Back to the past
You may also recall reading a newsletter with information on who the world’s biggest oil companies were (refer to “Invest News” August 2005) and how they spent their money diversifying into other industries. The “common sense” belief that higher oil prices would make oil companies go broke, may be commonly held… this doesn’t mean that it is true….
Oil goes up, buy more oil…
Huh? Since the article was written, the price of oil (and petrol) has continued to rise at a massive rate. The profits of oil companies have increased dramatically, as has their share price. Did you buy into any oil companies? Prices on fuels and lubricants have risen by 21%, so did we all buy 20% less oil? Nope, we bought 18% MORE.
The oil companies don’t just have us over a barrel; they have us over millions of barrels a day… Did you buy into oil companies yet?
See the Past, now look at the Now
OK, so you’ve got the message about the oil companies. Like the dinosaurs that they dig up, these huge juggernauts* will rule the world for a long time. Don’t fight it, get used to it, and learn to profit from it. If you don’t take my word for it, look at what the major investment managers are doing with their money.
Which fund managers are buying into oil companies, and how much are they buying? Are they hoping to make more money in the future than they did this year? The fund manager’s job is to make money in the future, so what are they doing now?
Fund Manager —–
What is in their Top Ten? (as at June 30th 2005)
Credit Suisse—- Mortgages, phone companies and finance companies.
Barclays: —–Total Fina Elf is number two, Exxon Mobil at seven.
Merril Lynch —–Total Fina Elf is number two stock on their list also Platinum Royal Dutch Shell is number ten stock
UBS Global —-Total Fina Elf is number 3, BP at number 10
Westpac Intl —-Exxon Mobil number 1 stock held
BT USA —-Exxon Mobil number 2
BT Global —-Exxon Mobil number 1
BT European —-Royal Dutch Shell number 1, Total Fina Elf number 3
Oil = Money
If the oil companies are NOT going to make massive billions of dollars worth of profits in future years, then why are the biggest and smartest fund managers investing into the oil companies? Perhaps with all their money and all their research, the major oil companies know that major oil companies will continue to turn gargantuan profits. Perhaps with the largest fund managers’ money and research, the fund managers have also come to the same conclusion: oil equals money.
Save the trees: shoot a beaver…
Sure, you can buck the trend against the juggernauts*. You can invest all of your money into stocks other than mining and oil. You can invest into “new” areas such internet stocks and bio-technology. You can invest into mortgages and finance companies like Credit Suisse. You can invest into eco-responsible, genetically unmodified, environmentally-sustainable alfalfa-eating, alpaca-friendly, tree-hugging hippy stocks**.
It may make you feel good. It may even make you a dollar or two. A good idea is to diversify your money: — have some smiley, care-bear investments** and also have a little bit of investment into some of the “smash, pillage and wreck the environment” stocks.
Exxon/Mobil hurt some penguins with a leaking oil-tanker. Fine, sell their shares, punch the CEO, or volunteer at Greenpeace.
Union Carbide upset some people with dodgy battery acid. Throw out your torches, toys and computers or choose to make a positive difference.
When I discovered that a subsidiary of BHP was mining uranium, I felt so bad about it that I donated some of my BHP dividends to my favourite charity***. Now, BHP were not making uranium nuclear weapons, it was for nuclear energy; and it was not BHP, just one of their connections.
I am not crazy enough to sell all of my BHP shares just because some of their friends are a little environmentally unfriendly: — that would be silly. Besides, I can do a lot more for the environment by gifting thousands of dollars to good causes, than I can by chaining myself to a bulldozer… Bulldozer. Hmm, that gives me another excuse to use the term “juggernaut”… ☺
Speaking of big powerful, heavy things without restraint or social conscience, let’s have a look at the world’s biggest super power and largest economy. Do you know who it is? Do you think that the answer may change in future?
Live in the Now, Look to the future
Hey, I don’t wish to be an alarmist; you have the newspapers and horror movies to make you frightened. I just wish to point out a few things and make you “alert but not alarmed”.
Question 1 Who in the world uses the most oil?
Question 2 Where do the oil users get the oil from?
Question 3 What are they prepared to do to keep it this way?
