Volatility and Mexico's Mess. Free Markets Actually Do Work.
The world has become a very uncertain place for many over the last decade. For others it has become a booming economic opportunity. So, do you believe the world's events are completely random or are you starting to have an appreciation that enhanced volatility might be a cyclical phenomenon? Not that volatility ever disappears. If you do believe events are completely random and there is no such animal as a cycle of heightened volatility, you might change your mind before this cycle ends.
This is an amazing revelation by Mexican officials. Not because of the situation but because they would actually make such a public admission of incompetence and what appears to be the beginnings of a plea for help. Mexico's oil industry appears to be in a bit of a serious pinch. Decades of mismanagement leave the potential for an economic or financial crisis or both that is exacerbated by Mexico's continued corruption and refusal to embrace free market reforms. It seems the majority of the world's oil is under the jack boot of tyranny. And, much more of it is in countries such as Mexico where the energy assets have been nationalized.
Nationalization of energy assets for the benefit of society is a noble thought but a poor business model on so many levels. As an aside, if I were to ever believe any significant fundamentals based argument about why oil prices are this high, I could much more easily believe it is because the vast majority of oil producing nations are mismanaging their assets and don't have access to the energy market's best technology. This is much more plausible than the concept of peak oil. And given that people with no expertise in the scientific exploration of oil or geology or any other scientific expertise are on the side of peak oil, the argument of declining investment and lack of expertise is more plausible. Peak oil is a repeatable offense by end-of-the-world types looking for validation. It is a concept that has been repeated so many times in so many forms throughout history that it's almost laughable. First it was wood, then whale oil, then coal and now oil for the umteenth time. An argument supported by fuzzy science. Declining production as we see in Mexico has nothing to do with what's in the ground. And, I have never seen an executive at a major oil company or country state anything other than there is plenty of oil. Of course, I could put forth abiotic oil as a counter argument to peak oil and produce quite a bit of supporting data as well. Not that I have any opinion on the abiotic oil theory. All of this said, oil is still a bubble. Price/demand characteristics might have led to a substantial rise in oil post 2000 but the massive premium we are seeing is purely speculation. I still believe longer term support for oil is in the mid $30s.
Now, Mexico is an unusual nation. According to the Gini coefficient, it has the highest income inequality on earth. Gini data and income inequality can be very misleading and often manipulated to prove nearly any point, most specifically to further class warfare politics in the U.S., but in Mexico a few dozen families have controlled nearly half of the country's wealth for what seems to be forever. Mexico is the western hemisphere's version of the modern day caste system. Those same wealthy families also have undue influence on the government. So, we never see true reform or opportunity created for the masses because the Haves aren't about to adopt altruism as their prime motivator. It's the same reason why I have said the Chinese communists are not going to institute democratic ideals without strife or revolution. Even though, in the end, opportunity for all would actually improve greatly if the Have-nots were given economic opportunity through the institution of free market reforms, democratic ideals and by breaking up monopolies in Mexico. But, we aren't talking about logic. We are talking about human nature, greed and control. So, instead every hard working Mexican citizen suffering economic despair wants to come to the U.S. where their work will be rewarded with opportunity for their children and families. Just as some of my relatives who illegally stowed away on vessels from Germany. I suppose I'm an illegal alien too. Of course, that was at a time when everyone was accepted at our borders. The mindset on immigration around the developed world has changed drastically since then. Partly because social programs would bury unregulated immigration. The mindset on immigration, whether you are for it or against it, is in part a very real sign of economic fear and uncertainty and a lack of confidence in government's fair enforcement of laws and trade policies. In the U.S., it's part of the same lack of confidence in capital markets and Washington politics created by Washington's lack of SEC enforcement, lack of sound financial regulation and laissez-faire view on financial politics amongst other factors.
