Anatomy of a Fairy-Tale Failure

by | published April 9th, 2012

The good news is, I got to spend most of Easter with the grandchildren.

The not-so-good news is why.

The tower at Friedberg Castle could be straight out of a German fairy tale.

However, this tale did not have a happy ending. The meetings here ended early.

Well, actually, that is not quite accurate.

They failed. This was a serious discussion that collapsed almost before it began.

And there was one essential reason why.

The agenda I mentioned in the last OEI was never a realistic option.

There was a pro forma discussion; courteous lip service was rendered; and all the diplomatic niceties were applied. However, there was never a chance that anything of substance would be ironed out.

That's because three underlying impediments to any significant action are in force. While they have an immediate impact on what is likely to happen on this side of the pond, make no mistake…

They are already in place in the United States.

Problem No. 1: Reluctance to Act

First, there are reservations among a wide array of decision makers to engage any course of action before the pain has really hit.

Certainly, some initial longer-term actions have been initiated in Europe. These include:

  • new natural gas pipeline plans,
  • a complete nuclear power phase-out (Germany, Switzerland),
  • higher financial commitments to strengthen reactors from earthquakes (France),
  • serious discussions on domestic shale gas and coal bed methane production (Poland, Hungary, Bulgaria), and,
  • renewed public statements of support for renewable energy projects (just about everywhere).

But the tools developed to meet the fast approaching near-term crunch are few and far between.

In a precursor to the approaching debate on the other side of the Atlantic, the European Union in Brussels recognizes that it is impossible to meet the immediate problems without hurting another country. All of the member nations understand this as well. And that means the leadership from one end of Europe to the other will delay unpopular decisions for as long as possible.

The overall crisis is not in doubt, but the political will to meet it remains in short supply.

Problem No. 2: Ideology and Blame Shifting

Second, everyone understands that the political reaction will be to find somebody else to blame. European politicians share this reaction with their American counterparts. The energy situation demands a bipartisan (or, in many quarters of Europe, a multi-partisan) approach.

Instead, the “solution” will be to use energy as a club with which to batter the other guy(s). The Continental approach, at least, holds parties responsible for their platforms. As one government is voted out, the next is given some time to perform on promises made, yet is never given too much of a leash.

Ideology is still a factor.

But parliamentary systems tend to balance such considerations far better than the American horse-opera variety (you know… white-hatted cowboys versus black-hatted villains).

In rapid order, the ideological component will be a lesser worry. The combination of rising prices and availability concerns hitting in oil is neither a conservative, nor liberal, nor labour, nor socialist, nor a nationalist front issue.

The energy crunch cares little about worldviews or party labels.

It will strike without regard to who is in office or who is out in the square protesting.

Problem No. 3: State Involvement is Only Going to Rise

Third, there is a deeper problem preventing an early resolution. It remains the 800-pound gorilla in the room. Nobody wants to address it in the States, and only those considered well-left-of-center over here would advance it publically.

We may be reaching a point at which the continuation of a free market in energy could become problematic. There are no solutions considered worthy of pursuing that would avoid greater government involvement.

Additional regulations, central planning, limitations on forward trades, and public sector control are probably coming.

That is easier in Europe for two underlying reasons.

First, there is already state control of the energy space. Second, unlike in the U.S., individuals do not privately own energy raw materials over there.

The presumption is that the state makes decisions on such matters for the common good. On the other hand, even entertaining that premise immediately becomes a main American political battlefield.

As energy matters take up more of our time – given the fundamental economic consequences affecting investment, employment, business prospects, and lifestyle – the luxury of avoiding some fundamental questions will end as well.

These meetings over the past several days were held to establish a series of policy options to serve as the basis upon which to pursue multilateral initiatives. In the end, no consensus resulted beyond one that the crisis is fast approaching; no resolutions, solutions, or tangible policy options could garner any broad based support.

Perhaps, it was too early to expect a breakthrough.

There will now be other meetings held in other locations when flexibility is even more limited and the time constraints more pronounced. The process remains strangled by the realities of coalition politics in Europe, and the numbing of talking about major issues that always attends electioneering everywhere.

The European/North American market alliance is moving into what I believe will be a fateful summer still without a plan of action.

This will be nasty, painful, and much worse than 2008 – threatening to derail economic recovery in many parts of the world, once again tightening credit, and encouraging more extreme knee-jerk remedies.

