OIL IS NOT A FOUR LETTER WORD.

Oil prices are currently in the mid-$40’s. That’s good news in the short term for the consumer as we enjoy the lower gasoline prices. But because of these low oil prices and no predictability in this unstable market, domestic oil production and exploration will continue to dramatically decline. Simply stated, no viable business will develop and produce a product that sells for less than cost. As logically follows, as our development and production moves to sit on the sidelines, our reliance upon foreign oil will increase. Domestic energy jobs will decline and disperse. Our trade deficit will increase, our tax revenues will fall, and our budget deficit will increase to unsustainable levels. 

Simultaneously, we will continue to further amplify the threats to our security by pumping $trillions into the coffers of hostile nations. To combat this volatility, we will be forced to increase our defense and security budgets, which will in turn further deplete those funds available for education, infrastructure, veteran care, etc. 

With just a little common sense, it becomes obviously apparent that this “domino effect” extends to all facets of our existence. 

I believe there is a solution. To avoid boring you, I’m going to oversimplify it to some degree, but keep in mind that the best results often come from the simplest of remedies. “Right” doesn’t necessarily require that it be “complicated”. 

Here’s what our president and leaders should do:

Gather a coalition of our nation’s most expert minds in energy, accounting, and finance and ask this one very simple question. At what price per barrel, if “guaranteed” and “sustained” would be required to stimulate and perpetuate production and development?  A “guaranteed” price is essential to eliminate market speculation. A “sustained” price (which must be profitable and fair) and is required to insure a commitment that will endure in the long term. 

Once the dust settles and the gamesmanship ends to arrive at a “number”, I personally contend that this price will fall somewhere in the $65 to $70 price range (with obvious adjustments as to “GRADE”, etc.). But let’s keep it simple for now and call it $70.00 per barrel. 

At that point, we would establish a guaranteed market for all domestically produced oil. All oil produced within the US would be sold and used within the US until we were capable of satisfying 100% of our domestic needs. If production ultimately exceeds domestic consumption, that excess could be sold on the global market at global market prices… but not until.  Likewise, no foreign oil, regardless of price, can be consumed without first exhausting all domestic production. 

With a stable price and a guaranteed market, I firmly believe that we would be permanently energy independent within 5 years. The effects therefrom are immeasurably positive. Nearly 60% of our domestic trade deficit would be eliminated thereby retaining $400-500 billion a year within our economy. That alone would produce no less than 4 million new jobs. Simultaneously, we would be removing a large portion of that same amount from the coffers of “unfriendly nations”. This will remove a lot of financing from hostile factions. As they weaken significantly, the stress on our defense systems will decrease. As should follow, this will give financial relief to our domestic budgets and/or re-channel funds from defense to domestic enhancements such as education and infrastructure. 

The list of “positives” goes on and on, and the synergy of benefits is virtually immeasurable (and undeniable). 

So, what’s the catch? This just seems too easy. 

First let me say that I personally am a “total believer” in capitalism. I am probably the last guy who would ever recommend government intervention in the free market system. But in this case, I take exception and here’s why.

I believe that the limited and vital natural resources of our country belong to the people of this nation. Those who harvest them on our behalf should be rewarded for their abilities and risk, but only to a reasonable degree. And on that note, I think that they would wholeheartedly agree. But, there’s been a lot of exploiting going on by a lot of different players (few of whom put our nation’s interests first). The security of our nation and the long-term well being of our economy is largely dependent upon a commodity that can be (and has been) manipulated in ways that are self-serving and destructive. 

Capitalism is a great thing, but it must be viewed in the same vein as freedom. All’s well and good unless the exercise thereof unduly infringes upon or adversely influences the rights of others. And as much as I hate to admit it, this is one time where our government must step in and take bold measures.

How about you? Are you willing to live with $2.40 gasoline? That’s what many experts predict the price would be with a stabilized oil price of $70.00 per barrel.  Seems like a small price to pay when you step back and look at the big picture.

Sincerely,

Scott Sangalli

Wanted Dead or Alive

Last week we ventured Outside the Box when discussing energy independence and its affect upon on economic stability and national security.

Let’s stay Out of the Box and look at the cost of and how we approach war, as we know it today.

The cost of the Iraq and Afghan conflicts is a subject of great debate. Estimates from leading research agencies vary from $2 trillion to $6 trillion and above.  Note: these numbers do not include significant expenditures by our allies. Regardless, pick a number somewhere in between… say $4 trillion.