I know that Venezuela is experiencing the same problems with their energy complex as Mexico under the leadership of self appointed savior incarnate and narcissistic extraordinaire Hugo Chavez. I'm sure that corruption, greed, narcissism or any of the other characteristics of a dictator don't apply to him. Yet, it was poverty and corruption which sowed the seeds of despair allowing such a personality to come to power as, again, we have seen over and over again in history. We get some indication of the persona of Chavez given he wants to change the constitution to stay in power forever. Of course, to impart his brilliance and his version of what is fair for all people. Oh, and to live in the "Big House". I can't wait for an American czar to look out for my best interests. Remember those times in history when free countries were ruled by those seeking power rather than by self rule? It's such a fond memory now isn't it?
It is at times like these that many want to hate or bash capitalism. Sometimes it appears to be grounded with little morality. Not always but since the Wall Street persona has infiltrated the mindset of the economy, at times like these free market capitalism seems wrong to many. And, parts of the system are not working properly. The good news is that is going to change. The story of Mexico's oil industry is what socialism and state control gets you. It gets you incompetence, a lack of focus, poor execution, self reinforcing negative behavior, corruption, declining wealth and a host of other problems. And those are the good problems. Mexico isn't running out of oil, it's suffering due to lack of investment, corruption and incompetence. This should be a warning sign to all countries that have or are nationalizing assets. As we have seen time and again, it simply doesn't work all that well. Or, more often than not, it eventually doesn't work at all.
Where would Mexico be today if it had kept its energy markets open to competition and direct investment? It would be..........Canada. The same place they would be if they had liberalized their economic markets for the benefit of their citizens. Mexico doesn't need to turn over their national oil wealth to private business bringing technology and expertise. Those types of debates, that led to nationalization in the first place, are emotional grabs for power by control hungry politicians. Just like Chavez. They simply need to have a rational policy to tax the free market investments for the benefit of the nation as a whole like.........Canada. That might be shared oil revenues, a tax on oil revenues or a host of other options. Instead, Mexico remains disproportionately reliant on the good graces of its neighbors to the north for investment, economic vitality, income, solvency, money sent across the border by its citizens and bailouts. This time, we might have to bail ourselves out so Mexico needs to step up to the plate and take a swing for reform and free markets. Of course, they could continue to do nothing and fall further into the abyss of irrelevance and remain the cheap labor market for U.S. companies. Could that be why American politicians really never insist on reforms in Mexico? Cheap labor for the politics of corporatism? Would someone tell me how dumbing down the population for cheap labor is a long term creator of wealth? That applies to any nation including the U.S.
This is an amazing revelation by Mexican officials. Not because of the situation but because they would actually make such a public admission of incompetence and what appears to be the beginnings of a plea for help. Mexico's oil industry appears to be in a bit of a serious pinch. Decades of mismanagement leave the potential for an economic or financial crisis or both that is exacerbated by Mexico's continued corruption and refusal to embrace free market reforms. It seems the majority of the world's oil is under the jack boot of tyranny. And, much more of it is in countries such as Mexico where the energy assets have been nationalized.
Nationalization of energy assets for the benefit of society is a noble thought but a poor business model on so many levels. As an aside, if I were to ever believe any significant fundamentals based argument about why oil prices are this high, I could much more easily believe it is because the vast majority of oil producing nations are mismanaging their assets and don't have access to the energy market's best technology. This is much more plausible than the concept of peak oil. And given that people with no expertise in the scientific exploration of oil or geology or any other scientific expertise are on the side of peak oil, the argument of declining investment and lack of expertise is more plausible. Peak oil is a repeatable offense by end-of-the-world types looking for validation. It is a concept that has been repeated so many times in so many forms throughout history that it's almost laughable. First it was wood, then whale oil, then coal and now oil for the umteenth time. An argument supported by fuzzy science. Declining production as we see in Mexico has nothing to do with what's in the ground. And, I have never seen an executive at a major oil company or country state anything other than there is plenty of oil. Of course, I could put forth abiotic oil as a counter argument to peak oil and produce quite a bit of supporting data as well. Not that I have any opinion on the abiotic oil theory. All of this said, oil is still a bubble. Price/demand characteristics might have led to a substantial rise in oil post 2000 but the massive premium we are seeing is purely speculation. I still believe longer term support for oil is in the mid $30s.
