06/10/10 Pittsburgh, Pennsylvania – Not long ago, several Outstanding Investments subscribers invited me for a sit-down chat. I told them that I love to talk with readers, but I can only chat general themes. I CANNOT offer personal investment advice in the context of a small group.
That is, when it comes to specific recommendations, I only do that in the pages of my newsletters. Everyone was OK with the ground rules. So after juggling our schedules, we wound up in the beautiful oak-paneled lobby of the old Summit Inn, south of Pittsburgh near Uniontown. It’s right alongside historic US Highway 40 – the road carved by British colonists from the East Coast into the Western frontier.
It was great to listen to the reader questions, comments and concerns. As you can imagine, the ongoing deep-water disaster in the Gulf of Mexico was high on everyone’s list of issues. “Can’t the military do a better job of dealing with this mess than BP (NYSE:BP),” asked one reader?
It’s a fair question. The US spends hundreds of billions of dollars every year on the Department of Defense. Where’s the return on that investment? Can’t any military people or equipment help?
The short answer is that the military is designed to fight wars, not oil well blowouts. And as we all know, much of the military is busy fighting wars right now.
Wars or no, Secretary of Defense Robert Gates recently said that private industry has better deep-water technology than the US military does. Mr. Gates was referring, in part, to the remotely operated vehicles (ROVs) built by the likes of Oceaneering (NYSE:OII) and FMC Technologies (NYSE:FTI). The share prices for these companies are down just now, what with the so-called “six-month moratorium” on deep-water drilling in the Gulf. But over time, the ROV makers will come back strong.
As for the military, it’s good at organizing people and things and then focusing them on a mission. But by definition, it’s a military mission. Sure, there’s military capability to deal with, say, an oil spill during a military fueling operation. But overall, the DOD is not geared to fight a widespread environmental battle, such as what we have in the Gulf.
That said, however, the military is supplying personnel, ships, aircraft, command and control support and much else to the oil-fighting effort. And let’s distinguish the DOD from the US Coast Guard, which IS playing a critical role in all of this.
Indeed, Coast Guard Adm. Thad Allen is the National Incident Coordinator for the oil disaster. Adm. Allen has become a well-recognized presence in the media coverage. Plus, Adm. Allen is a key decision maker in the process of deploying all manner of public and private resources. He signs off on permits for many efforts to deal with the blowout and combat the oil spill. So the Coast Guard is right there, in the thick of things, delivering value.
From this point, the Summit discussion with Outstanding Investments subscribers moved to a different, but related, issue. “Are there things that the government just can’t do?” asked one participant.
It’s an important philosophical question. There’s no denying that “the government” can accomplish great things over time. Given enough time and resources, the federal government can build great edifices like the Grand Coulee Dam or accomplish monumental tasks like landing men on the moon.
But keep in mind that big dams, and even men on the moon, are “deliverables.” They’re technological things you can wrap your brain around. They’re also things that you can design, plan out and throw money at over a period of time.
But what happens when bad things occur abruptly? Natural disasters like earthquakes, hurricanes and volcanoes come to mind. Or in the current case, we have a man-made disaster – a deep-water oil well blowout. People aren’t prepared for really bad things – mentally or physically, if not technologically – and nobody can deal with the consequences. We quickly find the edge of the envelope of government power.
That is, sometimes government just plain lacks ability to control events. The Gulf of Mexico oil well blowout is one of those times. Look at the aura of helplessness exhibited by many of the highest-ranking politicians in the country. The big shots can rant and rave and threaten lawsuits from here to the end of time. But can they plug the oil well? No, they can just sit there and bellyache.
The subscribers at the Summit Inn had their own views of how, exactly, the federal government – as well as BP and the rest of the energy industry – was simply not ready to deal with the oil well blowout.
“The federal government owns the offshore,” said one subscriber. “The government has allowed deep-water drilling for 20 years. Now the politicians and bureaucrats act like it’s a total surprise that there’s a deep blowout. It’s so hypocritical. At Department of Homeland Security, they have people whose job is to think about a nuclear bomb going off in Washington, where THEY live. Isn’t there somebody at Department of Interior whose job is to think up terrible scenarios like a deep-water blowout where they DON’T live and then plan for it?”
Great point. Along these lines, a recent headline speaks volumes: “Gulf Oil Spill Surpasses Scope of Disaster Training.” This headline comes from a well-regarded nationally distributed newspaper. What newspaper? Navy Times.
Wow! Consider the source. Navy Times is privately published by Military Times Co. But over the years, Navy Times has carved its niche as the newspaper of record for the US Navy, with a large readership within the Coast Guard.
That is, Navy Times is a newspaper for sea service insiders. What are people on the inside actually saying? The insiders are admitting candidly that the disaster planning and training was inadequate to meet the ongoing crisis in the Gulf of Mexico. Yes, there was some thinking, planning and training. But not for anything this big.
