Amidst the recent villification of oil companies, I find the following analysis illuminating. I started a new IRA for tax year 2007 and just received their prospectus, detailing holdings. Although I didn't buy it on those auspices, the fund in which I invested includes the following holdings as a percentage of total investments:
0.35% Chevron-Texaco
0.27% Pacific Gas and Electric (California Utility company)
0.16% Royal Shell
I own 325 shares of this fund at present, which means I own
1.14 shares of Chevron Texaco
0.88 shares PG&E
0.52 shares Shell
My parents hold similar fund investment ratios, but with considerably more shares. Assuming they hold a measely 10000 shares, they hold 35 shares Chevron, 27 shares of PG&E, and 16 shares of Shell Oil. That 35 shares of Chevron is worth almost $3000. I'd say that my parents have a vested interest in the financial success of those companies. So, I suspect, do you.
Most people who hold IRAs or diversified 401k funds hold a vested interest in funds of public scrutiny. Wal-mart, Albertson's, Revere-Ware (yes, started by the Revere you think started it), Exxon-Mobil, Firestone, Ford, GMC, etc., may constitute a portion of your mutual or index fund. When the government quests against those companies to tax their "windfall profits", they essentially tax you. Those taxes trickle down to lower ROI for your shares, lower dividends, and smaller retirements for regular Americans. By contrast, many politicians are invested in privately held industry, such as companies that sell carbon credits, solar panels, wind turbines, etc., none of which you are allowed to invest in. Then they pass legislation to enforce the use of those commodities, raising their returns with no affirmation in your portfolio.
Even if you don't own stock, you make money. Many government fiscal policies affect you as well, primarily through a devaluation of your earning power through inflation or increased cost. In my lifetime, I've seen stamps rise from $0.12 to $0.42 for domestic postage and gas rise from $0.80/gal to $3.29/gal as recently as my last fill-up. My first job took a gallon of gas to reach each way to earn $5/hour, but if I were still earning that wage, instead of costing me 15 minutes of work each day to pay for transportation, it would cost me 36 minutes, more than a two-fold increase in cost to get to work. Furthermore, inflation devalues the buying power of your money if you sew it into your mattress, so that if you "go to the mattresses", the essential effect is as if you'd been robbed. Your $1000 doesn't buy what it bought ten years ago when you put it there. My car cost $12.300 new, but to replace it today would cost me $15,400 and that for the same equivalent model (the SL1 was phased out by Saturn about 6 years ago).
Before you freak out, consider what reactionary responses of other fearmongers cost you. A recent
Yahoo Finance Analysis reports the following, and I quote:
- "(Investors) seem to be coming round to the notion that the deterioration in the U.S. (economic) picture cannot be ignored on the pretext that commodities are a 'weak dollar play' or an 'inflation hedge', and thus immune from downward pressure," said Edward Meir, an analyst at MF Global UK Ltd., in a research note.
Oil typically moves inversely proportional to the dollar, and is currently being touted, like Gold (according to commercials on Talk Radio from Leer Financial) as a hedge against inflation and losses in the stock market. Buying commodities provides no hedge. It's a speculative investment and could be worth less tomorrow than it is today (oil closed near $101 today, down from $110 on Monday for a 10% loss this week alone). It tends to vascillate short term more than stock and like gold doesn't build wealth over a long-term investment horizon.
People buying oil today are not buying it for tomorrow. In the same article quoted earlier, it reports that contracts at least through April and possibly May have already been negotiated and set in stone. That means the oil price you hear quoted today is what suppliers will have to pay for crude in June to replace current supplies and forthcoming April and May inventories. You have no idea what will happen tomorrow, let alone this summer. You may forcast, project, and hope and pray, but in the end you hold as little sway over tomorrow as you do over the rotation of planets in our solar system.
In the proximal future, the government will issue "prebate" checks as an advance on tax refunds you'd receive when you file your 2008 return. In order to pay for this, they have to come up with money, and since they haven't collected the tax money for 2008 yet, they borrowed it, and printed more at the mint. The more money in circulation, the less each dollar is worth. When they send out the checks, a $600 check will not be worth that much, because the supply of dollars rising will cause the worth of a dollar to decline.
The politicians who pandered to pass the "economic stimulus package" knew full well that it serves very little to spur the economy. We enjoy an election year, and they want to appear involved, to look like they care and are doing something, so they did this, so we can pat them on the back and tell them how great they are. In the end, they made things worse.
Said a wiser man than I: The government which governs best governs least. The best thing government can do for the economy is to get out of its way. If they do nothing, it will do well. If they removed restraints and regulations it would be better.
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