Round Up the Usual Suspects

Like Captain Renault in Casablanca, the usual suspects must occasionally be rounded up to make a show of action, even though it truly is only for show. Unfortunately the only “beautiful friendship” regarding America’s energy policies is between the Democrat's pandering and their constituent’s ignorance.

Rep. Edward, Markey, D-Mass. decided that is was time for the regular bit of political theatre that Congress conducts periodically with the “Big Oil” companies. "On April Fool's Day, the biggest joke of all is being played on American families by Big Oil," Rep. Edward Markey, D-Mass., said as he summoned the oil company executives and kicked of his committee hearing. Chairman Markey berated the oil company executives for not doing enough to lower oil prices and to develop alternative energy sources such as wind power and biodiesel.

This sort of show trial has been held over and over again whenever the Democrats control Congress. There has never been any evidence discovered that somehow the oil companies are manipulating the price of oil or engaging in any other sort of collusion. I find it quite preposterous that the government believes it is Big Oil’s responsibility to develop alternative energy sources. If it is in their best interests, I suppose they might. But at the end of the day, they are in the business of exploring and producing oil and its end products. They are not in the alternative energy research business.

The facts are that the Exxon Mobil's of the world have very little to do with the price of oil. They simply don’t control enough of the world’s reserves to do so. Sovereign states such as Saudi Arabia, Canada, Russia, Mexico and the like are the holders of the vast majority of the world’s reserves. And at least at this point, the price of oil is largely a demand story, not a supply story. With emerging countries around the world experiencing a synchronized growth in their economies that is unprecedented – and consuming an increasing amount of fossil fuels as a result.

As an industry Big Oil has an unimpressive profit margin of only about 6%. Yes, the profits in absolute terms are large, simply due to the scale of the operations. Why are the profit margins so low if the price of oil is so high? There are two reasons. First, and the Democrats never seem to remember this when in attack mode, the Big Oil companies pay enormous sums of income taxes to the Federal coffers – more than any other industry. The second reason is that Big Oil spends much of the remaining money on oil exploration and production, attempting to replace reserves as oil is consumed. The replacement of reserves gets more difficult and more expensive with each passing year.

Both Democratic Presidential candidates want to confiscate oil company profits to pay for alternative energy programs. But seizing profits that are desperately needed for further exploration is not going to help the situation – only make it worse. With oil at more than $100 a barrel does anyone really think that entrepreneurs and venture capitalists need further encouragement to develop alternatives, or that somehow the government can do a better job than incentivized capitalists?

Look at the centerpiece of the government’s approach to alternative energy – corn based ethanol. Corn-based ethanol is a boondoggle, consuming almost as much energy as it provides, while driving food prices through the roof - really smart. For 35 years the Democrats have blocked every attempt by our country from having a rational energy policy. The Democrat’s subservience to the endless special interest groups that make up the Democratic base mean that we have no new nuclear power plants, no clean coal, no wind farms near rich, no new refineries, liberal areas, no drilling far out on the continental shelf or in a tiny corner of the Arctic National Wildlife Reserve (ANWR). The Democrats rail against our increasing reliance on imported oil and about high energy prices. But it is the Democrat's parsimonious pandering has directly resulted in the energy mess we are in.

Contrast this to other countries with rational and successful national energy policies. France obtains more than 70% of their electricity from nuclear power. They continue to build plants with advanced designs and have a long history of safety. Brazil is essentially energy independent. They produce large amounts of ethanol from sugar cane, which as a much more efficient energy conversion ratio than corn. They have maximized their use of hydroelectric power. They have aggressively promoted exploration for oil on the outer continental shelf. The result is a new oil field that one day may rival Saudi Arabia.

But no, the Democrats believe it is better to just round up the usual suspects and continue to promote policies that weaken America in order to stay in power.

James Carville Is A Man of His Word

James Carville was one of the architects of Bill Clinton's successful 1992 Presidential campaign. He has been to Clinton what Karl Rove has been to George W. Bush (or for you TV fans, what Josh was to President Bartlett). He is a tough, smart, straight talking, hard charging, politico partisan. Carville continues to be a loyal Clintonista.

When Bill Richardson endorsed Barack Obama last week, James Carville called him a Judas, noting that is was just about the same time of year when Judas accepted 30 pieces of silver to betray Jesus (Bill Richardson served in the Clinton Administration as U.N. Ambassador and Secretary of Energy). Conservative commentators condemned the comments as mean-spirited.

Appearing on the Sunday talk show circuit Carville was asked about his comments and the subsequent uproar. Mr. Carville said that his comments were correctly quoted, taken in context, and had the desired meaning! He added that he thought the seasonal metaphor was quite apt.

I don't agree with James Carville's politics, but it sure is refreshing for a politico to say what he means and stand by it. No mealy mouth explanation about how that wasn't what he meant, or that he was taken out of context. None of Bill Clinton's innuendo and double-speak denials. None of Barack Obama's sitting in a pew for 20 years but never hearing Reverend Wright spew hate speech. James Carville spoke his mind and stood up for it. Good for him. I respect that.