According to Navy Times, “A month before the BP oil rig explosion in the Gulf of Mexico, more than 50 federal, state, local and private organizations swarmed a simulated oil spill in the Gulf of Maine… The Coast Guard dubbed the event the ‘Super Bowl of exercises.’ But this effort appears dwarfed by the size and complexity of the environmental disaster unfolding off the Louisiana coast.”
Yes, it sure “appears dwarfed.” No Super Bowl rings for this one. Of course, there’s no denying that there’s a gigantic, all-government level of response to the deep-water blowout. And there’s a learning curve evident. So there’s progress out there. But before the explosion on April 20, there sure was a failure of imagination when it came to the dangers of deep water.
The deep-water disaster is – or ought to be – a humbling moment for people who place their faith in the power of government. Especially government people, and particularly politicians.
That is, the deep-water blowout shows that there are things that government can’t control, let alone fix. As environmental damage lingers into the future, it’ll drive home that point about the limits of government capabilities again and again.
One participant at the Summit conference made a terrific point. She said, “Washington was unprepared for the fall of the Soviet Union back in 1991. Washington was surprised by Islamic terrorism, and blindsided by Sept. 11. Washington was caught flat-footed with the housing crash, and the Wall Street meltdown in 2008 and 2009. The government is unprepared for a deep-water well blowout. What’s next? What ELSE doesn’t the government plan for, what other big things? What if the euro fails? What if the dollar crashes?”
That’s quite a way to look at it. Over the past 20 years, the US government has dropped the ball in a lot of areas. Thus, it behooves you, as an investor, to connect these dots. When it comes to big stuff that can change the national direction, and screw up your life in the process, the government may very well fail to anticipate things.
Even if the government does see the asteroids coming, what will your government do for you? Will your favorite politician give up his room in the survival bunker? For you? Are you kidding? The bottom line is that every investor needs to prepare his or her own lifeboat.
Along those lines, the subscribers with whom I met have a stash of physical gold and silver. That’s just the beginning. They “get” Peak Oil and the decline of the dollar.
I won’t get into personal details, but there’s a reason that these particular subscribers live in a semirural area south of Pittsburgh, in the mountains, with spring water, fertile soil and plenty of time to practice their target shooting.
Sure, these Outstanding Investments subscribers may play the stock markets. They may even invest in gold miners and energy firms. But at the end of the day, each one of these subscribers is building his (and her) own measure of personal security in a world where the financial future of America is looking more and more precarious.
Byron King
for The Daily Reckoning
Byron King
Byron King is the managing editor of Outstanding Investments and Energy & Scarcity Investor. He is a Harvard-trained geologist who has traveled to every U.S. state and territory and six of the seven continents. He has conducted site visits to mineral deposits in 26 countries and deep-water oil fields in five oceans. This provides him with a unique perspective on the myriad of investment opportunities in energy and mineral exploration. He has been interviewed by dozens of major print and broadcast media outlets including The Financial Times, The Guardian, The Washington Post, MSN Money, MarketWatch, Fox Business News, and PBS Newshour.
The Daily Reckoning is your premier source for making sense of the news Washington and Wall Street generate. Each business day, The Daily Reckoning calls on its stable of world-class writers and thinkers to show you how to get ahead.
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Yep. One of these days in the not to distant future the very word “investment,” is going to take on a meaning of excess and stupidity. The rat race is coming to an end.
like .99 cents is so much lower than $1.00. Pitiful
Byron, in all of your research have you stumbled on anyone examining the circumstances surrounding the actual cause of the event? The one that reporters claim killed 11 people and sent a mutli-million dollar exploration platform to the bottom of the sea *before* causing the largest ecological disaster since Krakatoa?
Seems like the media needs to pay more attention to keeping its collective ‘eye’ on the real ball here.
So here we have the US Military fighting wars all over the globe and killing people. This happens in large measure to protect oil supplies which the US needs for the economy to function. So, why not view things differently? Just think if the US Military was trained more for disaster relief than fighting distant wars. Also, what if the US Military could come under control of the US Coast Guard in times such as this oil spill in the Gulf.? Just think about the opportunity here, the US would be able to safely drill more deepwater wells with an assurance of safety by directing military resources away from foreign conflict and towards oil sustainability within it’s own territories. Let’s face it, large quantities of future oil stocks lay under the seabed, it is now time to understand this fact and work toward a plan that will safely implement deep sea oil production. The US Military is the key here, either the Military apparatus is put to work to ensure safe oil extraction near it own teritory or to continue in the losing strategy of fighting wars away from it’s homeland. The US can safely put men on the moon but it cannot find a way to safely extract oil from the seabed?
Best Regards, CanadaNorth