QE2 = Lower USD = Higher Oil Prices = More Economic Pain
by: Michael Fitzsimmons November 11, 2010
www.seeingalpha.com________________________
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CNBC marches out one "expert economist" after another in their quest to figure out what is wrong with the U.S. economy, whether QE2 will work, how can jobs be created, etc. etc.
It's amazing how seldom America's reliance on foreign oil imports is mentioned in these conversations. The U.S. imports around 12,000,000 a day at a current price of $87/dollars a barrel. This equates to over $1 billion dollars a day ($1,044,000,000) and $381 billion a year.
According to the Commerce Department, the U.S. trade deficit in September was $44 billion. This is clearly unsustainable, yet how often does one hear that over $30 billion dollars of this deficit is due to one commodity alone: foreign oil imports? Logically, the U.S. cannot reduce the wealth flowing out of the country without significantly reducing foreign oil imports.
Some of the commenters on my articles believe my opinions are some leftist plot. This isn't a "left" or "right" or even an "environmental" issue. This is arithmetic. This is a patriotic American looking pragmatically at America's problems and saying, hey, we aren't even trying to fix the problem. The U.S. has yet to even take a baby step in the right direction by adopting a strategic long-term comprehensive energy policy.
And there is apparently no hope America will take adult steps by adopting the only technology that can significantly reduce foreign oil imports by using a domestically available, cheap, and clean fuel: natural gas transportation.
So, what are we doing? The best solution our policymakers can come up with is QE2. How can our foreign oil import problem be solved by the Fed printing more money via QE2 or any other financial tom-foolery? I am an engineer by training, but let me offer an equation for U.S. economic policymakers to consider:
QE2 --> lower dollar --> higher oil prices -> more economic pain for the U.S.
It's really that simple. It's the equivalent of economic "thermal runaway".
After the world complained when Nixon walked away from the Bretton Woods agreement, U.S. Treasury secretary John Conally famously said "Our currency, your problem."
I would rephrase this today as "Fitzsimmons' Law of Economics": "Their oil, our problem."
The solution, of course, is natural gas transportation. We could easily lop 5,000,000 barrels a day off our foreign oil import bill within 5 years by adopting natural gas transportation. At today's $87/barrel, that is $435 million dollars a day of "stimulus" that would stay inside the country creating millions of well-paying jobs. Such a program would re-industrialize and re-invigorate the U.S. economy. We could enter an era of economic prosperity for decades into the future. Oh, and by the way, we'd have a cleaner environment. If economic and environmental prosperity is a leftist plot, then please, by all means, label me a "leftist".
But alas, the powers-that-be (and they control both Dems and Repubs) won't hear of it. They'd rather watch their and their children's country go down the tubes sucking on the teat of foreign oil producers. So what is an U.S. investor to do? I would suggest buying big oil: Chevron (CVX), Conoco Phillips (COP), Exxon Mobil (XOM), and smaller companies such as Marathon (MRO), Murphy Oil (MUR), and Occidental (OXY). These companies are going to thrive as failed U.S. economic policy, combined with emerging market demand, provide a strong tailwind for oil prices to climb higher and higher over the coming years. In fact, the Federal Reserve and Ben Bernanke are the best friends an oil executive could have.
Disclosure: Long COP
