by

Dr. Sherman N. Miller

11/17/2007

As the 2008 Presidential Election gains focus to everyday Americans, the key issues that will decide the next US President are dawning. If the adage that people vote with their pocketbooks is true, then Republican presidential hopefuls ought to be concerned that oil at roughly 100 dollar per barrel is making President George Bush and the US Congress look politically impotent on a global level at bringing economic relief to the American People.

It is difficult to believe that the economies in India and China have developed so fast that they are under-girding the current sky-scraping oil price. I suspect, rather, that the eagerness of some in the news media to forecast doom and gloom has created a self-fulfilling prophecy that has allowed inflated oil prices based on speculation versus legitimate economic fundamentals. Surely the oil speculators will exploit windfall money opportunities to drive up oil prices when the news media conditions the general public to see high oil prices as the new paradigm.

A major investment fund manager shared with me once that he had refused to be drawn into the dot.com so-called "gold rush" even though many people felt his decision was not wise. He argued that the fundamentals simply did not justify the dot.com business model. The subsequent failures in the dot.com industry clearly suggest that the investment fund manager was right.

Today, we have a second gold rush dying out in the 2000 to 2010 decade due to the sub-prime mortgage industry debacle. Once again, market fundamentals were ignored (many people are not able to afford the loans sold to them). We see billions of dollars in losses at major corporations who speculated on sub-prime mortgages. We also see the world economy now rattled by the US sub-prime mortgage crisis.

I am arguing that speculators ignored sound market fundamentals on two occasions that caused billions of dollars to vanish and corporate values to plummet. Hence, it becomes apparent that the oil market may expect a major correction soon where the price of oil collapses to roughly 30 dollars a barrel. The General Motors report of a 39 billion dollar loss created fissures in the global oil market because high automobile gas consumption is one of the key drivers of the world market value of oil. Thus, it is tomfoolery to think that oil speculators can keep the US automobile industry teetering on bankruptcy while indefinitely maintaining the high cost for energy.