Soaring Oil Prices Have Far-Reaching Implications

Oil prices for April delivery are close to $107 a barrel today and I expect them to stay high. You probably are not any happier than I am about the high cost of filling up your gas tank at the pump but I do not think we will receive any relief for quite awhile.

I spent three days in the past week at a special gathering of successful entrepreneurs in Vail, Colo., which included three oil & gas specialists. They had a different perspective on high oil prices, since they each have a way to make money from the increases. In fact, they were practically giddy about the booming shale oil & gas discoveries in the United States due to the new fracking technique. One veteran analyst with Merrill Lynch told me that the oil & gas reserves in Williston oil basin around North Dakota are twice the size of Prudhoe Bay in Alaska!

That analyst thought that the United States could be virtually energy independent in the next decade if the trend continues and we have the right kind of leadership in the White House. He said that subsidizing alternative energy sources — whether it be ethanol, wind or solar — was unnecessary. Nor was it necessary to impose import restrictions on Middle East oil. The free market was naturally moving us toward energy independence, and all the government needed to do was get out of the way. He strongly favors a Republican like Mitt Romney over President Obama, who he gave a grade of “F” in energy policy.

The current high price of crude oil is dependent entirely on Middle East politics. Prices could move sharply higher if tensions mount. Europe has already cut off oil imports from Iran, and the United States will join a full embargo of Iran’s oil supply in July. Israel is threatening to bomb various nuclear facilities, which could further destabilize the region. Closing the Strait of Hormuz, which about 35% of the world’s seaborne oil passes, could be devastating and push oil prices sharply higher.

It may not happen, at least this year. President Obama, desperate to get re-elected, would be heavily criticized if gasoline prices jump to $5 or $6 a gallon. He is counting on the economic embargo on Iran, which is crippling its economy and could engineer a coup d’état there.

As a result, I do not expect oil prices to rise astronomically, nor to I foresee a retreat from current levels, especially since gasoline prices typically climb in the summer as Americans take vacations in the warm weather months when children are off from school. I am not the only one who thinks so. Today, Dow Jones reported that Exxon Mobil Corp. (XOM) Chief Executive Rex Tillerson said the world’s largest publicly traded oil company is cutting its long-term production forecast due to higher oil prices, signaling the oil company expects crude oil prices to remain elevated for years to come.

If you were hoping for relief from high gasoline prices, do not expect it anytime soon. Of course, investors have ways to profit from such situations. If you want to learn about some of them, consider subscribing to my Hot Commodities Alert trading service. Among my picks right now are oil companies that pay good dividends and offer the opportunity for further gains from capital appreciation as their share prices climb.

Be sure to read my feature “You Blew It!” I’ll plan to have a new one for you every week. The purpose is to point out a bad decision, a foolish action or an ill-fated statement by a public official, business leader or investment guru. I have used the phrase within my family for years and they once printed t-shirts for a reunion with those exact words on each one. They learned to take my constructive criticism with a sense of humor and I hope you do, too. My intent is not to ridicule anyone but to point out a mistake that could be corrected, much as advice from a trainer or a coach can turn a faltering athlete into a world champion.

George Bush and the Transportation Security Administration: “You Blew it!” 

“Those who would give up essential liberty to purchase a little temporary safety deserve neither liberty nor safety.” — Ben Franklin

The case against the TSA (Transportation Security Administration) – which also could be called the “Terrorist Support Agency” — is growing. Not only does it violate the Fourth Amendment of the U.S. Constitution against unreasonable searches, but it also is an unnecessary expense that is costing travelers dearly, both in their pocketbooks and in their lives.

K. Jack Riley, director of the National Security Research Division and vice president of the well-respected RAND Corp., has published a RAND study concluding that TSA costs $5 billion annually in employees alone. In addition, he found the agency unnecessarily causes 2,200 additional fatalities a year on U.S. highways “from a relative increase in driving and reduction in flying resulting from fear of terrorist attacks and the inconvenience of flying.”

Riley also pointed out that security improvements — passenger vigilance, cockpit security and visa screening — have prevented radical jihadists from entering the country, and therefore the United States could return to pre-911 domestic security procedures and save $1.2 billion a year, reduce highway deaths, and restore the privacy rights of Americans.

There must be a better way, and Jack Riley offers his recommendations in this article.

Despite Riley’s reasonable approach, the TSA under its leader John S. Pistole (rightly named) is becoming even more aggressive, expanding the number of full-body scanners and X-ray machines, while increasing the number of pat-down searches.

It appears that the full-body scanners randomly set off an alarm even if there’s nothing there. In such cases, the person must be patted down! That’s what happened to Sen. Rand Paul, R-Ky, a few months ago.

Here’s Sen. Paul’s story:  http://www.washingtontimes.com/news/2012/jan/23/tsas-intrusions-undermine-security/. Plus, here are comments below about the TSA from one of my readers.

I was forced to endure an invasive full-body pat down, which was demeaning and insulting, at the Detroit Airport last month. When I refused to go through the full-body scanner, they insisted I had to go through the full-body pat down. Meanwhile, airport employees, pilots, and parents with children were allowed to go through the metal detector. “Why can’t I go through the metal detector like those people?” I asked. “Because you are an individual.” As I was led to the place where they performed the invasive pat down, I was told to through the metal detector. No kidding! Needless to say, no alarm went off. When I complained, they said “it doesn’t matter — the rules state you must be patted down.” The Gestapo at work!

I salute former Minnesota Gov. Jesse Ventura who now refuses to fly anymore. He sued the TSA for violating his Fourth Amendment right to privacy, but lost in government courts that don’t want Americans to assert their individuality. Ventura has said a titanium hip implanted in him in 2008 sets off metal detectors and that agents previously used hand-held wands to scan his body. He said he was subjected to a body pat down after an airport metal detector went off last November. Ventura said he hasn’t flown since and won’t fly commercially again. To read the full article and listen to a video recording of his strongly voiced opinion, click here. When are Americans going to join Ventura and stand up for their rights? Sadly, they’ve all become “whipped dogs,” as Doug Casey likes to say.

The knee-jerk reaction I get from TSA supporters is that “at least we are safe.” Nonsense. Like the Securities and Exchange Commission (SEC), which gives investors a false sense of security against fraud, the TSA gives a false sense of safety to travelers. Even the TSA does frequent tests and has been able to get guns and explosives through the X-ray machines without detection.

When is Congress going to say “no” to this out-of-control government agency? The answer is “never.” Sen. Orrin Hatch told me that congressmen are afraid of the TSA. If they pass legislation against the TSA, they will be blamed if another terrorist incident occurs.

So, today’s “You Blew It!” goes to the TSA and the man responsible for creating it: George W. Bush.

Yours for peace, prosperity, and liberty, AEIOU,

Mark Skousen, Ph.D

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UPCOMING APPEARANCES

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