Energy Prospectus

Halliburton and the Upcoming Election
By Robert Reich, Robert Reich's Blog
29 October 10


Next Tuesday Americans will be deciding whether to hand over even more of our government to corporations that have been plundering America - such as Goldman Sachs, JP Morgan Chase, Citibank, Wellpoint insurance, Massey Energy, and Halliburton, the giant oil services company.

Not every large corporation is irresponsible, of course, but plunderers that get away with it gain a competitive advantage over the more responsible, and thereby lead a race to the bottom.

Case in point: The staff of the presidential commission investigating the BP oil spill has just revealed that Halliburton executives knew the cement it was using to seal BP's Deepwater Horizon oil well was likely to be unstable but didn't tell BP or act on the information.

In a letter to the commission's seven members, the staff found that the failure of the cement was a key factor in the blowout that caused millions of barrels of crude oil to escape into the Gulf of Mexico. (Not the sole factor, of course; most of the blame for the disaster, says the staff, still rests with BP and Transocean, the company BP hired to drill the well.)

Halliburton has not sat out this election. Last May, as Congress began investigating its role in the disaster, its political action committee made 14 contributions - 13 to Republicans and one to a Democrat. Many were involved in the investigation; others had responsibility for overseeing oil drilling in the Gulf. It was the biggest donation month for Halliburton's PAC since September 2008.

Halliburton, in case you've forgotten, is not exactly a model citizen. It has evaded U.S. taxes and export bans through foreign subsidiaries; admitted to bribing foreign officials (a subsidiary paid $2.4 million to a Nigerian government official in exchange for favorable tax treatment); conceded in an internal memo (leaked to the Wall Street Journal) its cost controls for government contracts in Iraq were "antiquated" and its procurement "disorganized; was found by Pentagon auditors to have overcharged estimated at $27.4 million for meals served to American troops at five military bases in Iraq and Kuwait (in one camp billing for an average 42,000 meals a day but serving only 14,000).

The list of Halliburton's crimes goes on and on. And yet, somehow, Halliburton goes on piling up profits. How? Because of its deep connections to Washington.

Dick Cheney hadn't had any experience in the oil business when he became Halliburton's CEO in 1995. But he did have experience in government - as George H.W. Bush's Secretary of Defense. And those military ties were invaluable to the company. Under his reign, Halliburton rose from 73rd to 18th on the Pentagon's list of top contractors, and the money garnered from government-sponsored agencies (such as the Overseas Private Investment Corporation and the Export-Import Bank) soared from $100 million in the five years prior to Cheney's arrival to $1.5 billion a few years after.

As vice president to George W. Bush, Cheney made sure Halliburton's stunning performance would continue (Cheney continued to receive checks from the company). According to congressional inquiries, Cheney's vice presidential office was instrumental in forcing the Environmental Protection Agency to remove sections on climate change from reports in 2002 and 2003 (a process Christine Todd Whitman, then the EPA administrator, subsequently described as "brutal.") The Bush-Cheney administration also sought to control or censor congressional testimony about climate change by federal employees, and tampered with other reports in order to inject uncertainty into the climate debate.

Which brings us back to the Deepwater Horizon blowout. Halliburton's executives knew the cement it used to seal the well was filled with mud - but Halliburton said nothing presumably because doing the job correctly would have cost too much. And, hell, Halliburton is in business to make money.

Halliburton isn't on the ballot next Tuesday, but it might as well be.

Well, Robert Reich certainly qualifies as an objective, neutral commentator for me! LOL! What a load of BS....

Halliburton is one of the most highly respected oilfield service firms in the world. What possible reason would they have for doing a shoddy cement job on the Macondo well? BP, as the well's operator, was responsible for all work on that well.

The Macondo well blowout came up the inside of the casing so what did the cement job have to do with that?

The Democrats know they are going to get hammered on Tuesday. They are now resorting to personal attacks and fear to get their flock to show up and vote.

Why the Dow Usually Rallies After Midterm Elections

Democrats and Republicans may both have something to celebrate in the months following the midterm elections: A stock market rally. From 1922 to 2006, the average gain of the Dow Jones Industrial Average over the 90 trading days following midterms (roughly November until mid-March) was 8.5 percent, according to a new study authored by Brian Gendreau, market strategist for Financial Network. That's almost 5 percent higher than the Dow's gains in non-election years.

Historically, the post-election period has been a good one for stocks. "So the question is, 'Did the markets go up in the midterm election years by more than average in non-election years?' Gendreau says. "And the answer is, 'Yes, by a huge amount more.'" The Dow has risen following 19 of the last 22 midterm elections.

In the weeks before midterms, the market generally tends to perform well. "The market starts to go up beforehand and it just doesn't stop," he says. And generally, the party of the president tends to do poorly in midterm elections. (Since 1942, the party in control of the White House has lost an average of 28 seats in the House and four in the Senate.) During that period, the only time the ruling party gained seats in both the House and Senate was in the 2002 elections, and the market fell afterward--making it the only time the Dow has fallen after a midterm election since 1942.

Since the midterms tend to be an equalizing force on Capitol Hill, many experts have said in the past that this proves the markets like gridlock in Congress. Gendreau offers a different explanation: The markets hate uncertainty. "Before the mid-term election there's a lot of uncertainty, and often one party swept in a lot of seats along with the presidential election and that gets reversed to some extent," Gendreau says. "Then everyone knows what the playing field is and has a better idea of what might happen going forward."

Also, after the midterms, there is generally a more balanced share of power between the president and Congress, so the chance for compromise is more likely. "The market seems to like that," he says.

So what about this year? Gendreau is the first to admit that he's not the first economist to release a survey like this. His research just covers a longer period of time. He also notes that given the ever-increasing wealth of information available to traders today, the effects of this trend may be somewhat weaker going forward. But so far this year, the Dow has been steadily rising in anticipation of the midterms, gaining about 7 percent year-to-date.

Looking further out, the year following the midterms or the president's third year in office is usually the best year for the Dow, according to an older study by Gendreau. From 1871 to 2005, the average return of the S&P Composite Stock Index during the third year of a president's term was 10.1 percent. During the fourth year in office the index was up 7.5 percent, on average--a marked improvement over average returns in the first year (3 percent), and the second (2.7 percent).