San Juan Mountains

San Juan Mountains
San Juan Mountains: Grenadier Range

Friday, December 18, 2015

Mind Your Own Business

Over the years I have coined a phrase that describes the social tension that is created when people interject themselves into the lives of others unnecessarily.  Due to the tremendous emotional insecurity that exists in most people who populate this earth, most folks spend an inordinate amount of time trying to control the people around them so as to attempt to order things in such a way that they can feel good about themselves.  Inevitably the controlling and demanding activities of one insecure person will impinge upon the controlling and demanding activities of another insecure person and a conflict will erupt.  Even those who have no desire to control others can be sucked into these conflicts if they are not careful to run from them the moment they realize what is happening.  The phrase I use to describe these tense social situations is "elective grief."
Elective grief is grief that does not have to come into existence.  There are lots of things to grieve about in this world that are unavoidable.  The death of a loved one, the apostasy of a person who was once a fellow believer, the murderous hatefulness displayed by most people as they go about their daily lives, the worship of the Beast (civil government in the Socialist Democracy of Amerika) and its henchmen (soldiers and police) and the preponderance of complete and total selfishness displayed by our fellow man are all just and reasonable occasions for grief.  Elective grief, in contrast, only comes into existence because someone sticks his nose into someone else's business when he has no right or duty to do so.
Most family conflicts are the result of elective grief.  Families are perfect microcosms for selfish and insecure people to attempt to control everyone but themselves.  All of us are familiar with what I am writing about here today so I do not need to give lots of examples in support of my position.  How many family members argue, gossip and back-bite each other almost continually?  How many family reunions are dedicated to nothing but gossiping about each other while forming and joining familial cliques that support the various factions?  All of that grief is unnecessary but it makes up, for many people, the greatest proportion of the grief they experience in their lives.  This truth about families has caused me to create a life principle that I endeavor to follow. That principle is, "If I would not have anything to do with this person if he/she were not a family member, why am I having anything to do with him/her now?"  Other than my biblical duty to my parents, now eliminated since both are dead, I have no moral duty to be involved in the lives of any of the members of my family.  Fortunately, I have a very good family, both natural and my "in-laws" and I have not had to exercise this principle with any of them.
I have found that one of the keys to social and relational harmony is to mind my own business.  It is astounding how many things never come up when I mind my own business.  It is impossible to number how many inter-personal conflicts have never occurred because I minded my own business, but I bet it is in the thousands.  If everyone committed himself to minding his own business I dare say we could eliminate elective grief over night.  That, of course, is never going to happen, but it is a nice thing to consider.  Just imagine a world without anyone trying to control the behavior of anyone else.  Just imagine a world in which people keep their opinions to themselves.  Just imagine a world in which everyone minds his own business.  It would almost be heaven on earth.
A friend and reader of this blog sent me a link to a website, found here, on which people list their "pet peeves."  Now a pet peeve need not necessarily be an example of someone trying to control the behavior of another, but many of them are.  It is fascinating how often I become annoyed with others and how rarely I become annoyed with myself.  The slightest and most inconsequential behavior that you do is enough to send me into a rage while I will tolerate the most heinous sinfulness in my own life.  I wonder why that is?  While I attempt to figure that one out, I think it has something to do with sin, I would like to consider some of the pet peeves found on that website, especially as they apply to elective grief. I don't know if the list of peeves is in any particular order.  I don't know if they are ranked by how many people hold to one or the other.  If they do I found it most interesting that the first one on the list is, "Drivers who do not use a turn signal."