For the record, I think very positively of Bill Richardson. He is a pro-growth Democrat who has a good record as governor of New Mexico. On a pure policy and resume basis he was the democratic presidential candidate that was the best qualified to be a good President.

Here Is A Headline You Never Want to See

"Gate Orders Inventory of U.S. Nukes"

I guess we want to make sure that we didn't misplace any of them. I will look forward to the answer.

http://news.yahoo.com/s/ap/20080327/ap_on_go_ca_st_pe/missile_mistake_12

And to Think I Saw It On Mulberry Street

Recidivism is a word most often reserved for criminals or sexual predators. But there is such a disturbing pattern of repeated and outlandish embellishment by Democratic leaders that the word comes to mind. Al Gore just cannot help himself, at various times claiming to have invented the Internet and that the male protagonist in "Love Story" was based on him. Of course, the wildly exaggerated and spurious claims throughout "An Inconvenient Truth" have been well documented so there is no need to repeat them here.

How about John Kerry, and his Winter Soldier testimony before Congress on the atrocities committed by our troops in Vietnam? These claims have been systematically shown to be fabrications. In fact, many if not most of the Winter Soldiers stories were made up by people that did not even serve in Vietnam, or served in different roles with different ranks in different places than they claimed. How about John Kerry insisting that he was in a firefight with the Viet Cong in Cambodia on Christmas eve? His commanding officer and most of the men he served with called him a liar, a charge which he has never successfully refuted.

Bill Clinton has a long and distinguished record of lying about his endless affairs, including the most famous, Ms. Lewinsky (an interesting side note: Hillary's just released White House schedule shows that she was at the White House when the most infamous of the Lewinsky liaisons occurred).

Now comes Hillary. Her repeated account of landing in Bosnia under sniper fire has been unceremoniously debunked since CBS released video footage of the event. Hillary's claim to have been instrumental in the Irish peace process has been similarly assailed.

What is interesting in all of these examples is that when challenged with evidence to the contrary, they continue to insist that the stories are true. Hillary doggedly repeated the Bosnian tale, with Hillary more Rambo-like with each telling. This was even after numerous people, including travel companion comedian Sinbad, said it did not happen the way Hillary described. Only after video came out with Hillary participating in a large, and peaceful, ceremony on the tarmac being presented flowers by an 8 year old Bosnian girl did she and her campaign reluctantly admit to "misspeaking".

In this day and age of 24/7 news coverage and cameras on every cell phone it amazes me that these politicians think they can get away with these preposterous stories. I reminds me a lot of teens that beat up some other kid, post the video on the Internet, and subsequently get arrested. Hillary, and Al, and John Kerry and Bill Clinton are all intelligent people, but they continue to commit these gaffs. There must be another explanation - they just can't help themselves. Even when they get caught, they do it again and again - recidivism.

Perhaps I am having a conservative blind spot, but I am having a hard time coming up with parallels in the GOP. I can't think of Ronald Reagan embellishing his accomplishments. John McCain has a long and distinguished career as a U.S. Senator, and is the anti-John Kerry when it comes to Vietnam service. George W. Bush may have gotten special favors to serve in the National Guard, but he didn't lie about it (sorry Dan Rather).

George H. W. Bush was a true WWII hero, surviving 58 combat missions as a Navy pilot and winning the Distinguished Service Cross. He was shot down over the Pacific and was rescued by a submarine. Before becoming President, "Bush 41" served in the U.S. House of Representatives, was Liaison to China, Ambassador to the U.N., and Director of the CIA. None of these GOP leaders had to embellish their experiences. They were genuine leaders and heroes.

If anyone can help me out with some examples please post a reply. Of course all politicians need to be viewed with skepticism. It is a profession that seems to appeal to liars and cheats. In the meantime, the Democrat's outlandish claims of achievement seem an awfully lot like the Dr. Seuss tale, "And to Think I Saw It On Mulberry Street". It makes you wonder if anything else they say is true?

The Democrat's Gordian Knot

The Democratic Party has a well earned reputation for making it as hard as possible on themselves to win the White House. Think Dukakis in the tank, Walter Mondale or Eugene McCarthy in any situation, Edmund Muskie breaking down in tears. Bill Clinton is the only politically talented Democrat to run for the White House since LBJ. And of course, Mr. Clinton has his own peccadilloes.

This year may be the hardest yet. First Howard Dean imposes the primary death penalty on Michigan and Florida for moving their primary dates up against the wishes of the Democratic National Committee (DNC). Hillary campaigned in those states anyway but Barack Obama did not. The Obama campaign has now outmanuveured Clinton to thwart any do-overs in Michigan and Florida. Senator Obama believes he can win the nomination without those two states, with the help of the superdelegates. A do-over in these states would probably only have helped Clinton.

Now it gets interesting. The first task at the national convention in Denver will be for the Credentials Committee to decide what delegates will be seated. There are 186 committee members. 25 are named by Howard Dean and he has done so. The Credentials Committee will have to wrestle with whether to seat the Michigan and Florida delegates. The 186 could effectively decide the nomination. They can override Chairman Dean and seat the delegates from the banned states, or they can work out some other solution.

