When Bill Clinton was elected in 1992, he inherited a tremendous “peace dividend” from the enormous effects of the great events of 1989 and 1991, the collapse of the Berlin Wall and the change of governments in Central Europe and Russia. By contrast, when President Bush was elected in 2000, he was less than a year away from a devastating military blow against the American homeland — which knocked several American industries (transport, tourism, restaurants and hotels, financial markets, etc.) to the floor.
There is much more to be said about the current economy, and how unprecedented it is in its level of GDP and employment. But there is much bad news as well. The refusal to drill for new oil in the United States, and to build new refineries and new nuclear reactors, has left America colossally dependent of Middle Eastern powers (and also Venezuela), whose wealth supports international terrorism against the free world. We are both depriving ourselves of independence, and subsidizing with enormous sums those who would like to destroy us.
This stupid policy has also led to Americans’ paying $4.50 at the pump per gallon of gas, with prices in the near future heading toward $5 or more. Yet bad news sometimes has a few good consequences, too — not enough to take the pain away, but enough to ignite hope.
For example, the high price of oil is causing some Americans in the global economy to compare anew the cost of transport against other costs. Some are reconsidering whether it might soon be cheaper to produce closer to home. The high price of a barrel of oil is also making new forms of exploration for oil and production cost-effective.
Again, $4.50-per-gallon gasoline is forcing Americans to change their driving habits, not to mention their car-buying habits. The driving patterns of teenagers are also likely to be cut back. And $4.50 gas has changed the political balance in the country. An ever-larger majority of voters is chanting: Drill now, drill here.
Look ahead. People buying futures contracts based on the price of oil as they expect it to be down the line, on condition that no new supplies come on line, are soon going to have to be careful lest new drilling and new refineries move from drawing boards to reality. Buyers of futures cannot afford to be wrong. They will quickly have to alter their projections about future supplies and future costs. Thus, the price of future barrels of crude can fall quickly, long before new gas starts flowing from new wells. Futures markets live and die by future expectations. The future price of gasoline can drop more rapidly than pipelines and refineries can be built.
As for buyers in a bear market, such markets have long been a textbook ideal. When prices are low is a great time to start buying. When the market starts upward again, returns will come in quite handsomely. The inner feeling of going upward is wholly different from the inner feeling of going downward. In my many years, I have known up and I have known down. Up is better.
– Michael Novak’s website is www.michaelnovak.net.