If you answered, “USA”, “The Middle East” and “start wars”, you would be fairly close to the truth… or the truth, as it was, for most of the last century. In the last few decades we have seen the USA using most of the world’s oil, and sourcing it from the Middle Eastern countries. We have seen the USA involved in conflicts in Afghanistan, Iran, Iraq, Saudi Arabia, Kuwait and Iraq (part two).
In more recent years, the amount of oil being used by China is on the rise. Soon, your answers to the above three questions will be “China”, “Africa”, and “anything”.
Be prepared for a world-wide shifting of the scales. Why does China source their oil from African countries and not Middle Eastern countries? Does the oil taste nicer? Does it last longer? Is it cheaper? Or does it simply not raise the ire of the US government, as Africa is not seen as de-facto US soil?
Anyone stomping around in the Kuwaiti oil-fields for long enough would eventually upset the USA: look at what happened to poor old Saddam Hussein in 1991. Oops, it happened again in 2003. The USA sees the Middle East as their own little vegetable patch. They let the gardeners have a few carrots to keep them happy, but they don’t like any rogue rabbits intruding, or any sign that someone else wants to dictate gardening terms or market conditions.
Prepare for War….again….ho-hum
Will there be more wars in the Gulf? Probably. Will things change? Not much. Sometimes the US sells arms to the left side (“allies”) and sometimes the US sells arms to the right side (“axis of evil”). Sometimes they sell weapons to both sides (“Iran-contra”) and blame it on Oliver North. So long as one side wins and agrees to sell oil to the USA at a fair price, they are happy.
In the style of true diversity, the US doesn’t really care who wins: the winner will sell them oil, and the loser will come back and buy more weapons for next time. The USA is a business. They sell guns and buy oil in the same way that Australia sells steel and buys DVD players. War is a business activity for some countries. It is good for their economy. Realise this, and thank God if you are smart enough to stay out of the firing line and in front of the check-out queue.
So the wars in the Middle East will continue, much like the war between Coke and Pepsi, or McDonalds and Burger King. It’s just business. It’s just money. It’s nothing personal. The “War on Terror” will be never-ending; it will just ebb and flow, like the tides. America makes weapons and needs to sell them. They use oil and need to buy it. What are you gonna do? They are the biggest economy in the world and they need to protect their economy from anything that would threaten it. God bless America…
In all probability, the pugilistic Americans are a threat to world peace, inasmuch as they believe that it is their duty to police the world (“finish the wars that others start”) and supply arms to the highest bidder. By the same token, we are probably lucky to have them. Without the massive power of the world’s “school bully”, there could be complete anarchy.
As much as the US Marshall Plan is objectionable, it (and its clones) can be seen to have helped the world at large. It is arguable that victory in World War One could have gone to Germans, or eluded the British a lot longer without the help of the USA. World War Two was also largely decided by the entry of the good old USA. The US involvement in Korea, Vietnam and Kuwait were possibly self-serving, but did have some positive impact on the rest of the world.
Where does this leave us? And what about China? Hmm, glad you asked. China is not even going near the Middle East. No need to. Why fight over something that has been fought over for centuries, against an enemy that has lots of money and plenty of guns? The Chinese are not into suicide, Hare Kari was a Japanese trait…
While Americans fight Arabs in the Middle East (and anybody else who enters), China is quietly and diligently drilling for oil in Africa… Shh!
Will China fight to survive, or will they buy friends? The Chinese are making friends in Africa, building infrastructure, creating jobs, buying oil. They are sourcing blood to infuse into their economy. Far from sucking Sudan and Zimbabwe dry of oil to feed the Chinese machine; it is more of a symbiotic relationship.
You are unlikely to find Africans hating Chinese in the same way that the Arabs can hate the Americans. For every Chinese oil-well in Africa, there are thousands more schools and jobs. African people who used to till the soil are now drilling for oil, on larger wages. Their once uneducated children, who were destined to work farms, are now studying to become geologists and engineers for the oilfields.
The Chinese do not need to sell weapons to the Africans or the African’s enemies; instead, the Chinese do a nice sideline in selling cheap DVD players, laptop computers, cameras, T-shirts and the like. Just as the Chinese bought plenty of Australian steel and coal, then gave Aussies cheap plasma screen televisions, they are now doing similar things with the African nations to get oil. Can we blame them? Of course not, it’s a free world, isn’t it? Well, maybe it’s not free; it’s just not so tightly controlled as it once was…
Who’s the Boss?