Now, Mexico is an unusual nation. According to the Gini coefficient, it has the highest income inequality on earth. Gini data and income inequality can be very misleading and often manipulated to prove nearly any point, most specifically to further class warfare politics in the U.S., but in Mexico a few dozen families have controlled nearly half of the country's wealth for what seems to be forever. Mexico is the western hemisphere's version of the modern day caste system. Those same wealthy families also have undue influence on the government. So, we never see true reform or opportunity created for the masses because the Haves aren't about to adopt altruism as their prime motivator. It's the same reason why I have said the Chinese communists are not going to institute democratic ideals without strife or revolution. Even though, in the end, opportunity for all would actually improve greatly if the Have-nots were given economic opportunity through the institution of free market reforms, democratic ideals and by breaking up monopolies in Mexico. But, we aren't talking about logic. We are talking about human nature, greed and control. So, instead every hard working Mexican citizen suffering economic despair wants to come to the U.S. where their work will be rewarded with opportunity for their children and families. Just as some of my relatives who illegally stowed away on vessels from Germany. I suppose I'm an illegal alien too. Of course, that was at a time when everyone was accepted at our borders. The mindset on immigration around the developed world has changed drastically since then. Partly because social programs would bury unregulated immigration. The mindset on immigration, whether you are for it or against it, is in part a very real sign of economic fear and uncertainty and a lack of confidence in government's fair enforcement of laws and trade policies. In the U.S., it's part of the same lack of confidence in capital markets and Washington politics created by Washington's lack of SEC enforcement, lack of sound financial regulation and laissez-faire view on financial politics amongst other factors.
I know that Venezuela is experiencing the same problems with their energy complex as Mexico under the leadership of self appointed savior incarnate and narcissistic extraordinaire Hugo Chavez. I'm sure that corruption, greed, narcissism or any of the other characteristics of a dictator don't apply to him. Yet, it was poverty and corruption which sowed the seeds of despair allowing such a personality to come to power as, again, we have seen over and over again in history. We get some indication of the persona of Chavez given he wants to change the constitution to stay in power forever. Of course, to impart his brilliance and his version of what is fair for all people. Oh, and to live in the "Big House". I can't wait for an American czar to look out for my best interests. Remember those times in history when free countries were ruled by those seeking power rather than by self rule? It's such a fond memory now isn't it?
It is at times like these that many want to hate or bash capitalism. Sometimes it appears to be grounded with little morality. Not always but since the Wall Street persona has infiltrated the mindset of the economy, at times like these free market capitalism seems wrong to many. And, parts of the system are not working properly. The good news is that is going to change. The story of Mexico's oil industry is what socialism and state control gets you. It gets you incompetence, a lack of focus, poor execution, self reinforcing negative behavior, corruption, declining wealth and a host of other problems. And those are the good problems. Mexico isn't running out of oil, it's suffering due to lack of investment, corruption and incompetence. This should be a warning sign to all countries that have or are nationalizing assets. As we have seen time and again, it simply doesn't work all that well. Or, more often than not, it eventually doesn't work at all.
Where would Mexico be today if it had kept its energy markets open to competition and direct investment? It would be..........Canada. The same place they would be if they had liberalized their economic markets for the benefit of their citizens. Mexico doesn't need to turn over their national oil wealth to private business bringing technology and expertise. Those types of debates, that led to nationalization in the first place, are emotional grabs for power by control hungry politicians. Just like Chavez. They simply need to have a rational policy to tax the free market investments for the benefit of the nation as a whole like.........Canada. That might be shared oil revenues, a tax on oil revenues or a host of other options. Instead, Mexico remains disproportionately reliant on the good graces of its neighbors to the north for investment, economic vitality, income, solvency, money sent across the border by its citizens and bailouts. This time, we might have to bail ourselves out so Mexico needs to step up to the plate and take a swing for reform and free markets. Of course, they could continue to do nothing and fall further into the abyss of irrelevance and remain the cheap labor market for U.S. companies. Could that be why American politicians really never insist on reforms in Mexico? Cheap labor for the politics of corporatism? Would someone tell me how dumbing down the population for cheap labor is a long term creator of wealth? That applies to any nation including the U.S.
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