API speaker: Compromise needed to avoid fiscal cliff

MORGAN CITY, La. — Avoiding the fiscal cliff will take compromise, said Peter Ricchiuti at the Atchafalaya chapter of the American Petroleum Institute meeting Monday at the Petroleum Club.

“What I’m going to argue is that all we really need to do during this fiscal cliff is to get this line (debt relative to GDP) to start coming down. To do that, we really have to hone in on the extremists on each side. There’s got to be some give on entitlements. There’s got to be some give on taxes,” Ricchiuti said.

Ricchiuti, who is a William Burkenroad professor and teaches courses on finance markets at Tulane’s Freeman School of Business, said the Simpson Bowles plan is a good plan to avoid the fiscal cliff. “It must be a pretty good plan because nobody on either side likes it.” Americans will likely see some higher taxes and some budget cuts and changes to entitlement programs, he said.

The country will probably avoid going into a recession in the near future, he said.

“I think we could have a recession if Congress totally punts on the fiscal cliff. If they get their act together in any way, I don’t think there’s a recession on the horizon,”

Instead of looking strictly at the national debt, Americans should examine the debt divided by gross domestic product, basically how leveraged the economy is, Ricchiuti said. The ratio is about $15 trillion in national debt to $16 trillion in GDP, he said.

Government spending is actually lower, at 23.3 percent of GDP, than it was under President Ronald Reagan, at 23.5 percent of GDP, he said.

Entitlement reforms are a real possibility, too, he said.

For the energy sector, Ricchiuti thinks the natural gas industry is the future of the sector. “We have become the Saudi Arabia of natural gas. It is a game changer. It is going to be the golden age of American energy and American business,” he said.

People used to think of the oil and natural gas industry as a single entity, but that is no longer the case, Ricchiuti said. “We’re on the verge of a totally different energy economy.”

Though many people were mortified by the Obama administration’s oil drilling moratorium, his administration may actually be good for the natural gas industry, Ricchiuti said. “In some ways, this (natural gas) industry is really going to benefit from the Obama administration. And, that is, the Obama administration really has it out for coal. Natural gas is picking up all of that (business).”

“The coal industry is frightened to death of natural gas,” he said.

About 70 percent of the country’s imported oil comes for transportation use, but the U.S. reliance on foreign oil can be changed, Ricchiuti said. “We can alleviate that. We don’t ever have to bring in another drop of imported oil,” he said.

“We have to do things like, tractor-trailers have to run on natural gas. It might take the government. It might take private sector. But we need a little tipping point to push this forward. It is the future.”

The oil industry is no longer dominated by the Clampetts, referring to oil bubbling out of the ground near the surface, and many people do not realize the difficulty of retrieving oil, Ricchiuti said. “The deep water (oil) is really where I think the future is.”

“I have a friend that works for Chevron. He told me that the way they explain these deep water finds, remember they’re drilling in 5,000 feet of water, and 30,000 feet into the Earth. How they explain it to non-engineers is, it’s like trying to fly a plane over New York City and hitting the pitcher’s mound at Yankee Stadium with a tool the size of a coffee can at $100 million a pop in the dark.”

At Tulane, May 2012 was the best job recruiting numbers the university has seen in eight years, he said. “We’re starting to see hiring pick up.”

New Orleans is now the No. 1 city in the country for young entrepreneurs, he said. Ricchiuti hosts a radio show where he interviews young entrepreneurs at 1 p.m. on Mondays and 6:30 p.m. on Fridays that airs on KTLN 90.5 in Houma, he said.

Ricchiuti also founded Tulane’s Burkenroad Reports stock research program in 1993 and talked about what he sees for the markets in the near future. “The stock market looks pretty cheap (prices). The bond market looks outrageously expensive and housing still looks a little bit rich,” he said.

The housing market has finally bottomed out, which is a huge boost to the economy, Ricchiuti said.

Since World War II corporate profits are up 100 fold and stock prices have risen 90 fold, he said. “They’re telling you that, ultimately, the variable for where stock prices go, is corporate profits. The rest of it is meaningless.”

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