Boycotting the Boycott

The Daily Reckoning – Weekend Edition
May 19-20, 2007
Los Angeles, California
by Kate "Short Fuse" Incontrera

VIEWS FROM THE FUSE: BOYCOTTING THE BOYCOTT

It’s that time of year again…the birds are chirping, the grills are sizzling, and gas prices are soaring.

Despite the government reporting a 1.7 million-barrel increase in gasoline inventories this past Wednesday, Thursday saw new record highs at the pump. Traders fear that these increase supplies may not be enough to meet demand as summer driving season begins in a week, on Memorial Day weekend.

All the usual suspects are in place for high gas prices – refinery problems, increased summertime demand and the like, yet consumers are indignant – even shocked – at the increase in prices.

So, what’s the next obvious course of action when the going gets tough? The tough send a chain email. You’ve seen them. The subject line is always something like "Don’t Buy Gas on Such and Such Date" or "Don’t Buy Gas From Exxon-Mobile."

Not only are these chain emails annoying – they are ill informed. Let’s be realistic. Not buying gas on one day is NOT going to lower the price, and hasn’t since these emails began, eight years ago.

In 1999, the first email appeared, cajoling consumers to boycott gasoline for just one day to send a message to the powers that be in the oil industry. People got fired up. Media started paying attention. And on the day consumers were supposed to not get gas, guess what happened? Nothing.

Americans filled up their tanks as usual and gas prices stayed where they were. The next year, the Gas Out was extended to three days. Still nothing.

"Even if a one-day boycott of all fuel purchases would be effective in lowering prices, it would be nearly impossible to achieve," says breakthechain.org.

"On any given day, only about 10-20 percent of Americans (a very conservative estimate) buy gas. So at best, only one in five people could participate in this boycott, to begin with. If you wouldn’t have bought gas on May 19, September 1, September 10, or whatever arbitrary date this one has on it by the time it reaches you, your absence at the pump won’t be felt. Add to that the fact that only 63 percent of adults are online to hear about this campaign and that not everyone online drives.

"In order to influence a reduction in prices, producers must either make more oil and refined fuel available, or consumers must reduce the demand for it."

Yet rising gas prices has not stopped Americans from driving – in fact; consumer demand remains strong, despite the high cost of filling up your tank.

"Demand hasn’t cratered," said Eugene Hodge, managing director at John Hancock Financial Services Inc. in Boston, who manages a $4.3 billion oil and gas company bond portfolio. "The first time gasoline hit $3 it was a bigger issue, but people have gotten used to it. Most people don’t have an option, they have to drive."

So the next time you receive one of those chain emails, you can respond with this simple equation: Increased demand + tight supplies = high prices.

Or, you can take the wise advice that mothers everywhere give bored children: Go ride your bike.

Short Fuse
The Daily Reckoning

P.S . There was one email I didn’t mind receiving this weekend: "Remember that ‘top secret’ discovery by Odyssey Marine Exploration that the CEO of First Federal Coin Corp was telling me about at last year’s AF Symposium?" Addison wrote to me. "Well…I think we finally know what it is.

Odyssey revealed to the media on Friday that they have hit the mother lode: "17 tons of colonial-era silver and gold coins estimated to be worth $500 million."

Addison spent most of Friday on the phone, trying to negotiate "first refusal" rights for DR readers to buy some of these very coins. We’ll keep you updated on how this negotiation goes…in the meantime, check Odyssey’s fascinating discoveries – and find out how you can make some of this buried treasure your own.

— The Daily Reckoning Book of the Week —

China Shakes the World: A Titan’s Rise and Troubled Future – and the Challenge for America
by James Kynge

A former bureau chief of the Financial Times in Beijing, Kynge demonstrates how China’s thirst for jobs, raw materials, energy, and new markets–and its export of goods, workers, and investments–will dramatically reshape world trade and politics. China’s appetite, though unpremeditated and inarticulate, has become a source of major change in the world.

