joe Orlando. Other truckers had gathered at a service area near Newark chanting and protesting.

Read on at Brietbart.com.

“Bad US energy policy will take down everything,” says Peak Oil expert Byron King.

“One of the biggest hurdles to the U.S. getting energy right is that the mainstream media infotainment circus has not prepared people to connect the dots of what they already know. Think about your own daily observations.

“People ’see’ information that tells them how much oil, for example, is in the hands of the national oil companies of many foreign nations. But the mainstream media (MSM) — and a lot of U.S. politicians — corporately hate Big Oil so much that they won’t inform viewers and readers how little control the name-brand players have anymore.

“Really, in a lot of respects, Exxon Mobil, Shell and Chevron are now bit players in oil. The MSM are stuck in the 1970s, in the thought processes of the disco era. Really, the MSM need to lose the polyester leisure suits.”