Windfall Tax Is a Lot of Hot Air

Unemployment claims were down 18,000 to 365,000, and the four-week moving average was up a touch to 367,000. That is still far below the 400,000 that would indicate 0% GDP.

Inventories fell .1% in March, but sales rose so the all-important inventory-to-sales ratio fell back to its all-time low of 1.09. This is a pleasant piece of news, in that it implies there will be no need for massive inventory liquidation. The second-quarter GDP is on track for a positive reading.

Not so pleasant to me is the proposal by a group of Senators to impose a windfall-profits tax on oil companies at the rate of 25% for profits deemed to have been generated as a result of "extra high" oil prices. Last night on Larry Kudlow's show, Vermont Senator Sanders was asked the rationale for such a tax and the best he could come up with was Lee Raymond made too much when he retired from Exxon Mobil (XOM - commentary - Cramer's Take). Extravagant executive pay can be enraging, but is hardly the reason for an excess-profits tax.

Nowhere in the line or reasoning for this tax is there a plan to raise production, cut usage or develop alternate sources of energy. There is no acknowledgement that over 80% of the world's reserves are owned by state-owned oil companies. They seem to want to deny that price is set by the marginal buyer who comes from India or China.

This tax is designed to stick it to the rich guys and pander to the voters. They tried this in 1980, and domestic production fell some 6%, making us ever more hostage to foreign-oil interests. The tax was repealed in 1988. Shoot this idea right now or companies will shift exploration offshore.

President Bush isn't helping matters. He's going to Saudi Arabia and said he'll ask them to produce more. I don't care who our president his. He or she never, ever panders to foreign powers. These guys in Saudi Arabia would be dancing the Taliban Two-Step if it wasn't for us. And, this is the pitiful part, the Saudis have no extra production. Common sense tells you that at $120 a barrel, these guys are pumping all they can. Going hat in hand and whining is not what the President of the United States does.

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Vincent Farrell Jr. is a principal of Scotsman Capital Management. Prior to joining Scotsman in April 2005, Farrell was chairman of Victory Capital Management of Cleveland and chairman of Victory SBSF Capital Management in New York. He was a founding partner of Spears Benzak Salomon & Farrell, which was acquired by KeyCorp in 1995. Vince held a variety of positions in his 23 years at SBSF, including chief investment officer, and he served as the portfolio manager on a number of the firm's largest client relationships. He is a regular guest on CNBC as well as other national print and broadcast media.

Prior to joining SBSF, Vince spent nine years at Smith Barney as a vice president, sales.

Vince graduated from Princeton University in 1969 and received his MBA from the Iona College Graduate School of Business in 1972.