Recent polling data show a big Bush opportunity here. Sen. Kerry lost 9 percentage points from the investor vote following his speech at the Democratic convention in Boston, according to an Investor?s Business Daily/TIPP survey. Surely the president can do a better job of reminding shareholders of his pledge to make the dividend and capital-gains tax cuts permanent. A renewed push on personal savings accounts for Social Security reform would also be welcomed by the investor class, as would a surprise move toward pro-growth tax reform and simplification (as recently argued by House Speaker Dennis Hastert).
But if you scratch an investor deep enough these days you are likely to find that their biggest worry is spiking energy prices. The president has been silent on this.
At the beginning of the year, oil was at $30 a barrel while the U.S. and Chinese economies were booming full-speed ahead. Now, however, even though the world economy has slowed, oil has shot up to $45. Why is this? The answer is that wave after wave of terrorist threats, especially in Iraq and Saudi Arabia, have added a fear-factor risk premium of as much as $10 to $15 a barrel. Oil-supply disruption threats have also come from Russia and Venezuela.
Bush must now answer why the U.S. would let terror threats disrupt our stock market and economy. Solving this is exactly what the Strategic Petroleum Reserve (SPRo) is there for. As a last resort, reserves should be used to counter these terrorist-related oil-price spikes.
Behind the scenes, oil-market traders, knowing they are back-stopped by continuing purchases from SPRo, keep betting on higher prices by buying contracts with impunity. As long as the U.S. keeps adding to its reserves, traders are confident of a one-sided market that will keep pushing oil prices much higher than softening commercial supply-and-demand conditions can justify.
If the administration would simply cease filling SPRo, or better yet begin [ITAL] releasing [UNITAL] small amounts of crude oil reserves onto the market, then oil markets would become two-sided again. This would force a rapid unwinding of long positions that would bring down oil prices by $10 a barrel or more. It would electrify investors (and consumers) and would surely contribute to a big pre-election rally.
Thirteen years ago Papa Bush employed a similar tactic during the Persian Gulf War. Oil prices crashed.
Sometimes politicians have to act like short-term traders and weigh in when least expected. In the political mind?s eye of the investor class, a government action to short oil would make a whole lot of shareholders willing to go long Bush.