This blog is written weekly by Dock David Treece, a registered investment advisor with Treece Investment Advisory Corp. It is meant to share insight of investment professionals, including Dock David and his father, Dock, and brother, Ben, with the public at large. The hope is that the knowledge shared will help individuals to better navigate the investment world.

Wednesday, March 17, 2010

Misguided Media

Last week the New York Times released an article titled Mexico Oil Politics Keeps Riches Just Out of Reach (Krauss and Malkin, March 8, 2010). To the casual reader, this commentary on the oil industry in Mexico would seem to hint that oil is running out for our neighbor to the south, and the world will soon need to find a way to replace the oil that will no longer be flowing out of that region.

The facts of the matter are, fortunately for us, not nearly so bleak. This is simply another case of a major media outlet misleading its [undeserved] audience.

Before getting into the investment industry, my father (“Dock1”) spent several years in the oil industry. He often tells the story of a conference he attended in the 1970s, where he heard a well-known and respected geologist speak.

The story goes that this geologist stood up and told the audience that when we began his studies in geology at college, the very first day his professor told the entire class that they were all fools for entering what was clearly a dying industry. At that time, in the 1930s, this professor told his class that there was only enough oil left in the world for the next 7 to 10 years, and after that they would all be out of a job.

This speaker went on to say that, after college (he obviously failed to heed his professor’s advice) he himself attended a conference in the 1950s, where the keynote speaker warned that there was only enough oil left in the world for the next 7 to 10 years.

Now, in the 1970s, as my Dad sat and listened to a speaker who had been warned twice, in both the ‘30s and the ‘50s, that the world’s supply of oil was running out. This speaker went on to tell the audience that, by his calculations, there was only enough oil left to last for the next 7 to 10 years. Moreover, he added that sometime in the 2000s, geologists would still certainly be warning that there was only enough oil for another 7 to 10 years.

The point to this exceedingly long anecdote is this: Friends, the world is NOT running out of oil. Thankfully, only three things are required to produce oil: hydrocarbons from dead matter, heat, and pressure; three things which the Earth certainly does not lack, or will in the near future.

Moreover, advances in modern technology continue to allow drilling companies to reach oil deposits that could never before be utilized. In fact, many wells that were previously thought to be dry are now being reopened with new equipment.

In Mexico, however, drilling technology hasn’t kept up. The reason is surprisingly simple (for capitalists, at least): In the late 1930s the oil drilling industry was nationalized in Mexico by then-President Lazaro Cardenas. If there is one thing we can count on, it’s that government doesn’t do anything as well as private sector. Can we believe healthcare will be any different?

The oil industry aside, it is infinitely important that people take a step back and examine the media industry. For example, most major media outlets continue to report that the economy is in a very weak, fragile state, and could collapse at any time. This, friends, is hardly the case.

Readers need to understand that the communications industry has been one of the hardest hit sectors in this recession. Most media outlets have gone through – and are continuing to see – rounds of layoffs. The New York Times, in fact, recently announced that it is laying off nearly 10% of its remaining newsroom staff.

The real question is how can we as an audience can expect someone who works in such an environment to be optimistic about the economy. Do you think you’d be optimistic if you were in constant fear of losing YOUR job?

Remember that the media, like manufacturing or, yes, oil production, is a business, and it exists within the larger scheme of an economy. As such, it is nearly impossible for the media to present a completely objective perspective on any event or circumstance, despite all its attempts to do so. The best we can hope for is an accurate presentation of the facts; what we do with those facts is totally up to us.

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