“Oil down to $80!”

A year ago, that headline was impressive, because crude futures had been hanging out around $144 a barrel, and were on their way to $48. Talk about blood on the trading floor! Now that’s the sort of rich stuff a columnist can sink his teeth into.

The recent $3 hiccough is merely a 4% cyclic dip within a larger rising trend that has seen crude futures rise some 71% over the past nine months. Quite frankly, the oil price could drop to the bottom of the rising trend at $75, and I still wouldn’t be impressed. Heck, I halfway expect it.

 

Still, this little tempest in a teacup did get me thinking about energy prices et al. I’ve long maintained that energy costs are the mosquitoes of inflation. That is to say, they are the disease vector that allows the theoretical destruction of the dollar to burrow down deep into regular folk’s pockets.

The Pin in the Bubble

You can make a good argument that spiking gasoline, heating and electricity costs at the top of most every boom are the agents that most directly trigger the next bust. We all blame that last big crash on failing real estate and banks. But what really brought the country up short was that whopping 282% increase in the price of guzzlelene. That’s when we saw folks put their Escalades up on blocks and abandon their McMansions to the banks.

So if you want to know how long this party has to run, the correlation between gasoline and stocks is a darned good place to start.

 I’ve done this chart before, but I can never lay my hands on it when I need it. So I drew it up again for today’s column, and once again I was gob-smacked by a most peculiar set of correlations.

There is, of course the coincident tops in gas and the blue chips in both of the recent boom and bust cycles. But what really got me thinking this week were the differences between the Clinton and Bush cycles.

The Incredible Difference

From 1995 to 2000, we saw the markets rise some 250%. During the same cycle, gas at the pump gained 78%. Funny thing is, boy did I whine about it every time I filled up the Ford pickup I was driving in those days. If only I had known!

While that disparity between stock gains and gas gains may have been thin compared to what was coming, it did indeed presage the collapse we usually credit to the unwinding of overpriced tech stocks.

By now, you have probably noticed that I have labeled the two cycles with the names of the presidents who presided over them, rather than the usual “Tech Bubble” and “Real Estate Bubble” tags. This will, no doubt, cause a boatload of e-mails from the usual homers who bristle at any imprecations against “their guy.”

I Am an Equal-Opportunity Hater

Please. Let’s get one thing straight: I am not and never have been a big fan of Bill Clinton. I don’t know if he shot Vince Foster, slept with the Chinese ambassador in the Lincoln Bedroom, or any of the other rot that was so liberally bandied about in those days.

However, I am a dad, and I do know that Bubba used his power and prestige to pry his way into young women’s pants. If he were merely the local school principal or such, he’d probably be serving time or be dead and buried in the potter’s field.

More saliently, it was his crew that thoroughly politicized the economy and institutionalized the whole “plunge protection” idea, and pretty much abandoned any pretense of economic sanity so as to foster the train wreck that we came to call “The Tech Bubble.”

Saint George

Now, one thing you can say about George Bush is that he did not preside over such an incredible expansion of the economy. I will concede that he started with a bit of a handicap, both from the excesses of the Clinton era and the damage done to the economy from the 9/11 attacks and their aftermath.

That’s not to say that there wasn’t growth under Bush, even incredible growth. However (and this should come as no shock really, in view of his background), most all of it came in the oil patch. During the second great boom of the past 12 years or so, blue chip stocks “only” grew some 90%.

I put in those little “Air Quotes” because prior to Clinton, any president who presided over a 90% increase in stock prices would be immortalized in our pantheon of heroes. But energy prices – and oil stocks – did a heck of a lot better than that. As I mentioned earlier, gasoline gained some 282% from 2002 to 2008. And share prices for companies like Exxon Mobil (XOM:NYSE) and Chevron (CVX:NYSE) pretty much tripled.

And while we can ponder whether or not energy popped the tech bubble, I will state for a categorical fact that it is what tipped us into the banking abyss of 2008.

How Far Will He Let It Go?

So, what of the next cycle? We are once again seeing the same profligate destruction of the dollar that was employed by both Clinton and Bush. And I have no doubt that, eventually, we will see that habit lead to inflation that will end this rising cycle. But will we see the dichotomy between energy prices and stocks expand or reverse?

I have a hunch here. I don’t know this for a fact yet, but I would like to point out Mr. Obama’s predilection toward “strong central control.” (You know, the habits some are labeling “socialist.”) I suspect that the moment he feels that “his” economy is threatened, he will act to rein in the big oil giants, either through punitive redistribution via taxes, or via price controls.

Historically, we know that that sort of mucking about never works. But we also know that President Obama firmly believes that he is historically unique.

Heck, it wouldn’t even shock me if we engaged in some military adventurism in and around the global oil patch. Indeed, I should like to remind readers squealing that the Democrats are the “peace party,” that such efforts have happened far more often under democratic regimes.

War. Price controls. Rationing. Punitive taxes.

Ewwww!

Remember: You read it here first, folks.

Yours truly,

Adam