David Richards

    We have reported before that the financial magazine Barrons can, at times, surprise one with the views that appear on their pages.

    Most assume that it is but a minor chorus to The Wall Street Journal (the two are owned by the same company) but, from time to time, an element of free journalistic madness creeps.

    This often comes in the form of interviews with some crusty old maven of Wall Street. For instance, Barrons recently interviewed David Richards, a respected if crabby money-manager of the old school.

    The astute reporter Sandra Ward got Richards to talking beyond stocks and bonds and finances in the issue of 20 September 2004 and, by god, --- his review of the current powers in Washington --- got recorded and dutifully printed.

Q: What do you make of oil companies refraining from investing in exploration?

A; They don't believe the oil price at $42 or $43 a barrel is going to hold. They're remembering 1998, when the price went to $10 from almost $25. An even more dramatic fall occurred in 1986, when oil prices fell to about $10 from well over $30, where they had traded through most of 1980 to '84 before starting to come down in 1986.

Oil companies historically haven't been very good at forecasting the price of oil, and past experience makes them skittish about assuming that prices will stay well over $30. In the past, the price was driven higher because [the Organization of Petroleum Exporting Countries] was cutting production. They aren't cutting production now. They are running flat-out. Oil prices aren't high because there's been a cut in production.

This isn't a false-supply situation. It's because 3½ billion people between Germany and the Pacific Ocean are suddenly buying cars. Of course, not all at once, but if an economy is growing by 4%, 5%, 6% a year and suddenly the world needs two million to three million barrels more a day of oil every year in an 80-million-barrel-a-day market, you have to wonder, where is it going to come from.

Q: How long do prices stay high?

A: Oil stays high for at least two-to-three years. Psychology has got to change. The oil industry must become convinced oil prices are going to stay high in order for them to go down. Only when they are convinced prices will stay up will they invest enough to provide the extra production.

Q: Let's segue into the issue you raised of political stability.

Bush is taking the country in a direction that is very different than it had been going in for the last 50 years. The notion of pre-emptive wars and the pre-emptive war that we have in Iraq is a failed strategy. If [Deputy Defense Secretary] Paul Wolfowitz were a money manager, and he made the forecast about weapons of mass destruction and the Iraqis greeting the American forces with flowers, and then declared "mission accomplished," when in fact we were totally unprepared for the uprising we face there, he would have been fired for incompetence. No one responsible for these decisions has been fired. If you had a big money-management company with bad research and bad portfolio managers making bad judgments, that would be the end of that company.

Q: Yes, and I believe there's been a few examples of that. A: These people are delusional. They are deluded by the apparent military power of the United States. There are three levels of military power, and we have a great advantage in one: the middle level. The top level is the ability to produce atomic weapons and missiles. Now the Chinese can do it. The Russians can do it. The Israelis can do it. The Indians can do it. The Pakistanis can do it. The British can do it. Nobody has an advantage, and these weapons cannot be used without blowing the world to smithereens. In that sense, they are useless. The middle level is about projecting force, and that's what we're good at.

We have airplanes. We have aircraft carriers. We have guided missiles. We have electronics. We have all that in profusion. There we have an advantage. However, at the third level, we have no advantage at all, and that's in guerrilla warfare and in controlling territory. That's the problem in Iraq. We needed a multiple of the number of troops that we have there to control that country. Unlike the Russians and the Chinese and many of the European countries, we don't have a conscript army.

Q: Are you suggesting we'll reinstate the draft?

A: If Bush gets elected for a second term, and he's faced with an army that is overextended, there's going to be a draft. That will divide this country further. That's where the political crisis comes in. Because of the military overextension, you have some terrible decisions that have to be made. The draft is one. The second involves the budget. The war costs are much greater than they should have been.

Q: Bring this back to your point that our power in the world is diminishing?

A: The power diminishes because of this huge growth over the next 10-to-20 years of Asia. Also, our unilateral policies are angering the world, and it isn't unreasonable to consider Western Europe joining with the Russians and creating a huge power bloc against us.

Q: Describe your overall portfolio. Are you more long than short?

A: I'm more long than short. I'm net long about 15% to 20%. The shorts are mostly Standard & Poor's 500 futures, probably two-thirds of them, and some QQQs [Nasdaq 100 Tracking Stock]. The S&P is very heavily oriented toward retailing, finance and drugs. The oil sector, which I am long, is only 7% or 8% of the S&P. I am basically shorting the U.S. consumer.

--- ©2004 Barrons

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