Staff Interview with Independent Living Founder Lee Bellinger
Lee, so what’s really going on with energy?
The sudden reintroduction of cheap, affordable gasoline for the masses. It’s not going away anytime soon. On Barack Obama’s watch, new sideways drilling technology has vastly increased the potential world oil reserve. So the Hubbard’s Peak theory of drillable oil reserves collapsing is best renamed as a mountain on the dark side of the moon. America is
suddenly energy independent.
Look around Lee. Why aren’t people happy about this?
It hasn’t sunk in yet. And in the short term lots of oxen are getting gored by this unexpected sea change. For Republicans, it’s hard to accept that energy independence happened under Obama. It’s a technological triumph that Obama hates. Both the left and the right have reasons to downplay the triumph of new drilling technology.
It’s harder for foreign policy hard-liners to justify policing the Middle East when we don’t need their oil anymore. Green fanatics can’t stand the thought of American businesses and drivers having access to so much cheap fossil fuel.
Anti-USA regimes with nationalized energy face financial collapse under cheap energy.
Forgive the phrase Lee, but please drill down on all this.
Fracking is a process of drilling sideways. In the drilling world, fracking is the equivalent of warp speed versus sub-light impulse drive. Every land-based oilfield in the world that’s depleted is potentially brand new and brimming with newly reachable crude.
Remember this global energy glut is coming but from a tiny fraction of private U.S. lands where sideways drilling is permitted.
Now apply this sideways drilling breakthrough to massive oil fields outside the USA. For example with Mexico’s long-declining Cantrell oil fields alone, you have a massive new bump in the global oil reserve.
It won’t be long before sideways drilling technology works on the entire world’s depleted off-shore oil rigs, too. In essence, world oil reserves are now much larger.
Lee, why did the Saudis step up their production right into the maw of the energy glut?
Because they are shrewd and this is their best option under the circumstances. They know the USA has a bit of instability in the energy development sector. Lots of Fed-created cheap money has over-expanded that sector and they know it is a probable bubble (just like student loans).
By pumping even more oil into global markets, the House of Saud creates even more downward price pressures in the U.S. energy sector – the net effect being to derail more investment in sideways drilling technology. They know full well what happens to them once fracking technology spills over to massive sea based oil fields and revitalizes their oil flow.
This is a case where dismay, consternation and Obama fatigue is clouding a whole lot of people’s judgements about where energy is. It’s hard for them to politically acknowledge that, despite Obama’s best efforts to create energy shortages that his bureaucrats can manage, in fact America is now swimming in cheap energy.
Lee, cheap gasoline hasn’t translated into stronger consumer spending.
Yes, that’s an amazing testimony to how badly the economy is performing. A major reduction in energy prices is like a massive tax cut. But we already know from George W. Bush’s presidency that tax cuts alone don’t work – they have to work in concert with real regulatory restraint, lower government spending and a sound monetary policy.
Even if implemented in moderation (I would like extreme implementation), those four changes would cause the economy to boom.
Who would have thought America would achieve energy independence under Barack Obama?
In politics and investing the law of unintended consequences rules. The irony isn’t lost on me, but Obama presiding over America’s newfound energy independence is still a blind spot for many investors. Not that he is pleased with it, mind you. But with ideologues who hate fossil fuel use in power, and with regulators gunning for energy mishaps, energy companies have been forced to operate in a smarter mode.
And they hit oil – lots of it. Yes, sometimes when a company or industry is under political threat they manage to innovate their way out of trouble. I think that’s the case here and the result is plentiful energy. Energy independence for America is not what the greenies intended when they elected Obama.
What other political effects are you looking at from American energy independence?
Of course, giants like Exxon-Mobil are far from the dumb, big-box corporations that dominate so much of the bleak corporate landscape. They’ve always been politically sophisticated in their communications with the public, and in their criticism of the political system.
So much so that energy developing companies are next on the left’s list of private sector pillars to cripple, discredit and ultimately nationalize.
Why is the left so motivated to mess with Exxon and others?
The global left got caught off-guard by epic improvements in drilling technology and the plentiful energy era it has introduced. Exxon is under private sector control and the left prefer state owned energy sectors that cannot innovate. Regimes that control all a nation’s energy production have a built in cash cow.
The explosion of the world’s energy reserves under fracking spells extreme fiscal hardship for petty dictatorships that are hugely financially dependent on their nationalized energy sectors. Oil dependent regimes face a permanent, sudden, disastrous 30-50% drop in state revenue. Ouch for Russia, Venezuela and lots of fake global players.
Russia’s finances are brittle, and, for all their bravado, they are weak and overextended. The sudden loss of energy scarcity to keep their bloated coffers full is a nightmare for them.
Even if left-wing forces in the U.S. could overcome fracking’s popularity and banned it completely, too many other countries can easily fill the gaps now.
The left are frantic to put an end to further energy innovation. Expect attacks on Exxon to escalate. And if the energy giant stumbles in any way, the feds will seize upon it big-time. Nationalization of American energy giants is the left’s next big priority.
