Thursday, July 31, 2008

Exxon Mobile 2Q $12 Billion Profit Good or Bad?

Exxon Mobil Corporation today reported 2nd Quarter Net Income of Eleven Billion, Six Hundred Eighty Million Dollars ($11,680,000). Senator Obama was quick to claim that this $12 Billion Profit was the cause of current High Gas Prices (he was only off by $320 Million).
Just today, we learned that Exxon Mobil made nearly $12 billion last quarter. Think about that – 12 billion dollars. No U.S. corporation has ever made that much in a quarter. But while big oil is making record profits, you are paying record prices at the pump, and our economy is leaving working people behind. For far too long, we've had an energy policy that has worked for the oil companies – I think it's time that we had an energy policy that worked for the American people, and that's a change that we can't wait any longer to make. [Emphasis mine]
While Exxon Mobile did make record profits this past quarter, what Senator Obama fails to inform you is they paid Ten Billion, Five Hundred Twenty-Six Million Dollars in Federal Income Taxes ($10,526,000), and TOTAL TAXES of Thirty-Two Billion, Three Hundred Sixty-One Million Dollars ($32,361,000) We also should not that Exxon Mobile has an effective Tax Rate of 49%. [Source: Exxon Mobile Press Release]

All this proves is that Figures don't Lie, But lairs do figure. A more honest way to look at Exxon Mobile Profits is Profit Margin. In other words how much did Exxon Mobile Make as a percentage of Gross Sales. Exxon Mobile had Gross Receipts of $138,072,000. Using the Net Income of $11,680,000, that's a Profit Margin of 8.46%.

A Profit Margin of 8-10% is comparable to other US Companies. It is only because the Net Profit actual dollars is such a large number that we cringe at the sound of $12 Billion. Remember that Exxon Mobile had Income of One Hundred Thirty-Eight Billion, Seventy-Two Million Dollars. This Company is enormous, but getting to keep ONLY 8.5% of Gross Earnings is not the cause of our gas prices. Nor is this Profit Margin out of line. There is no price gouging here.

If you wish to blame anyone for the high Gas Price, blame our Congress and the Oil Producing Countries. Saudi Arabia, Russia, Mexico, Iran, etc are the the ones making the money. Congress by not allowing Domestic Production and the Producing Countries by keeping it in the ground. It is a Supply and Demand issue. More Supply would drive the price down quickly. In fact just the announcement that US Domestic Production will have the restrictions removed would have an immediate effect and result in lower pump prices.

It is true that we cannot drill our way out of Foreign Oil Dependence, but it is also true that we could bring the pump price down by producing from the KNOWN DOMESTIC RESERVES in the US. Some of the areas would take 5-10 years to come on line, BUT there are areas which could be producing in 9-18 Months. We know the Oil is There and we know how to get it, but Congress will not allow the Oil Companies to drill for it.

It is ironic and a Democratic Disgrace that Cuba is allowing China to drill for Oil in the Gulf of Mexico only 60 miles from Florida, while Our Congress prohibits US Oil Companies from doing the same.

There is one other factor to be considered however. With ever increasing demand, refinery capacity will also be a factor in Demand. We have not increased Refinery Capacity in over 30 years. Soon even if we increased production, refinery capacity would not be able to meet demand.

Currently alternative energy production is not cost effective. Nuclear Energy is our best bet, but until we develop the technology to produce alternate fuels like Ethanol from something other than Food Stocks, Oil, Gas, Coal and Nuclear are the best sources for current energy needs. This will not change in the short term.

Our money (Tax Dollars) in the form of Tax Subsidies and Tax Credits are best spent on research and development of alternative energy sources. Tax dollars should not be spent propping up economically costly methods of energy production.

Wednesday, July 30, 2008

U.S. Intel: Iran Plans Nuclear Strike on U.S.

U.S. Intel: Iran Plans Nuclear Strike on U.S.. This headline is chilling and ominous. And if you combine that article with this one- Kuwaiti Daily Reveals: Iran Building Secret Nuclear Reactor - and it should be obvious that Iran has no intentions to curtail Nuclear Activities.

The big question about this mess is WHAT DO WE DO ABOUT IT?

Saturday, July 5, 2008

Supply and Demand - Not Speculation

There is a great amount of frustration and anger about the current price of gas. Everybody is looking for someone to blame. Currently the blame is being placed on Speculators. But Speculators are not the problem. Our CONGRESS is the problem. They deserve our ire and anger for our gas woes. It is Congress who is keeping supply low. Low supply and high demand equals high prices.