Those same leading research firms also estimate the number of enemy combatants that we killed. Those figures range from 20,000 to 60,000. Granted, the total death toll is much higher than herein reported, but the majority of casualties were non-combatant civilians. For our purposes, let’s assume we killed 50,000 enemy soldiers.

Now grab a big calculator and prepare to be amazed at "what we got" for our money -  not to mention the incalculable price paid in blood by our brave fighting forces.

The Math: $4 trillion divided by 50,000 equals $80 million. That’s right! The average cost per kill (or capture) is $80 million (at the very minimum)! To make matters worse, the problem still persists. Terrorism is as strong as ever.

The only hope of success is for the peoples of the Middle East to defend themselves. But have we been successful in that charge? Of course not. We have failed miserably. They remain defenseless, inadequately armed, unorganized, and living in constant fear. 

But what if the allied coalition (US, Great Britain, Australia, Canada, et al) simply started by putting a big bounty on the head of each enemy combatant? Do you think that many ISIS members would knowingly show their faces (bearing a $2 million, wanted Dead-or-Alive price tag) to an angry, armed and motivated populace? Membership in Club ISIS would unravel faster than a Barack Obama promise.

Arm the people, train them, and pay them. In short order ISIS will do all of the following: turn upon themselves, retreat into seclusion, and disband. This mess would be over in no time. The same could be applied to any and all terrorist organizations.

I can hear the nay sayers now. "Oh golly gee, that wouldn't follow the rules of the Geneva Convention". My response to that is "when they start playing by the rules, we'll start playing by the rules". In the meantime, it's simply "Wanted - Dead or Alive".

Think about it!

As always, your thoughts are welcome.

Scott Sangalli

The Great Divide

scott@sangalli-inc.com

Outside the Box

Did you watch the news last week? If not, you didn't miss a thing that you haven't seen fifty times before. In D.C., the “March of the Idiots” continued their parade of blame and deception, and we heard the same speeches that go back to the age of VCR. 

The two hot topics were Putin-Syria-ISIS and Gun Control. Let’s save “guns” for another day and talk about what’s going on with Russia and the Middle East. 

Let me write a “pretend” letter. 

Dear Mr. Kerry and Mr. Obama,

Russia isn’t listening to a word you’re saying. You’re amusing them. They are laughing at you. You’re making us all look like fools. Please Stop it!

Sincerely,

Scott Sangalli

So if “talk” won't work, what will? What works 99.9% of the time? What is the source of all power grabs, political aggression, and social injustice?

Answer: MONEY

So, if Obama’s “diplomacy” (which is another word for “I don't know what to do”) isn't working, how do we use money?

To understand where I’m about to go, you’re going to have to venture from your “comfort zone”. In fact, I had to jump way outside of my “minimal-government, conservative box”. Once I was able to do so, all of the pieces fell into place for all of the right reasons.

I would like to say that my idea is novel, but what I am about to propose virtually mirrors a letter that I wrote to our president in 2004.  Isn't it funny how some things never change?

Here we go. Hang on. 

To get started requires that we have to make some basic and underlying assumptions.

1. Putin and Russia have to fund the cost of their aggressions.
2. Russia’s overwhelming source of income is from oil production.
3. ISIS, Iran, and terrorist aggression cannot be funded without money.
4. The money funding ISIS and other terror groups is derived almost entirely from oil.

Get the picture? 

Oil prices are low right now and American’s are loving the lower gasoline prices. But, prices will go up at some point because the current market is below the sustainable cost of production. No “new wells” will lead to a diminished supply which will lead to higher prices (ECON 101, Chapter 1, Page 1).

So here’s the plan:

Gather the major oil producers (both independent and publicly owned) in one room. Lock the doors. Bring in a handful our best economists and accountants.

Pose the question: At what price (per barrel) , if guaranteed and indeterminably sustained, would be a “fair price” for you to fully develop our oil resources within these United States? Of course, they’ll start high but that’s why the accountants are there - to keep ‘em honest. When the dust settles, my guess is that everyone would walk away content with prices between $70 and $75 per barrel. Without getting mired down in the details of “inflation clauses”, etc, I believe that an agreement could be reached. (At the risk of saying the obvious, if world markets exceed the agreed price, only that oil not consumed in the USA would become available for export.) 

Here’s the goal. Create a price structure that would entice the oil companies to expand our production so that we would be energy independent within 5 years. As such, our consumption of and reliance upon non-domestic oil would decline and ultimately disappear. And then without question OPEC will continue to manipulate the markets to avoid collapsing prices. However, our economy would no longer be at their mercy. “Stability” is a critical component of economic health. When essential elements of an economy are highly volatile, anything can happen (and it’s usually bad). 