Much has already been said about the superdelegates. They are free to vote for whomever they want. The bottom line is that the nomination is going to be negotiated, or brokered, which will lead to bitterness on the losing side. Polls are showing that one in five Democrats may bolt to McCain if their Democratic choice does not prevail at the convention.

If it does come down to the superdelgates Hillary may be in even more trouble than she is in now. Mareen Doud in today's New York Times writes that, "If Jimmy Carter, Al Gore and Nancy Pelosi are the dealmakers, it won’t take Hercule Poirot to figure out who had knives out for Hillary in this “Murder on the Orient Express.”

None of these superdelegates are fans of the Clintons and their bare knuckles, entitlement style. In fact, it seems clear that Clinton fatigue has finally set in on the Democratic Party. Even once loyal Clintonista, Bill Richardson, jumped on the Obama bandwagon, and was promptly and savagely trashed by the Clinton campaign (I'm pretty sure calling out someone as a "Judas" is ill-mannered, especially at Easter).

As the Democrats attempt to unravel the Gordian Knot, it seems likely that Barack Obama will be the nominee. I don't think Obama can win against McCain in the general election. He lacks experience. Reverend Wright will weigh like a millstone around neck. He has been beaten by Hillary Clinton in the large, critically important states like Ohio and Texas. Senator Clinton is going to win huge in Pennsylvania. If you can't win Ohio you can't win the White House.

It is easy for me to envision an exhausted and embittered Hillary Clinton at a concession news conference channeling 1960 Richard Nixon, "You won't have Hillary Clinton to kick around any more!" Good riddance.

What I Learned in the Market Collapse

The rapid market downturn over the last 5 months, and especially the stunning January collapse, has been the most difficult investing environments I've ever seen. Even the tech meltdown in 2000 and 2001 was much slower moving, offering greater room to maneuver on the way down. Traders for whom I have great respect, such as Dennis Gartman of the "Gartman Letter", with 25 years of trading experience, have stated that they have never seen anything like the continuing difficulty and violence of this market. Like most, I took it in the throat.

Here are a few of the lessons I intend to remember "next time":

1. It is always better to be out of the market and wish you were in, than to be in the market and wish you were out.
2. It is OK to just sell everything so you can sleep at night and live to trade another day when the market finds a stable bottom.
3. A violently volatile bear market means that you have to dramatically "shorten your swing". There is actually great opportunity to make some money by buying extreme weakness and selling the sharp bear market rallies. But to do so you have to be very nimble, taking quick gains and being more willing than not to leave some potential profits on the table.
4. Hedges matter. As I finally got me head around the type of market we were really in I switched to a trading profile that was much more hedged, limiting my upside but also significantly protecting my downside. For example, I set up many of my long positions, especially the higher beta positions, as vertical call spreads (buy a call at one strike price and sell a call at a higher strike price with the same expiration date). This allows me to capture the upside to a certain strike price while greatly reducing the cost of the long side of the spread. When the market makes violent moves up or down I can take off one side of the spread and capture those profits and then reestablish the spread when the stock moves back the other way.
5. When great profits have been made in the market, always take some off the table and put it away somewhere safe.
6. It is important to always have some money on the side to take advantage of stocks that are unfairly punished. Too many people are too fully invested too much of the time.
7. Professional traders and investors understand that in a difficult tape it is more important to limit the downside risk than it is to maximize upside gains. Personally, this is an area of discipline where I will do better going forward.
8. You have to find a way to "stay in the game". Otherwise, when the rebounds occur, you don't benefit from the ride up. You end up selling low and then buying back in high.

Secretary of State Pelosi?

Nancy Pelosi is confused. She is the Speaker of the House but time and time again she feels compelled to insert herself into foreign policy at the most inopportune times. A while back she traveled to Syria, meeting with the head of state of a known terrorist state, allowing terrorists to cross their border into Iraq to fuel the insurgency, over the strong objections of the administration.

Now she is in India visiting the Dalai Lama in exile and inserting herself into a very delicate situation involving Chinese politics. Her bungling exacerbates the United States' ability to deal effectively with the China/Tibet conflict because Ms. Pelosi is a well know China basher. Already she has drawn strong negative comment from the Chinese government.

The Constitution grants the executive branch the primary responsibility to conduct foreign policy. In the case of treaties with other sovereign states, the President negotiates the treaties and the Senate votes to ratify the treaties. No role there for the House of Representatives.

I suppose everyone needs a hobby, but Nancy's dabbling is made all the more unfortunate by the fact that she has accomplished so little as Speaker of the House. Of course it is not the worst thing in the world for Congress not to do much. But Nancy and her chamber of horrors have been unable to perform even the most rudimentary duties. For example, Congress must finalize the budget and send it to the President within a particular timeframe. This is one of Congress' most fundamental responsibilities. Congress did not do so. Maybe Nancy should spend less time in a dalliance with the Dalai and focus on doing the people's work within the framework of the Constitution. Nobody likes a constitutional interloper.