John Stossel accurately describes the roll of Speculators in his article, Bless the Speculators.
In fact, the hated speculator is a good guy because his buying and selling reduce volatility and uncertainty in an unpredictable world. He may only be out for his own profit, but that doesn't matter. As Adam Smith wrote, "It is not from the benevolence of the butcher, the brewer or the baker that we expect our dinner but from their regard to their own interest".
We all speculate to some degree. For instance, if you fill your tank today, even though it is only half empty, because you expect the price to be higher when your tank is empty, YOU are Speculating. When the farmer decides what to plant in the Spring, he relies on the Speculator to give him an indication of what the harvest price will be. He does not have to wait until he harvests the crop to find out what his income will be from the crops he produces.
The prices of commodities often change unexpectedly, making business risky. The speculator brings a degree of certainty to otherwise risky ventures. When supplies of a commodity are plentiful and prices low -- but speculators expect the price to rise later -- they buy -- cushioning the collapse of prices. When supplies become scarcer and prices rise, they sell -- easing the shortage and lowering the price. Also, speculators may agree to buy a commodity in the future for a price locked in today. This reduces the risk for an oil producer or farmer who fears investing because he doesn't know what price his product will sell for next year.
Airlines are a good example for the benefits of Speculation. They know because of the Speculators, what their fuel prices will be 6 months or more in the future. Therefore, your ticket price can be set, and remain stable, in the future. If not for Speculators future Contracts for Fuel, Ticket prices would become very unstable. Fluctuations in fuel costs for the Airlines, would be passed on to passengers. That could mean DAILY changes.
As a result of these activities, volatile supplies and prices are evened out over time. Occasionally, speculators increase volatility. Markets are never perfect. (Although they are better than government regulation.) But in general, speculators increase liquidity and keep the market on a more even keel. This makes long-term planning easier for everyone.
Unfortunately neither John McCain or Barack Obama have shown any grasp of basic economics. The fact remains that if supply were higher, prices would be lower. Basic economics 101 states that when Demand out paces Supply, Price increases. Our Congress is contributing to the low supply by not allowing Domestic Production in Coastal Waters, Alaska and the Rockies. Some of the Proven Domestic Reserves could be producing by next year, some not for 5-10 years. But the announcement of these Domestic Reserves would cause the Speculators to bid the Crude price down, because the Future Supply is Going UP.

Friday, July 4, 2008

Why Go To War In IRAQ?

Should we have gone to War in Iraq is a question for the historians to decide. Despite that fact, almost all of us have strong opinions about whether President George W. Bush was correct in doing so. It is a question on which the next Presidential Election may be decided.

To help separate the emotion from the fact, Today's Edition of "The Wall Street Journal" contains a First person account of the events leading up to the invasion of Iraq. Why We Went to War in Iraq By DOUGLAS J. FEITH opens with this paragraph.
A lot of poor commentary has framed the Iraq war as a conflict of "choice" rather than of "necessity." In fact, President George W. Bush chose to remove Saddam Hussein from power because he concluded that doing so was necessary. [Italics & Quotation Marks in original; Emphasis mine]
The phraseology of this quote (bold portion) is important and clarifies the President's position. President Bush chose to take an action as President and Commander In Chief which was a necessity.
President Bush inherited a worrisome Iraq problem from Bill Clinton and from his own father. Saddam had systematically undermined the measures the U.N. Security Council put in place after the Gulf War to contain his regime. In the first months of the Bush presidency, officials debated what to do next.
This is one of the few articles which includes the first Bush as part of the problem. Considering this statement comes from someone who was a party to the discussions, it is very revealing. Mr. Feith makes it clear that he believes that As a participant in the confidential, top-level administration meetings about Iraq that if President Bush had had another choice, he would have made it.

Mr. Feith also details the views of the other Presidential advisors who participated in these confidential meetings.
In the months before the 9/11 attack, Secretary of State Colin Powell advocated diluting the multinational economic sanctions, in the hope that a weaker set of sanctions could win stronger and more sustained international support. Central Intelligence Agency officials floated the possibility of a coup, though the 1990s showed that Saddam was far better at undoing coup plots than the CIA was at engineering them. Deputy Secretary of Defense Paul Wolfowitz asked if the U.S. might create an autonomous area in southern Iraq similar to the autonomous Kurdish region in the north, with the goal of making Saddam little more than the "mayor of Baghdad." U.S. officials also discussed whether a popular uprising in Iraq should be encouraged, and how we could best work with free Iraqi groups that opposed the Saddam regime.
It is clear from this "behind the scenes" view that many options including the risks and their consequences of the actions were considered. In other words, this was not a reckless quickly made decision. Rather it was a very deliberate, reasoned, responsible action only taken after much input form many sources.
Secretary of Defense Donald Rumsfeld worried particularly about the U.S. and British pilots enforcing the no-fly zones over northern and southern Iraq. Iraqi forces were shooting at the U.S. and British aircraft virtually every day; if a plane went down, the pilot would likely be killed or captured. What then? Mr. Rumsfeld asked. Were the missions worth the risk? How might U.S. and British responses be intensified to deter Saddam from shooting at our planes? Would the intensification trigger a war? What would be the consequences of cutting back on the missions, or ending them?
This debate started before 9-11. In fact on July 27, 2001, more than a month before the World Trade Center attack of September 11, 2001, Mr. Rumsfeld sent the following memo to Mr. Powell, National Security Adviser Condoleezza Rice and Vice President Dick Cheney that reviewed U.S. options:
"The U.S. can roll up its tents and end the no-fly zones before someone is killed or captured. . . . We can publicly acknowledge that sanctions don't work over extended periods and stop the pretense of having a policy that is keeping Saddam 'in the box,' when we know he has crawled a good distance out of the box and is currently doing the things that will ultimately be harmful to his neighbors in the region and to U.S. interests – namely developing WMD and the means to deliver them and increasing his strength at home and in the region month-by-month. Within a few years the U.S. will undoubtedly have to confront a Saddam armed with nuclear weapons.