Maybe I am wrong here.

That would be a relief.

But after nearly four decades of dealing with these matters, it doesn't look like it.

This will be the summer of our discontent. Either we find a way to change the energy calculus, or events are going to change it for us.



P.S. For months, Kent has discussed the Brent-WTI spread and what it means to global politics and financial markets…

But, if you give him a minute, he'll also explain how you can profit.

Yes, this is big.

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  1. Christopher Tingus
    April 9th, 2012 at 12:15 | #1

    The past eight sitting US Presidents and numerous Congressional sessions have resulted in no US

    National Energy Policy and the ineptness, the self-agenda of those we have “entrusted” to address these domestic, European and western energy and economic as well as political issues affecting all of us in the west have failed. Let’s face the facts that We here in the good ‘ol USA have a WH riddled with Goldman Sachs fellas seeking to dupe the public in every way assuring that any “change” We see here on “Main Street USA” is the few pennies in our pocket stripped from us which should be reminding us of our insightful forefathers who cautioned us about such – insiders – and folks who fled the King and his taxes. This time, we have no place to flee other than to seek term limits, thwart insider trading and deals and begin to establish trecall initiatives. In fact, a US National Citizen Referendum should be placed ona special ballot election asking whether Congress and this Chicago community organizer, Barry Obama should resign!

    Germany, soon to downsize from 27 nations to an EU comprizing only ten (10) nations indebited (energy) to Germany with its 5.7% unemployment rate while Europeans throughout are out of work…well, Germany will once again bring us to War and doom…This time, ol’Glory, flying upside down depicting the “distress” we find ourselves in by the fact that Winston Churchil and leadership is no where to be found…well, our beloved Republic, its Constitution under siege and an ever broadening government seeking to impose itself into every aspect of an indivdiual’s Right(s)…We dear fellow westerners, are in much grave peril!

    Stand and be counted. Far too many from Australia, New Zealand, France, the Brits, my fellow (hellenes) Greeks and so many others gave so much to thwart the ways of Lucifer and here we are in 2012, not even one hundred years later and given Biblical scripture and our inability to repent, to show strength and courage, We fellow citizens are in much peril as China’s economy slows, the WH and Chicago street organizer and his pal Rev Wright and others seek to assure the US’ budget deficit skyrocket far past our universe and our aging US Navy and US Air Force soon to take second place to the Chinese nuclear subs and the “KGB Putinites” who are assured by Barry Obama in a moment of whisper that…given more time and reelection, he will make sure we rid ourselves of our nuclear arsenal….

    Be vigilant – be weary.

    We are to face calamity esepcially in Europe and the Middle east as this dysfunctional hatred of Muslim and Christian results in shock and awe and places each of us, God’s children, in harm’s way as the economies falter and even the deceitful bankers and the “Brutes of Teharn’ cannot win given their cunning ways…

    The killing of – innocents – continues in Syria. rape and torture in Africa and elsewhere…US citizens seeking inquiry to less than transparent practices by the “beltway bandits” are referred to as terrorists and countless Americans and thjeir children displaced, home lost to the corrupt bankers who w/this deceiving WH and for the nost part, both sidew of Congress, seek to tear the Judeo-Christian values thsi nation was founded by enlightened and astiute indoividuals, men and women who understood what Liberty means and why it must be defened with strngth, not backdoor sessions with these Iranian thugs..

    God Bless us all!

    Christopher Tingus
    PO Box 1612, Harwich, MA 02745 USA

  2. Steve
    April 9th, 2012 at 12:28 | #2

    Now that Europe has had its say on energy (such as it was), can you give a more explicit outline of what you are expecting to occur between now and the US elections in November? What will likely happen to energy prices and supplies? What kind of private and public actions in the energy sector are likely to occur, and just how smart or stupid would they be likely to be? Lastly, how will these changes and actions perhaps affect larger questions such as credit markets, the ability of the EU to hold together (or not), and so on? Can you give us one or a few Big Picture articles that can lay this stuff out as simply yet as thoroughly as you can?

    Just a few minor issues, right? 🙂

  3. anthony dias
    April 9th, 2012 at 12:50 | #3

    You would do yourself & us, your readers, a service if you were to stop using the acronym “piigs”.

