Mid East Oil Barrels Cost More; Housing Values Continue to Fall
Dow Jones Industrial Average at 12479.63, down 3.9% for the week
May 25, 2008
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By: Jerry Cole - Retirement, Investment
It was a bad week in the market. In fact it was the worst week in 3 and a half months. It culminated on Friday with a final move down of 145.99 points, putting the Dow Jones Industrial Average at 12479.63, down 3.9% for the week.
Auto stocks fell along with airline stocks, which have been pummeled by rising fuel costs. The continuing plunge in the housing market added to the market's woes. The National Association of Realtors said sales of existing homes fell for a second straight month in April. The median home price declined 8% from the year-earlier period and inventories of unsold homes expanded 11% creating a backlog that would take more than 11 months to work off at the current pace of sales.
Unless you live on another planet, you are aware that the lead domino in our economic mess is oil. Indeed, you could argue that oil is at the root of all geopolitical and economic turmoil in modern history. Yet we don't seem to lean from our past experiences and we continue to do little about assuring an adequate supply of this commodity, or developing its substitute, which is so essential to the well-being of our society.
Unfortunately our typical reaction to the crisis reminds you of a bunch of grade-schoolers all pointing the finger at each other when confronted by the teacher about some prank in the classroom. For example, when we have to pay $4 a gallon for gasoline, one of our first reactions is to blame "Big Oil". It is a common knee-jerk reaction and we all have done it. We do it without giving any serious thought to supply and demand. We do it because we know that "Big Oil" is a conspiracy designed to produce enormous profits for the few at the expense of the many.
We have come to believe that it is our right to have oil and gasoline at a price we can afford; at a price that stays in line with the cost of living. The politicians believe they are doing their job by bringing in oil company executives and publicly grilling them about the high cost of oil and threatening to repeal tax breaks or to impose windfall profit taxes. These measures may afford some satisfaction, but will do little to solve the fundamental problems.
IN a report by Peter Robertson, vice chairman of Chevron Oil Company, he said that it is a myth that oil companies are not investing in new energy sources. He said that last year alone, Chevron spent $20 billion exploring new sources of energy. But while new sources of energy must be developed, much could be done with existing sources available to the United States.
Robertson said that 85% of offshore oil is off-limits due to the objection to offshore drilling by environmentalist and their allies in congress. He noted other nations that are strong pro-environment such as Denmark, Norway and the United Kingdom lease offshore locations for oil exploration. He said that the technology has become so good that during Hurricanes Katrina and Rita "one thousand offshore wells were destroyed in the Gulf of Mexico, but not one leaked.
It has been 30 years since the Alaskan pipeline was built despite protests from environmentalists who claimed it would destroy caribou - which it didn't. Technology for drilling and transporting oil has dramatically improved. It would seem we will have to revisit the prospect of drilling in the Artic National Wildlife Refuge (ANWR) and soon.
Pleading for more oil from middle East dictatorships and grilling big oil executives ain't going to solve the problem.
In the meantime, be sure to keep your risk within your tolerance and keep ahead of inflation.
I invite your questions.
Or Contact Jerry Cole at:
(The opinions expressed are solely those of the author and not Gen worth Financial Securities Corporation.)
509 Center Ave, Suite #102, Bay City, MI
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