One might argue that the current below-market gasoline prices would go away. Perhaps so, but so would $6.00 gasoline. The fact is that today’s low prices are temporary. Under this plan a gallon of gas would stabilize at or around $2.50 - with only minor escalations each year thereafter. 

And if there is a temporary side effect, the long-term benefits are astronomical in comparison. Adding $300 billion per year to our economy would create over 3-million jobs. We would keep countless $billions out of the hands of our terrorist enemies. The stock market would stabilize and be far less subject to emotion and manipulation. Best of all, other oil-producing nations might follow our lead thus further shrinking world demand. None of which is good news for Putin and his one-trick-pony, mother Russia.

In the interest of brevity, this is only a “thumbnail” sketch and worthy of much more discussion. But hopefully I’ve got you thinking.

I will offer this in conclusion. If you’re like me and having trouble with the thought of our government regulating oil prices, then Get Outside the Box (briefly). I consider oil, water, and our essential natural resources to be property of the people - not the government’s, nor that of multi-national corporations. This plan prohibits the exploitation of these resources and guarantees the maximum benefit attainable to those who truly own those resources  - We The People. 

Any questions? Contact me at Scott@Sangalli-Inc.com

Sincerely,

Scott Sangalli

Raging Elephants Radio

http://www.ragingelephantsradio.com

 Scott Sangalli 

on Raging Elephant Radio 

TODAY @3:00 pm central time.

 Scott will be the guest of Apostle Claver Kamau-Imani, President & CEO, Broadcast Activist talking about this blog, Texas business, National business, politics and more. Claver's show starts at 2:00 central. 

Apostle Claver Kamau-Imani, President & CEO, Broadcast Activist 

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Trophic Cascades

The attached video explains Keystone species and Trophic Cascades. It is a fascinating testimony to the importance of biodiversity to ecological balance. Most importantly it exemplifies the premise that everything within a “defined universe” is connected with varying degrees of strength and influence. Conservationists are becoming much more in tune with these dynamics and retooling some very outdated myths and misconceptions. 

I enjoy the study of economics, particularly the writings of Ludwig Von Mises, Friedrich Hayek, and Milton Friedman. They have written works that I consider “pure genius”. And yet, I don't think there’s any example that teaches us about economics better than this short video about nature. 

In my article titled “Snake Oil” I spoke of balance, cause and effect. In this video titled “Trophic Cascades” the removal of “risk” (wolves) caused a species (deer) to unnaturally proliferate. Over time, the deer would have physically and mentally atrophied to a point of extinction. In that process, and in fairly short order, they would have destroyed most of that to which they were ecologically related.

I hear so much talk today about the greedy and evil 1-percenters. Granted, within this small group there are some “bad guys”, but in general they are law-abiding, generous, and play by the rules that our political system dictates. They typically have two overpowering allegiances: their stockholders and their employees (in varying order). Isn’t it funny how an executive responsible for 50,000 shareholders and 100,000 employees who makes $10 million in salary and bonuses is evil. No one ever criticizes the actor being paid $20 million for a movie, or the athletes with average performances getting 5-year, $60 million contracts. No one seems upset that Jay-Z makes hundreds of $millions on a product that most consider disgusting.

The Great American Wolf

Be careful about jumping on the bandwagon to “exterminate the wolves”. The effect thereof could be far more devastating than you could ever imagine, especially if you’re one of the the “deer”.   

Next time, we’ll be talking about money.… who has it and what they do with it.

As always, your comments are welcome.

Scott Sangalli

Snake Oil

Snake oil is an expression that originally referred to fraudulent health products or unproven medicine but has come to refer to any product with questionable or unverifiable quality or benefit. By extension, a snake oil salesman is someone who knowingly sells fraudulent goods or who is themselves a fraud, quack, charlatan, or the like.

Let’s start out with two of my favorite axioms in life:

1. Virtually all politicians embrace, if not “live by”, the adage that “it’s easier to get forgiveness than permission”. (I must confess that as a kid, this worked pretty well with Mom, but rarely, or really ever, with Dad.) 
2. For every action there’s an opposite and equal reaction.