I have had a theory about turn signal use for quite some time.  I am one of those who is accused of not using my turn signal properly.  Many people who have tried to follow me while caravaning to some destination or another get our of their vehicles quite annoyed with me when we arrive because I did not use a turn signal to their satisfaction.  I do not make the choice to not use a turn signal to be offensive, to draw attention to myself or to irritate others (sorry about that double negative).  My theory is that most people use their turn signals as a means to control others and that is why I will use mine only when it is necessary to convey information about my lawful intentions to another driver.  The Yuppies who live in my neighborhood only use their turn signals to indicate that they want to force their way into the line of traffic after moving quickly forward in another lane with the intention of forcing themselves in closer to the front.  These same Yuppies also use their turn signals as a weapon when they are seeking to merge into a lane of traffic.  Rather than following the rules of the road that place the responsibility for changing speeds in order to merge upon the driver who is merging, these selfish jerks use their turn signal to inform folks like me that I am to adjust my speed for them.  It seems pretty clear to me that most turn signal use, at least where I live, is offensive rather than informative in nature.  In other words, people use their turn signals to inform others that they expect a particular behavioral change in me that suits them.  That creates all sorts of elective grief as the drivers of the vehicles careen down the road raging each other.
The fifth peeve on the list mystifies me.  It is "Couples who sit on the same side of the booth when there is no one on the other side."  How in the world can it be bothersome to someone if my wife and I decide to sit on the same side of the booth, leaving the other side vacant?  How much must a person be minding the business of others to be offended by that completely inoffensive behavior?  Honestly, I can't fathom how sitting on the same side of the booth could be offensive to anyone.  Can you?
Fourteenth on the list is "People walking around in ridiculous 'fashionable' shoes that are clearly hurting their feet."  I can honestly say that I have never been offended or bothered in the slightest when I see some lady wearing a pair of shoes that are clearly doing damage to her feet and musculature.  It is her business, what does it matter to me?  I have chuckled to myself, under my breath, when I see those folks tottering along, barely able to stand up without falling over.   What does it take to make that a pet peeve except a perverse desire to control the behavior of others?  Live and let live, that is my motto.  Mind your own business, that is the Welsh way.
Here is another one I don't understand.  "Made up car names that are not even real words" is on the first page of the list.  What difference does it make what moniker a car manufacturer wishes to place on his product?  Who cares?  Why lose any sleep over it?  It is his car and he can call it whatever he wants to call it.  It is none of my business.  If I don't like the non-word he uses to describe his car I am free to buy something different but I hardly have any justification to be upset by his choice of terms.  
Here is another one related to driving, as so many are, "Drivers who will not turn right on red."  I think we are all familiar with this one.  There is a car in front of me and he has the opportunity to make a right turn on red but is unwilling to do so.  I also want to make a right turn on red and his delay could end up costing me a good fifteen to twenty seconds of my lifespan while I wait for the light to change.  That, of course, is totally unacceptable to the person who has committed himself to the practice of controlling the behavior of others.  So I honk my horn and make it very clear to him that I am quite dissatisfied with his behavior in this matter.  It never occurs to me that he might have a very good reason in his own mind for waiting for the light to turn green. It never occurs to me that he might be driving home from his wife's funeral.  It never occurs to me that he might have just been informed by his doctor that he has six months to live.  It never occurs to me that he might just be daydreaming, as we all do at times, and unaware of the situation.  All that matters to me is that he is not doing what I want him to do.
I used a double negative earlier in this post.  Using double negatives is on the list.  I wonder how many people I offended when I did so earlier?  All I can say if you were offended is, get over it, relax, mind your own business.
Here is a peeve that is near and dear to my heart, "People who ride their bikes in the road when a sidewalk is right there."  I must confess that I am one of those highly offensive people who rides his bike on the road.  I am faced with an interesting choice.  I can ride my bike on the sidewalk and offend the pedestrians or I can ride my bike on the road and offend the drivers.  I chose the option that the law allows me and I ride on the road, despite being raged by drivers who are seeking to control my behavior.
I could go on forever here.  Go to the website and see for yourself.  The last one is an example of something I heard on the radio while on my last road trip to Arizona.  I tuned in to the radio show of Laura Ingraham and she was talking about how irritated she gets when "people give their kids weird names."  She droned on incessantly, one of my pet peeves, at how stupid it is for parents to give their children names that are not traditional.  Traditional names, by the way, are Susan, Mary, Bob and George.  Given the fact that most of the weird names she cited are for people who are black, I was shocked she had the courage to say what she did since she was opening herself up to charges of racism.  I could not believe what I was hearing as she informed her listeners how offensive she finds it when people use non-traditional names for their kids.  All I could think was, Laura, you need to mind your own business. 