"A second option would be to go to our moderate Arab friends, have a reappraisal, and see whether they are willing to engage in a more robust policy. . . .

"A third possibility perhaps is to take a crack at initiating contact with Saddam Hussein. He has his own interests. It may be that, for whatever reason, at his stage in life he might prefer to not have the hostility of the United States and the West and might be willing to make some accommodation."
It was however, the events of 9-11 which solidified the President's decision. Again it is pointed out that more evaluation and review took place before a course of action was undertaken. The President was influenced by five key factors:
1) Saddam was a threat to U.S. interests before 9/11. The Iraqi dictator had started wars against Iran and Kuwait, and had fired missiles at Saudi Arabia and Israel. Unrepentant about the rape of Kuwait, he remained intensely hostile to the U.S. He provided training, funds, safe haven and political support to various types of terrorists. He had developed WMD and used chemical weapons fatally against Iran and Iraqi Kurds. Iraq's official press issued statements praising the 9/11 attacks on the U.S.
Note to the Left: There is no claim that Saddam or Iraq was a part of the 9/11 attacks. A point often mis-stated by the left.
2) The threat of renewed aggression by Saddam was more troubling and urgent after 9/11. Though Saddam's regime was not implicated in the 9/11 operation, it was an important state supporter of terrorism. And President Bush's strategy was not simply retaliation against the group responsible for 9/11. Rather it was to prevent the next major attack. This focused U.S. officials not just on al Qaeda, but on all the terrorist groups and state supporters of terrorism who might be inspired by 9/11 – especially on those with the potential to use weapons of mass destruction. [Emphasis mine]
Again there is no claim of operational activity by Saddam or Iraq concerning 9/11, although Saddam did support terrorism and applauded the 9/11 terrorists.
3) To contain the threat from Saddam, all reasonable means short of war had been tried unsuccessfully for a dozen years. The U.S. did not rush to war. Working mainly through the U.N., we tried a series of measures to contain the Iraqi threat: formal diplomatic censure, weapons inspections, economic sanctions, no-fly zones, no-drive zones and limited military strikes. A defiant Saddam, however, dismantled the containment strategy and the U.N. Security Council had no stomach to sustain its own resolutions, let alone compel Saddam's compliance.
The preceding paragraph clearly summarizes what attempts had been made to contain Saddam. After a dozen years, it was clear the attempts were not working.
4) While there were large risks involved in a war, the risks of leaving Saddam in power were even larger. The U.S. and British pilots patrolling the no-fly zones were routinely under enemy fire, and a larger confrontation – over Kuwait again or some other issue – appeared virtually certain to arise once Saddam succeeded in getting out from under the U.N.'s crumbling economic sanctions.
The preceding paragraph makes clear that conditions were becoming worse. And more importantly, there was no indication that without intervention, conditions would improve.
5) America after 9/11 had a lower tolerance for such dangers. It was reasonable – one might say obligatory – for the president to worry about a renewed confrontation with Saddam. Like many others, he feared Saddam might then use weapons of mass destruction again, perhaps deployed against us through a proxy such as one of the many terrorist groups Iraq supported.
Together these five reasons make clear that President Bush is a leader willing to take a risk for the benefit of the US as well as the rest of the world. Mr. Feith's makes this observation.
Mr. Bush decided it was unacceptable to wait while Saddam advanced his biological weapons program or possibly developed a nuclear weapon. The CIA was mistaken, we all now know, in its assessment that we would find chemical and biological weapons stockpiles in Iraq. But after the fall of the regime, intelligence officials did find chemical and biological weapons programs structured so that Iraq could produce stockpiles in three to five weeks. They also found that Saddam was intent on having a nuclear weapon. The CIA was wrong in saying just before the war that his nuclear program was active; but Iraq appears to have been in a position to make a nuclear weapon in less than a year if it purchased fissile material from a supplier such as North Korea. [Emphasis mine]
There will be those who debate the actions of President Bush, but based on the information available at the time, President Bush made the correct decision to invade Iraq and remove a danger to all in the form of Saddam.
Mr. Feith, under secretary of defense for policy from 2001 to 2005, is author of "War and Decision: Inside the Pentagon at the Dawn of the War on Terrorism" (HarperCollins, 2008), the author's proceeds of which are being donated to charities for veterans and their families.
President Bush and his actions will be interpreted by Historians. They will use 20/20 hind site to make judgments and analyze the decisions of our current President Bush. One good place to start this process is Mr. Feith's first hand accounts of events. Don't be surprised if the decisions, judgments and analysis of President Bush's Iraq policy are favorably judged by the future.