Home > Uncategorized > 2012/03/30: Quick Post: Obamanomics encourages OSD (Occupy Supply-Demand) Movement

2012/03/30: Quick Post: Obamanomics encourages OSD (Occupy Supply-Demand) Movement

© 2012 ROHR International, Inc. All International rights reserved.

The President’s energy press conference was mundane populist politics at its finest on some levels, yet a most interesting affair regarding that on one level. It was a real showcase of the philosophical difference between free market capitalism and state-controlled pricing. Let’s allow there is indeed something to be said for whether oil companies that keep reporting record profits every quarter actually still need tax credits to support future exploration and drilling.

The oil companies cannot have it both ways. If high energy prices are due to sustained increases in global demand (which is true) and not cartel control, then prices are definitely going to remain high. The tax credits which the oil companies receive are (at least conceptually) a form of insurance. They were there to encourage the companies to take on (admittedly expensive) exploring and drilling for crude oil in spite of the risk that the initial return on any discoveries might be flat or negative if the oil price drops for a sustained period of time. As everyone now allows that is an unlikely development, is it really necessary to continue that form of subsidy?

It is thoroughly possible the President is on a reasonable economic view in that regard, even if at least part of the incentive to express his view is pure partisan election year politics. And that’s where the somewhat shocking, if subtle, attack on free market capitalism comes along. We don’t think anyone as smart as Mr. Obama flunked (or would flunk) an economics course. It is more so it suits his purpose to ignore basic economic maxims… and support ignorance of (as in ‘conveniently forget it exists’) basic things like the Supply-Demand balance. Occupy Supply-Demand!!!

Because that was the implication from a key highly populist portion of yesterday’s Rose Garden mini-speech on repealing the oil and gas subsidies. Not whether the subsidies do indeed still make sense, but more so the how and why of energy price movement. To wit (directly from the official White House transcript)… 

That’s the only way we’re going to break this cycle of high gas prices that happen year after year after year. (sic) As the economy is growing, the only time you start seeing lower gas prices is when the economy is doing badly. That’s not the kind of pattern that we want to be in.”

????!!!! So let’s make sure we understand this. As the economy (likely meaning global as well as US) picks up there is greater demand. When it slows there is somewhat less demand. That’s true in fact for all products and services, not just energy. It is indeed a basic economic function. And that causes prices to rise and fall. Maybe Mr. Obama missed the memo: You can’t ‘repeal’ it when higher prices are inconvenient for incumbent politicians, and what would you put in its place…

…the Fair Price Balance? It is obvious that the administration is all about “fair”. ‘Fair’ share of taxes, even though half the US population pays no taxes at all. Fair distribution of returns from investments, even if some create the profits. It is all very fair, and time to make things more fair… and that’s why it’s darn well past time to Occupy Supply-Demand!!!

Who the heck approved this Supply-Demand Balance as the arbiter of price anyway?! We didn’t notice any US Congressional approval, or the President signing it into law! Sounds like some sort of foreign conspiracy to us. Why can’t we just establish a price that the average individual can afford, because that would be ‘fair’? As Mr. Obama’s energy czar has proved to be inept in getting out the ‘message’, what we really need right now is a new US government Department of Fair Prices. It could be easily designed by a Blue Ribbon Panel under the leadership of the Fair Price Czar (the Romanovs would be proud.)

And as is often the case, we have the perverse historic perspective on that: the last guy to try that was none other than Richard Nixon. Yeah, the political science philosophical perspective on extremism still holds true: Extremism on both sides (extreme Liberalism and extreme Conservatism) meets up around the back end of the Freedom-Enslavement Curve in the form of totalitarian state control.

The exploration and drilling tax incentives for oil companies might indeed be less than enlightened at the present time. They can likely be readily reinstated if energy prices should ever slide back into sustained weakness. However, pushing the price of anything down arbitrarily in spite of a bullish supply-demand balance is counterproductive. It will only lead to less production of the very item that is already under supplied compared to demand. That was a lesson reconfirmed by Nixon’s 1970s across-the-board attempt at price controls. And nobody has yet figured out how to repeal the laws of supply and demand.

General Market Observations

First of all, there are a fresh set of Current Rohr Technical Projections – Key Levels & Select Comments available through the link in the right-hand column (updated as of yesterday’s US Close.) And much else remains the same as discussed in yesterday’s TrendView BRIEF UPDATE.

Most important in the short term view will be whether the June S&P 500 future Closes the week today back below last Friday’s 1394.10 Close. That is important for one key reason even after the bears failed to capitalize on the weakness below there yesterday. It is still (into the Close today) a potential weekly DOWN Closing Price Reversal (CPR) if it is well back below it.

That would be more weekly Closing price weakness than we have seen at any point this year. It might well signal some type of more extensive correction is possible. However, it is the nature of the psychology that it was a window for a trend reversal. And when they open (as it did yesterday) and is not confirmed by the actual failure, it is a sign the current up trend is more likely to remain intact for the near term.


Those are all still very much the same as yesterday’s TrendView BRIEF UPDATE.

Thanks for your interest.

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