Thursday, December 17, 2015

After The Rate Hike....

As expected, the Fed raised short term interest rates by .25% yesterday.  The Prime Rate is now at 3.5%.  Big deal.  It is an utterly meaningless and totally symbolic gesture.  It will have little to no impact upon the mortgage market, which exists in the real world outside of total Fed control.  Such an insignificant increase in rates after they have sat at zero for so many years means essentially nothing economically.  That did not keep the financial gurus and economic pundits from proclaiming that it was the most momentous economic event of 2015 however.  Some, like investment adviser Marc Faber, said it would usher in financial Armageddon.  Others, like the infamous Jack Welch said that the Fed "had no other choice."  cnbc.com promoted the Fed announcement like it was the most significant economic event since the Great Recession.  I understand that all of these people and groups have self-interested axes to grind but come on people, use some common sense.
A good resource for developing common sense is history.  Observing what has happened in the past is a good way to prepare for things in the future.  It does not following that being aware of the past makes one capable of predicting the future.   It does follow that being aware of the past can make one avoid looking stupid by making really dumb predictions.
Let's begin by considering the economy.  It seems as if the popular wisdom is that when the Fed raises interest rates it chokes off economic growth and creates a recession.  Most people believe this nonsense, despite the fact it is child's play to prove it wrong.  Most people also believe the converse, that the Fed creates economic growth by cutting interest rates.  The fact that economic growth in the Socialist Democracy of Amerika remains less than robust despite the Fed Funds Rate sitting at zero percent for the past nine years does not deter people from believing that myth.  We are dealing with religious beliefs here and when it comes to the religion of state worship no amount of factual content can sway a true believer.  Both positions on the Fed's manipulation of the interest rate are patently absurd but today I am only focusing on the first.  Look at the chart below.  It tells the entire story.  "Fed Tightening" means raising interest rates.  If raising interest rates creates recessions why is it that the last five periods during which the Fed raised rates had an average length of time to the next recession of almost four years?  In 1994 the Fed doubled the rate of interest in a twelve month period.  It took over seven years before the next recession started.  I think we can put the notion that raising rates creates recessions to bed.



Although it is impossible to know exactly what motivates the short term mentalities of day traders in the stock market, much of the recent volatility has been attributed to one of two things.  Some believe the stock market corrected by 12% earlier this year because of the collapse in the price of oil.  Others believe that the stock market corrected by 12% earlier this year because of the anticipated Fed interest rate hike.  Both beliefs are economic nonsense but the economic understanding of most day traders is the equivalent of a five year old being instructed by a Keynesian indoctrinated government school teacher so we should not expect much from them.  The chart below shows what has happened to the Standard and Poor 500 stock market index after all interest rate hikes since 1946.

http://www.aaii.com/objects/get/171.gif
In all cases the stock market was higher six months after the first rate hike.  In all cases the stock market was even higher still twelve months after the rate hike.  The rate of growth in the stock market is somewhat lower than the average for all years after an interest rate increase whereas the rate of growth in the stock market is somewhat higher than average after an interest rate cut.  We must remember that correlation does not mean causation.  I suspect that there is some other emotional or economic factor in play here.  The mere fact that day traders ignorantly respond positively to cuts and negatively to increases could explain the difference.
The graphic below tells essentially the same story.  In all cases the average return is positive.  In no case does an interest rate increase cause the stock market to realize a negative return.  Indeed, one year after the Fed begins raising interest rates the average rate of return in the stock market is 12%, exactly equal to its historic long term average annual rate of return.  One could almost say that the interest rate shenanigans pulled by the Fed really do not impact the stock market, in the long term, at all.


Stocks have posted gains before and after the first rate hike.
So the hike is done and we are all still here.  The universe did not come to an end and all of the compulsive Fed watching that took place over the last year or so has proven to be a total waste of time.  I hope you didn't get caught up in it.  There were many more interesting things to do than watch the Fed.  Remember this little lesson from history the next time a cycle of obsessive Fed watching takes place.  When you see it happening go outside and take a walk.  That will be good for both your portfolio and your health.