Now, have you noticed that the political rhetoric du jour always mirrors the media’s previous day’s breaking news. They are called “talking points”.  We are expertly guided to believe that the sky is about to fall and that the cause thereof just happened. One day we’re talking about climate change and ice that’s supposed to be melting, a heat wave in Arizona, a cold wave in Wisconsin, fewer minnows this year in some remote mud puddle, or too many mosquitoes in Minnesota. But we wake up the next day and the sky is still there. So we move on to student loans and how our poor kids are indenturing themselves for life just to pay for that 6-year advanced degree in the Evolution of Post-Depression Urban Expressionism. How will Jimmie and Sarah survive? They are doomed. How will our economy survive? How can we live with this terrible tragedy? We must do something now… right now!

Last week, everyone was in a tizzy because Oreo Cookies was opening a plant in Mexico, something Donald said, the apparent shortage of transgender bathrooms, the name of a football team....and so on and so on. 

But rest assured… there’s always a politician on his white horse galloping to our rescue. First and foremost he’ll always start by telling us that it’s the other political party’s fault. Next he’ll tell us that he’s been warning everyone about this for years. And lastly and most importantly, he’ll promise that once in office, this problem will become his first priority. 

However, once elected, his priorities will move on to a matter far more important and pressing - his next reelection. And though he knowingly lied, he has mastered the art of Axiom #1. More than likely (as evidenced by history) we will reelect him. Why? Because he knows something dark and sinister about us that we refuse to admit. He knows that there’s this little secret thing that we fear far more than we fear a liar. It’s called CHANGE. 

Most of us know that today’s urgent issues didn’t just appear. They’ve been brewing for years, if not decades. We know also that 95% of these problems were created and/or magnified by politicians who were eager to pour a quick dose of their snake oil on the “hot topic” du jour. 

The size and scope of a problem is almost always directly proportional to the term of its existence. To reiterate, big problems rarely spring up during the night. Sadly though, enduring solutions often take much longer than anticipated because of Axiom #2. Real solutions come with a big price, a lot of time, and assuredly with unintended consequences. The remedy, as did the problem, will evolve slowly; and only if that remedy is administered with caution, patience, and for the right reasons. 

Any politician who professes anything different is pandering to your fear. And without remorse, he will knowingly, if not deliberately, fail to keep his promises. But he lives his life by Axiom #1... his “Liquid Paper” of life and career (so to speak). 

Do not confuse action with progress. In my business career, I had a few guidelines that rarely, if ever, failed me. So often I would see my managers feverishly putting out fires. Their boundless energy was stimulating, but despite their efforts, something was always ablaze. Why? Because most fires can be extinguished in fairly short order. The key, though, is to insure that the fire doesn't rekindle. Therein resides where the majority of diligence is needed. Finding out how the fire started, when and why it started, and ultimately who's carrying the "matches" is rarely, if ever, a quick and easy process, However, it's mandatory. Quick fixes never work. 

Big problems are big for a reason. They always have a distinct life and history of their own, and they  didn't get big overnight. Consequently, solutions to big problems require great patience because the components of the cure must be dispensed in slow and measurable doses. Realistically, and expectedly, each corrective application will typically morph into consequences unforeseen.  (I am reminded of Shultz's Law which simply states that "Murphy is an optimist"). 

Unmonitored and uncorrected, inattention can be catastrophic, regardless of intention. Axiom #2 is a physical law of nature, but it is important to note that the reaction, though anticipated, will not necessarily be that which was intended. Also note that for each reaction there is a re-reaction, and on and on. 

When learning to fly an airplane, it is very easy to unknowingly veer off course. Good instructors understand this and within the rules of safety they’ll let you dig a “nice hole”. Eventually patience will expire and the instructor will issue a no-nonsense reprimand. Upon realizing the error, the typical student-pilot’s reaction is a quick jerk on the yoke and/or a stomp on the rudder. This novice knee-jerk reaction(s) is then immediately followed by “ass chewing” number two. 

But over time you learn to make course corrections with thoughtful deliberation and in small, if not slight, increments. In so doing you are mastering the critical component within the only reliable form of “problem solving”. The process of assessing the effectiveness (both good and bad) of each administered dose must be accomplished throughout the entire process. In the short term, this approach will take much longer and it won’t be as easy. But over time, this methodology will invariably prevail because the solution is lasting. Most importantly, by removing the danger from CHANGE, we are able to eliminate the fear of CHANGE.

Where does all of the above leave us? Know this.... any politician mounted atop his lofty steed and waving a one-size-fits-all instant solution in one hand usually has a bottle of snake oil in the other. Don’t fall for it. Do your homework. Learn the true history (and both sides) of the issue…i.e. when, who, how, and why. Only then can you assess the thoughtfulness (or lack thereof) of the pundit’s remedy. Make the effort and in no time at all, you’ll become a snake oil hound dog. 

