New Math For A New Era

February/01/2008 4:43AM
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I’ll keep this simple.Five major oil companies will spent $178.9 Billion buying back their own shares over the last 4 years. Is that because they love shareholders? No. They can’t find new oil reserves so this is the next best alternative. China is approaching the US as the leading user of crude. They are at 9MM bbls per day vs. our 11MM bbls per day. At the rate they are growing and we are still growing they will pass us in the next 3 years. But, we have a solution. Only one, but a solution. We are going to replace crude with ethanol. It’s a net energy loser and we have to subsidize it with tax dollars but it makes the corporate farmers happy. Here’s the kicker. Farmers planted 93 million acres of corn last year a 20% increase over the prior year and the most since 1944. As farmers switched out of soybeans wheat and other crops, those prices went up. Kraft, Hersey, Tyson, and Kellogg had 4th quarter profit declines so they will do what? You got it, raise prices. Here’s the math. Crude reserves are going down. No one is spending on exploration. China wants more. We still want more. We are using corn as a substitute. It’s a net energy loser. But, we get to pay taxes to support it and now we ill pay a lot more for our food. Will farm subsidies go down? No they actually went up. 

Now we have the government back in the oil business. Remember the lines when Jimmy Carter ran the oil business? Here’s my math. We pay more for food and gasoline and more in taxes to support the ethanol industry which is driving up the food prices but solve nothing. Good economics, eh?

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