Napoleon said, "Let China sleep, for when she wakes, she will shake the world." In the early days of the twenty-first century, China has started shaking the world with its prowess in manufacturing. Not all is rosy, however, because China has serious problems with its environmental resources, severe pollution, and institutionalized corruption within the government, the legal system, the police force, and the media. The question Kynge offers answers to is how the world will cope with China’s extremes of both strength and weakness.

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THIS WEEK in THE DAILY RECKONING: Missed an issue of The DR? No worries, we have them all catalogued for you, below…

The Plaza de Toros     05/18/07
by Bill Bonner
"Even in our progressive society, we have come to expect, and in some cases demand, a certain level of brutality in sports; just look at boxing, or football, or hockey. Perhaps it is that humans have an inherent bloodlust that can only be quenched through some form of entertainment. Well, as Bill Bonner explains, there is one ‘sport’ that raises the bar for anyone who thirsts for more. Read on…"

The End of Oil Security    05/17/07
by Martin Hutchinson
"Venezuelan President Hugo Chavez recently seized control of Orinoco, the country’s last privately owned oil field, sending ripples through the world economy. Martin Hutchinson explains why this event is of major long-term importance…"

The Second Skyscraper Boom   05/16/07
by Christopher Hancock
"Few people ever stop to think about the massive amounts of steel and cement that go into skyscrapers. But those who did – especially in the early 1900s – could have made a fortune, especially those invested in steel. According to Christopher Hancock, this opportunity has come around once again. Read on…"

The Battle for $700     05/15/07
by James Turk
"There are lessons from the past that can be disheartening at times like this when gold gets repeatedly repelled from $700. James Turk believes that it is important to recognize that every time gold and the cartel have battled in the past, gold eventually won. Read on…"

Manufacturing Job Creation    05/14/07
by The Mogambo Guru
"With only 88,000 jobs created in April, things are already looking pretty grim for the average American worker. But as the Mogambo explains, things could get much worse, as the government tries to trick us by adding ‘hamburger flipping’ to the list of manufacturing jobs. Read on…"

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FLOTSAM AND JETSAM

High-Rises Aren’t the Only Industry Devouring Steel

I believe skyscrapers will be one of the many factors driving Asian steel markets for years to come.

The Asian automobile industry is certainly contributing its fair share.

The number of vehicles on China’s roads has almost quadrupled over the last decade. Currently, there are approximately 27 million vehicles running on gasoline and diesel. With a combination of rising disposable incomes and improved transportation networks, the automotive market will continue to soar.

Automakers from around the world are scrambling to grab a share of the world’s fastest growing car market. GM reported that it sold 665,390 vehicles in China in 2005. That’s a 35% increase from the previous year.

India presents a similar situation. Tata Motors, what Forbes calls India’s only domestic automaker, maintains that it will launch a $2,000 car within two years. Sales for the company are growing 28% a year as more and more Indians take to the road.

There is no denying the fundamental strength on the demand side of the equation.

In fact, it’s pointless to argue which particular market will require the most steel in the years ahead. Demand will shift among consumers specializing in a variety of industries, ranging from buildings, bridges, railways, tin cans and cars…All sectors will experience periodic peaks and troughs over the course of sustained long-term growth. It’s all part of the natural business cycle.

The trick isn’t predicting industry-specific demand…The case for investing in the steel industry rests on one fundamental premise: "The nation that makes the cheapest steel has other nations at its feet."

Editor’s Note: Christopher has identified one company that’s flying below Wall Street’s radar – for now – AND is positioned perfectly for major gains during the Asian steel boom.

Christopher Hancock has spent the last two years doing investment research primarily focused on emerging markets, specifically China and Hong Kong. After working with Citigroup in Hong Kong on the challenges and opportunities associated with the forthcoming RBM flotation reform, Christopher left many of his friends behind and decided to return to the States to pursue a career in equity research.

Christopher’s desire to work for an independent firm led him to Agora Financial, where he now is the editor of Free Market Investor. Christopher travels extensively and utilizes his contacts across the globe to recommend the best international investments in the world right now for his subscribers.