Sometimes big market events trump politics, and sideways drilling technology is one of those situations.
What are your conclusions as an investor?
I am no longer excited by energy pipeline projects. Energy and precious metals tend to travel together, so low energy prices are a downward pull on metals for now. But I still like gold and silver, and just see this as a buying opportunity as many others do.
And as much as I like Canadian natural resources, it may be awhile before that’s a great place to invest. The strength of USA oil reserves has blown up the dollar for now as well.
Cheap oil takes pressure off China to seize oil fields in the South China Sea. This may be bullish for the emerging countries in the region, including Vietnam.
In the meantime some of the oil majors, including Exxon and Chevron, continue to pump out dividend payments to shareholders. Even though earnings are down across the sector, Exxon hiked its dividend this year for the 33rd year in a row. So if you’re an energy investor, you can still find places to get rewarded.
Does cheap energy hurt the stock market?
CNBC seems to think so. I don’t.
Cheap energy over time leads to a renaissance in USAcentric manufacturing because it offsets the crushing burden of regulations. That’s certainly a backdoor way to grow an economy. Even a big-government Republican president who merely slows the rate of regulatory imposition could see a pronounced impact on manufacturing.
Yet corporate earnings have begun to disappoint. What’s keeping the stock market propped up?
Most stock market growth comes from stock buybacks driven by cheap money to publicly traded companies. It’s not real growth, just a parlor trick. The Fed knows this, but most investors won’t consider that fact.
Were the Fed to eliminate ZIRP [Zero Interest Rate Policy] that would spell the end of cheap stock buybacks by publicly traded companies. I predict that the Fed will be forced to attempt what amounts to negative interest rates to keep the illusion of a growing stock market alive.
Market forces will eventually drive up interest rates in one form or another, but the political system won’t be leading the way.
So if cheap energy is here to stay, what impact does that have on your prediction that the American power grid is dangerously vulnerable?
Those are separate issues. The USA power grid is terribly exposed to widespread attack because its ancient electricity delivery systems are stressed, rickety and subject to super-easy attack. Test attacks in California foreshadow a larger assault against thousands of exposed transformers that are very hard to replace.
Test attacks against the World Trade Center foreshadowed the 9/11 disaster, much as probing attacks against energy infrastructure foreshadow power grid chaos.
Not to mention the growing probability of a massive electromagnetic pulse attack from Russia, China or other powers taking out half the country’s electricity at a stroke. A recent Congressional Research Service Report said that “Russia has their leading physicists focusing on EMP.”
The evidence for the potential of an overwhelming strike on the power grid is massive. But the political system is far too dysfunctional to take proactive steps to prevent it.
How can they be so stupid?
The political system we have is strictly reactive. It is not designed to stop bad things before they happen.
It’s hard to accept when there are so many warning signs, I admit. Take the comment of Vladimir Luken, former Russian Ambassador to the United States:
“If we really wanted to hurt you, we would detonate a nuclear weapon at high altitude above your country…and shut down your entire power grid… without fear of retaliation.”
I think a desperate proxy attack emanating from Russia is a real possibility. Cheap energy has absolutely crushed their nationalized energy industry. That regime is desperate and they may do something really stupid if we are distracted by other major events.
Oil-desperate Japan attacked in 1941 under similar delusions, when even the top Admiral who carried out the attack knew their warlords were leading Japan to catastrophe.
Russia has a history of making aggressive moves when the USA is distracted. In 1956, they moved into Hungary as Eisenhower was distracted by the Suez Canal Crisis. In 1968, when the U.S. was wracked by Vietnam protests, the Soviets rolled into Czechoslovakia. In 1979, as the U.S. dithered over its Iran hostage crisis, the Kremlin sent forces into Afghanistan.
You see America as the world’s policeman?
No, I prefer armed neutrality in a dangerous world. Heavily armed – with great intelligence and a global power projection capability that is second to none. The global community is akin to a prison culture. The appearance of weakness can actually trigger stupid acts of aggression.
Do you fear the rise of China?
No. They are bragging about soft landing a probe on the moon. Seriously? An advanced spacecraft launched by the Western democracies recently overtook a distant comet and soft-landed on its low-gravity surface. A massively complicated 10 year journey using technological sophistication that should give any anti-U.S. power pause. We are stronger and better than we think.
The Chinese are consummate copiers – their last original invention was gunpowder I think.
More seriously, I continue to think that Obama’s passive-aggressive foreign policy could lead to a direct clash with China in the South China Sea. I could see Beijing making some sort of punitive strike on Japanese forces in that region. The threat may have receded though. Since the bottom has fallen out of energy prices, the rich oil fields in the South China Sea may be less alluring to Beijing’s military planners.
You worry about the general lack of preparedness on the part of the people.
Yes, that’s why my website offers tons of Do It Yourself videos on how to improve your individual defenses (www.independentlivingnews.com). It’s all yours with my thanks for being an Independent Living reader.