Wednesday, December 16, 2015

MLB's Treatment Of Pete Rose Is Unconscionable

Major League Baseball's Commissioner, Rob Manfred, issued a statement yesterday in which he declared that Pete Rose's lifetime ban from all things associated with baseball will be upheld.  Pete had petitioned MLB to remove the ban from over his head and allow him back into the game at some level.  Rose was originally banned from baseball after admitting that he placed bets on the Cincinnati Reds to win baseball games while he was on the team as a player/manager.  This took place from 1985-87.
According to a story in the Associated Press written by Joe Kay and Ronald Blum, "In one of his first major actions, Manfred said in a four-page decision the career hits leader admitted he has kept on betting legally on horse racing and professional sports, including baseball."  Horror of horrors!  Pete Rose, since being banned from baseball for the rest of his life, has done what millions of other people have done over the past thirty years, he has placed bets on baseball and horse racing.  I had no idea that placing bets on baseball and horse racing was such a terrible sin.  I placed a bet on baseball once.  I took the "over" on the Rockies one year and put $20 on it.  I ended up winning and doubling my money.  Should I confess my sin to my fellow believers and seek forgiveness from Mr. Manfred for doing so?
The decision by the new commissioner of MLB is filled with self righteous proclamations that only reveal the depth of the hypocrisy that exists within that disgusting organization.  Here, in part, is what he wrote, "In short, Mr. Rose has not presented credible evidence of a reconfigured life either by an honest acceptance by him of his wrongdoing, or by a rigorous, self-aware and sustained program of avoidance by him of all the circumstances that led to his permanent ineligibility in 1989....Mr. Rose has never seriously sought treatment for attention deficit hyperactivity disorder and oppositional defiant behavior, conditions he said in his 2004 had afflicted him.  Mr. Rose's public and private comments, including his initial admission in 2004, provided me with little confidence that he has a mature understanding of his wrongful conduct, that he has accepted full responsibility for it, or that he understands the damage he has caused."
Are you kidding me?  Mr. Commissioner, please explain to me why Mr. Rose should be expected to stop betting after he was thrown out of baseball?  What possible difference does it make to you what he does in his spare time after he was banned from baseball forever?  Why, oh why, should Mr. Rose be expected to present "credible evidence" to you, of all people, that he is not involved in recreational betting on baseball and horses?  What possible difference could that make in any decision regarding his reinstatement to MLB?
Dragging out a couple of mythological mental illness that Pete allegedly suffers from does not aid the Commissioner in his case.  So what if Pete Rose is hyperactive.  So is Nolan Arenado, the all-star, gold glove, soon to be MVP third baseman of the Colorado Rockies.  That does not make him a disgrace to the game of baseball.  Indeed, it makes him who he is, just like Pete's hyperactivity made him into the all time hits leader in baseball.  And I love the diagnosis of "oppositional defiant behavior."  From the name I can tell that this "mental illness" is nothing more than the fact that somebody gets mad when some stupid person with power and authority abuses that power and authority to hurt him.  Not being angry with MLB for what it has done to Pete Rose would be the weirdly dysfunctional response.  Responding in anger and defiance makes perfect sense.  Maybe Pete should sue MLB for not reinstating him on the grounds that he is not responsible for his present and prior behavior because of his mental illnesses.
The most galling statement in the entire report is Manfred's allegation that Pete Rose caused "damage" to baseball.  I would like to know exactly what that damage was.  Was it his effort?  Was it his superb hitting? Was it the creation of legions of loyal fans?  Was it his love of the game that spurned him to play well into his 40s?  Was it his 4,256 career hits?  Was it the fact that he is the only player in major league history to have played over 500 games at five different positions?  Just what damage did Pete actually do?
I know some will say that he hurt the game by betting on his own team and, I will admit, that was a stupid and illegal thing to do.  But please note that Pete always bet on his team to win.  He never bet on his team to lose so it is not possible to accuse him of throwing games in order to win bets.  He bet on his team to win because he thought they would win.  I don't see why that is a bad thing, although it was against the rules of baseball and needed to be addressed by some sort of discipline, just not with a lifetime ban.
If we want to talk about harm done to baseball, let's talk about a few other fellows, shall we?  Barry Bonds holds the career home run record as well as the single season home run record of 73, set in 2001.  The only reason he holds those records is because he used steroids and other performance enhancing drugs for a large part of his career.  Bonds made a mockery of baseball by using drugs to aid him in his quest of the home run records and when confronted about his illegal drug use he routinely lied and accused others of being out to get him.  In addition Barry was a total jerk.  He was rude and insolent as perpetual steroid users often are.  Mr. Commissioner, please explain to me how Barry Bonds has not done more damage to baseball than Pete Rose ever did.  And while you are at it, please answer that same question for Barry's drug partners, Sammy Sosa and Mark McGuire.  Why are these men, or at least two of them, still gainfully employed by MLB teams?
Alex Rodriguez is another sterling example of someone who has done tremendous damage to baseball and yet is being ignored by the Commissioner, except to lavish him with praise.  A-Rod, as he is known, is a despicable human being who continues to be showered with praise yet who has done nothing but harm to the integrity of the baseball record books.  I have posted to this blog about A-Rod in the past and if you want to read his sordid story, go here.  
While I am on the topic of low-life maggots masquerading as human beings, have you considered this truth?  Major League Baseball's record on domestic abuse is worse than the NFL's.  Go read this article if you want to find a whole host of men who are still involved with baseball despite making the habit of whooping on their women.
And while I am on the topic of illegal behavior, why have the guys seen on this graphic not been banned from baseball (or the other sports shown here) for life? As of today the only other person on baseball's "banned for life" list is Marge Schott.  Some of you will recall she was the infamous owner of the Cincinnati Reds who once claimed that Hitler was a nice fellow who did a lot of good things, until he went too far, whatever that meant.