  4. Robert Eblacas
    April 9th, 2012 at 14:24 | #4

    Read the gloomy article published:Anatomy of a Fairy-Tale Failure

    byKent Moors Ph.D. | publishedApril 9th, 2012. It sounds like the global economies will be heading toward a recession if the energy issues are not resolved. What is missing from the article is a small note indicating how will our energy portfolio be affected. What is important to me and many other readers is the impact to our investments. Thanks, bob

  5. Rob
    April 9th, 2012 at 15:12 | #5

    Kent keeps talking about oil prices climbing while they continue to fall. I lost a bunch on a bull credit spread on OIL this month based on his advice.

  6. Bill
    April 9th, 2012 at 15:16 | #6

    So, what adjustments should be made to the portfolio?

  7. April 9th, 2012 at 16:06 | #7

    The situation with WPRT (just to name one stock on this horrible market day) really stinks – my overall return is now negative, whereas it was over $600 positive two weeks ago. I’m just about ready to throw in the towel on OEI and the rest of my stock holdings.

  8. Eric Carlua
    April 9th, 2012 at 20:18 | #8

    Please provide to me up to date investor anaysis and commentaries on oil and energy markets.

    Eric Carlua

  9. April 10th, 2012 at 00:12 | #9

    Sorry, Kent; our government is no more capable of making ANY decisions “in the public interest” than the man in the moon is. ALL is political with this administration; food (Sibelius), security (Napolitano), energy (Chu, Salazar) and everything else as well. ALL decisions are made on a few, simple basic ideas: which of MY groups will benefit, which of MY groups will be hurt, where can I get more campaign money and rewards to hand out to MY followers, how can I hurt the opposition with this? Our government cannot make any decisions in the public interest because it cannot SEE a public interest; only power politics, the “Chicago Way”, and maximizing MY returns matter.
    I wouldn’t trust them to make the right decisions if they WERE public-service oriented, either; central planning does not work long-term, and rarely works short-term. Until we release the forces of true free-market economics (as opposed to crony capitalism, like we have now) no solutions are likely, if even possible. Get the government out of the energy business, and see if companies interested in making a profit can provide new, environmental energy solutions for the world. It can’t work any worse than what we have now.

  10. masa Kitajima
    April 10th, 2012 at 00:20 | #10

    I have tried to follow the system but have been unable to keep up. I do not think this is my game. Please cancel me out.

  11. Richard
    April 10th, 2012 at 14:23 | #11

    Dr. Moors, it is apparent to me having read many of your comments that you must be aware of the REAL 800 pound gorilla that is causing all of the economic problems in the world today. This gorilla is the economic WAR that is occurring just below (now) the surface of public awareness. You claim there is a mysterious reluctance to do what is needed, hogwash! you know perfectly well what the problem is but like most of your contemporaries you refuse to say the “emperor has no clothes”. It is time for you to speak or get off the podium.

  12. April 11th, 2012 at 15:43 | #12

    Fantastic blog post. Great.

  13. David Goldman
    April 13th, 2012 at 09:04 | #13

    Kent-Curious IF you still think we investors who follow you should still hold hope long-term for KOG based on articles such as this?
    3 Oil And Gas Stocks With Rocketing Production By 2013, 1 To Avoid
    April 12, 2012 | 12 comments | about: KOG, includes: CHK, GM, SD, TPLM

    Kodiak Oil & Gas (KOG) is one oil and gas stock that has been on the rise ever since the huge drop in crude oil prices in October 2011 that so negatively affected the business as a whole. With many great things going for Kodiak, it is no wonder the company has been doing comparatively well when placed next to other companies for analysis. Kodiak increased both profit and production exponentially over the course of two years. Yet, I believe Kodiak has seen its rise and will begin to slow down. The opportunities it offers investors going forward will fall short of its peers.

    With Kodiak’s recent growth and profits, I think we will possibly see some incremental short-term gains as long as the bottom does not fall out. Overall, the stock has begun to settle. In the case of these smaller oil companies, bad times can be totally detrimental. So keep that in mind that if you are considering a new position in the stock, as it can backfire greatly. Competition is fierce in the markets in which Kodiak completes, but the company has a stellar management team led by Lynn Peterson, who has successfully helped lead other entities through oil and gas booms and busts in the 1980s and 1990s. The company has been developing its reserves at this point, but I believe Kodiak has already run its course and will flatten out.

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