On Thursday, I will attach a fascinating video that exemplifies all of the above and more. It’s fairly short, well scripted, and beautiful to watch. 

These are serious times. We can make a difference only if we are “informed” voters. Isn’t that the very least we can do? 

Your comments are always welcome. Thanks for listening.

Scott Sangalli

The Great Divide's Opening Day

The Great Divide

In less than fourteen short months we will be required to elect a new president, and re-elect or replace 435 members of the House and 34 Senators. Business as usual, right? Not really. The faces in the House and Senate will look much the same on the day after the election as they did the day before. But… there will be a new president, and a new agenda, and a new direction. That’s “big stuff” and shouldn’t be taken lightly. 

Though the finish line in Washington is miles away, the races are in full swing. And in my 65 short years, I cannot recall when the philosophical lines of division were so far from each other. But, that’s not the Great Divide to which the title is referring. The driving “Divide” is the mental makeup, involvement, and energy of the voters. And why is it important to understand this? Great businesses all do one thing very well. They know their customers. They know where they live, what they eat, where and when they shop, how often they go to church, and how many dogs they have. 

Politicians suffer under the delusion that their individual messages are so overwhelmingly powerful as to make their brand appealing to virtually everyone. Of course, successful businesses are always looking for new customers, but the first commandment is to keep the customers you have. Repeat business is lifeblood. 

Ok, let’s apply this politically. The Great Divide refers to the two distinct types of individuals that compose the American populace. Understand that there are “degrees” of separation relative to individuals within each class, but for simplicity, let’s start out slowly and look at a very big picture. Later we can address the finer points of segregation and a more pinpoint market approach, but for now let’s paint some very broad strokes.

Disclaimer: Before I begin offending my readers by categorizing you into one of two categories, let me say that I have no disdain for either side. Life is a balance and in this case, one side cannot exist without the other. Both serve an equal purpose in the grand scheme. Also note that in this first “macro” approach, I am not talking about anything other than “mindset”. Wealth and/or success, ethnicity, gender, education, religion, occupation, etc. are all subsets within the two groups and relate to the “pinpoint market” approach. Today, we’re just laying the groundwork for future discussions.

Group 1: Mountain Climbers

These people don’t really like working for someone else, though most do. They are the risk takers. In their hearts they would prefer to run their own show. They are confident in their individual abilities and though most aren’t business owners, they have graduated to positions that largely satisfy their need for personal independence. And for those within this group who are temporarily stalled and haven't obtained a station of independence, their quest to obtain such never ceases. 

The Mountain Climbers are easy to spot. They cautiously embrace change and won’t run from it without a good “look and see”. They value their own opinions (and typically have them), and rarely do they believe that anyone’s opinion is better than their’s. They are comfortable and confident making decisions and abhor being excluded from the process. As a note, any good businessman knows that to retain these people, you have to give them “rope” and an opportunity to reach the status to which they aspire. 

Group 2: Long-Distance Runners

These are  the “Steady Eddies”. They are very good at knowing their limits and do best when allowed to function within very clear boundaries. If something appears to be working reasonably well or has existed for a long period without any major catastrophe, they are not about to fix it. “Change” is out of the question without absolute guarantees. Conformity is also very appealing though they can be led “by example”. They don’t really relish the big-decision process and are comfortable relenting authority to others. 

The Long Distance Runners have a great sense of justice and a utopian desire for tranquility. They limit their scope of involvement to that which is comfortable. They occupy a significant portion of many companies’ workforces as they flourish at much-needed jobs that require consistent repetition. Those businesses that recognize their value do well as long they don’t violate this group’s perception of fair play.

In the above two groups, there is very little crossover. And certainly there has yet to be a politician powerful enough, or smart enough to change the DNA of the public. Yet they all try. In the meantime, they violate the first commandment of business. They loose existing customers.

On election day in 2012, Mitt Romney was unable to garner slightly more that 60 percent of his existing customer base. He lost the election by a couple points when more than a third of his professed team stayed on the bench.

Ford and GMC don’t target the marketing of their trucks to the families who currently own a Volvo SUV with aspirations of buying a Tesla. Yet today’s politician thinks that everyone wants to buy what they’re selling.  It’s a terrible mistake and destined to fail.

Think about it.

More later,

Scott Sangalli