 
But let's not stop here.  Adultery is a crime so serious God commands the death penalty for those who commit it.  How many MLB baseball players have committed adultery?  In the eyes of God those men should be dead for their sins but baseball not only turns a blind eye to that truth, it pretends as if adultery is a total non-issue.  Now that is hypocrisy at its highest level. 
The refusal by the Commissioner of MLB to reinstate Pete Rose is one of the most outrageous acts of unconscionable hypocrisy that has ever been seen in professional sports.  There are hundreds, perhaps thousands, of people who have done incalculable damage to the reputation of MLB and they are all walking around today basking in the adulation of the public.  Meanwhile Rose, who has done no discernible damage to baseball at all, has received a lifetime ban and spends his life sitting in Caesar's Palace signing autographs to make a living.  Here is the Mad Welshman shaking his hand.


Pete Rose is not a criminal and he should not be banned from MLB.  Something is desperately wrong with MLB and it does not look like it is going to be fixed anytime in the future.  How sad it all is.

Tuesday, December 15, 2015

Annuities Are Terrible Investments

I am routinely approached by insurance agents who want to sell me annuities.  Do you know what an annuity is?  Let me give you a brief lesson.  An annuity is basically a life insurance contract in reverse.  With a life insurance contract the insurance company charges you a premium and only pays you off if you die.  With an annuity contract the insurance company charges you a premium and stops paying you off when you die.
There are two types of annuities:  variable and fixed.  Variable annuities are essentially stock mutual funds placed inside an insurance "shell" in order to get tax qualification for the assets contained therein.  That means the assets within the annuity can accumulate tax deferred, although they are taxed as ordinary income when distributed to the annuity owner later in life.  Fixed annuities are essentially bond funds and they pay a fixed rate of interest, depending upon what current interest rates are in the bond market.
Insurance companies are not prone to tell potential investors in either fixed or variable annuities that they are essentially just purchasing a stock or bond mutual fund.  Look at the chart below.  The "General-account assets" are those assets held by the insurance company that are used to pay the fixed rate of interest in their fixed annuities.  The "Separate-account assets" are those assets held by the insurance company that are used to pay the variable rate of return on their variable annuities.  As you can clearly see, the great majority of the assets (76%) in fixed annuities are invested in bonds and an even greater percentage of the total assets (80%) are invested in the stock market for the variable annuity contracts. 



Annuity salesmen, or at least those I have had the misfortune of coming into contact with, tend to present their annuity contracts as a safer alternative to the stock or bond markets.  As you can see, that presentation is false and misleading at best.  Both fixed and variable annuities are subject to the same market risks associated with the stock and bond markets that stock and bond mutual funds experience.  If you are thinking about purchasing a variable annuity to avoid or mitigate the risks associated with your stock mutual fund you are making a big mistake.  The risks are the same with both.
Annuities, however, are not just mutual funds that have tax qualification privileges associated with them.  In order to get the government to grant those special tax qualification privileges the annuity has to present itself as some sort of insurance product.  Creating an insurance product costs money, sometimes a lot of money.  According to this website, here are the average fees associated with owning a variable annuity:

"Variable annuities are not insurance products, they are actually securities. Money invested in variable annuities is subject to market risks as well as fees and expenses.  If you decide to invest in a variable annuity, it is important to know and understand the fees you will be charged.
Let’s begin with the basic expense for the annuity itself.  The expense is known as the mortality and expense fee. (M%E)  This fee helps offset underwriting and policy costs.  The percentage can change depending on which contract you select, but the industry average is 1.25%.  That is 1.25% of the value of your variable annuity.  The 1.25% is charged each year you own the annuity.  The next basic fee is called the administration or expense fee, industry average is .25% of your entire account value.  This fee is also charged annually and is designed to cover costs associated with maintaining and servicing your annuity.  So the basic fee for variable annuities in our example is 1.50% of your annuity value.
To that percentage then add on the fees for the actual management of the funds held within the variable annuity. Investment options are actually a type of mutual fund called 'separate accounts'.  The categories can be stocks, bonds, US Treasuries, foreign assets, real estate trusts, almost anything that can be managed as an investment.  Many owners of variable annuities select several separate accounts to add diversification to their investment choices. Each choice will have their own fees associated with the individual separate account.  Most variable annuities will average 1.35%/year for invested assets but actual expense fees can be higher or lower."

Stock mutual funds also have costs associated with them.  The cost of running the fund, or fund operating expense, is the same as the management fee for running the separate accounts described above for the annuity.  In 2014 the average expense ratio for a domestic growth stock fund was 1.2%. The average expense ration for a domestic value stock fund was 1.1%.  In both cases the average cost associated with running a stock mutual fund is lower than the average cost associated with running a variable annuity.  The kicker on the variable annuity contract is the 1.5% you have to pay each year for the privilege of tax qualification.  That annual expense destroys the long term rate of total return and is reason alone to never purchase an annuity contract. 
All of this having been said, let me give you the main reasons I would never purchase a variable annuity.  (I would also never purchase a fixed annuity but these are my reasons against the variable version.)
  • Variable annuities are more expensive than stock mutual funds.  On average they cost 1.5%/year more in total fees.  The loss associated with the higher expenses is almost impossible to make up.
  • If you die during the accumulation phase of your variable annuity your beneficiary will usually only get the total value of the amount you have invested into the contract.  All increase in value within the contract is retained by the insurance company.  Over longer periods of time this can come to a tremendous amount of money lost to the beneficiary.  If you have invested $50,000 into your variable annuity and it is worth $150,000 when you die, your beneficiary will receive $50,000.  If you had placed that money into a stock mutual fund your beneficiary would get all $150,000
  • When you annuitize the contract (the point you stop putting money in and start taking money out) you commit yourself to a particular payment for the rest of your life.  Most of the time this monthly payment will be payable to you and a co-beneficiary and it is guaranteed to both of you for life.  If and when both you and the co-beneficiary die, the insurance company retains all of the assets in your account.  This can amount to a tremendous amount of money lost to your beneficiaries, especially if you die earlier than actuarial expectations would dictate.  Insurance companies justify this practice because they also have annuitants who live much longer than expected and they have to continue to pay a monthly benefit to those folks who have outlived their initial account value.  Why should you be forced to assume the risk of other people living longer than you?
  • In a stock mutual fund you are granted capital gains tax treatment on all sales of your shares after one year.  In a variable annuity all distributions are treated as ordinary income and subject to much higher rates of taxation.  Whatever benefit might have been realized from the tax qualification of the variable annuity is lost when the time to take money out comes.  This is especially true with growth stock mutual funds.   With growth stock mutual funds your taxable income is generally lower and that which is distributed to you is generally a tax-favored capital gain rather than a fully taxable as ordinary income dividend.
  • Some people are persuaded by immoral insurance agents to place annuities within their IRA accounts.  An IRA, as most of you know, is already tax qualified.  By placing an annuity within an IRA you are agreeing to pay the insurance company 1.5% of your total assets each year for absolutely nothing.  You do not need the tax qualification provided by the annuity because you already have it with your IRA, yet some folks blindly trust their insurance agents and make that foolish and costly decision.
Generally speaking I believe people purchase annuities because they are afraid of the stock market and they want someone to give them a guarantee.  Insurance companies are happy to come along and sell you a variable annuity and give you that monthly income guarantee you want, but at a very steep price.  I don't ever think it is worth the price but judging by how many variable annuities are sold to fearful investors, I find myself in the minority once again.  

Monday, December 14, 2015

Why Don't Those Evil Oil Companies Just Raise Prices?

Those evil profit-seeking oil companies, collectively called "big oil" by socialists, are at it again.  As they have consistently done in the past, they continue to do today.  What are they doing?  They are trying to destroy the economy for their own benefit.  Since oil prices have dropped by about 70% in the last year and a half those fiends who control the price of gasoline have resorted to desperate measures to keep themselves in power.  What are they doing?  Oil producers in the Socialist Democracy of Amerika are going toe to toe with producers in the Middle East, creating an oil war that is driving down the price of oil and, concomitantly, destroying trillions of dollars worth of wealth in the stock market.  I guess they figure that if their stock prices were going to drop, so were the share values of every other company in this greedy land.  Watch out!  These evil rogues will not stop until they have destroyed the economy.
Having finished that first paragraph you no doubt think I have lost my marbles.  That may be true but that does not deter me from making an important economic point today.  You are correct, I don't believe anything I wrote in that first paragraph.  I only wanted to get your attention and calling "big oil" evil is a simple and commonplace means of doing so.  No doubt everyone is well aware of the fact that when the price of gasoline goes up there is a cacophony of shrill screaming that comes from the collective voices of the socialists among us about how "big oil" is just raising prices willy-nilly in order to increase their profits and deliberately hurt the poor people who are forced to buy their gasoline to be able to drive their cars to their minimum wage jobs.  Why do they allegedly raise gas prices, you might ask?  Because they can, we are told.  So as I consider our situation today, and the painful losses oil companies are suffering with oil under $40 barrel,  I wondered.....why don't those evil oil companies just raise prices ?
The notion that oil companies can control the price of gasoline, or the price of oil for that matter, is economic nonsense.  Isn't it strange how anytime the price of gasoline goes up all of the people in this country, or at least the majority of them, cry out to their government-god and ask him to make a law to make it illegal to raise the price of gasoline, but when the price of gasoline drops to rock bottom levels nobody says a word about how the "big oil" companies are being hurt by the low prices? Where are the cries for government intervention, by means of gasoline price supports, when the price of oil collapses?  There are none.  From that truth I conclude that socialists don't really care about the economy, they just want to use the coercive power of government to get cheap gas for themselves.  That makes them, rather than "big oil,"  the greedy monsters in this little drama we know as the price of gasoline.
Today we need to consider the price of oil and the price of gasoline.  The superb graph below does a great job of showing the economic and political causes impacting the price of oil over the past 45 years.  The graph is inflation adjusted to 2010 dollars to eliminate any misrepresentation of the oil price that is the result of the profligate monetary policy at the Fed.  Take a moment to examine the graph with an eye to how volatile oil prices naturally are and how quickly they can change.

http://www.wtrg.com/oil_graphs/oilprice1970.gif
(Graph found here.)

 In 1973 the price of oil quadrupled because the OPEC nations made the decision to dramatically reduce supply.  Richard Nixon, a Republican who created the EPA by Executive Order by the way, decided to initiate socialistic price controls in a vain attempt to mitigate the impact of the OPEC embargo.  As any two-bit economist could have predicted, establishing a price ceiling (seen above in red) for oil only created a dramatic shortage, even worse that it had been under the embargo, that resulted in millions of people waiting in line for hours just to purchase a couple of gallons of gasoline.
Prices stayed remarkably stable from 1986 until 2002 when a dramatic upturn in price took place.  The primary reason for the rapid increase in prices this time was not an OPEC embargo.  Rather, it was a simple case of supply and demand.  As many countries throughout the world adopted semi-free market practices they began to experience solid economic growth.  This was especially true for China.  As demand for oil rose the supply of oil was limited due to difficulty in finding sufficient refining capacity as well as the time lag necessary to ramp up new production.  The free market responded as it always does, with great efficiency and in the best interest of the consumer.  New technologies, primarily fracking, allowed oil companies to greatly increase production and, for the first time in our history, the SDA became technically self sufficient in oil, with domestic production exceeding domestic demand.  Sadly, what should have been heralded as a momentous achievement, namely oil independence, was labeled as evil by the Greenies because fracking allegedly destroys the environment and extra cheap gasoline brings about more global warming.  What a bunch of hypocritical idiots they all are.
The Great Recession had a significant impact upon demand and a short term price decline occurred.  As things improved, however, prices went back up and stayed there for several years until we come to the position we are in today.  The higher prices of the past five years stimulated more production which increased production and lowered prices.  As I write this I can purchase a gallon of gas for $1.79.  Because of the efforts of domestic oil producers we have gas prices that are lower today than at just about any other time in history, measuring from 1919.  Look at the graph below.  This graph ends in 2011 when prices had spiked and does not include the collapse that started in mid 2014.  Compare today's price for a gallon of gas with prices from the past.  You should be thankful for the free market in oil.  You should be thankful for "big oil" and "small oil" as well.   And you should take a moment to thank a big oil company executive for what he has done for you today.  They are the real heroes in our twisted and demented society.

 
 (2012 Dollars, Graph found here.)