IRAN IS GETTING SQUEEZED!

Our European allies are maintaining the pressure on Iran to halt its development of uranium enrichment facilities. Bush says the time for sanctions has not yet come.

There is much speculation as to whether the UN Security Council will go along with sanctions as China has veto power and has expressed reservations. Russia may also side with Iran.

The good news is that the price of oil has only risen to $66 while inventories are being stockpiled around the world. Clearly if a crisis is avoided, the excess oil will take months to use. The price would drop like a river rock.

September the 3rd is the "drop dead" date for the negotiations between France, Britain , Germany and Iran. Of course these things the tendency to get stretched. With the US SPR filled to the top this month, some of the pressure will be relieved and any hint of resolution will drop the demand for crude.

Don't take me wrong--I do not doubt T. Boone's prognostication that oil might hit $75. Also I agree that refinery capacity is at bottleneck levels. The current problem is not the supply of oil but the fact that there is not enough refining capacity to meet the demand--perhaps a bit of an over-statement but the point is that utilization at 95% is about as high as the industry can maintain over long periods of time.

Iran is key. Iran has allowed terrorist to take bombs into Iraq. Iran is pushing to become a nuclear power. France, Germany, Britain and other nations desire to engage in lucrative trade with Iran which is I believe the second largest oil producing country. The deal to be made must include the willingness of Iran to help stop the insurgency into Iraq. Having another nuclear powered nation is not a good thing but probably not a preventable thing. Pakistan and India hate each other, share miles of borders and are nuclear nations.

I can write the above paragraph but administration officials cannot talk in these terms. The talk must be about stopping nuclear development in Iran. It is always amazing how the economics of the world eventually dictate the politics. China was a communist nation but now the country practices capitalism with the best. Iran needs to become more and more linked to the west via more and more economic relationships. It is in everyone’s best interest for much world trade to be originated in Iran. The country is wealthy--it simply needs to use its oil to build more trade relations.

A pessimist might assume that a deal will not be made, that sanctions will crimp the world oil supplies, that a recession or war will be the result. I am an optimist. I believe a deal will get done and the oil currently sitting in almost every tank car in America will be surplus in a few months. The price of oil will drop back into the 50's and within a year I believe the price will be back in the 40's.

MAINTAIN YOUR BULL MARKET STANCE. STOCKS ARE CHEAP RELATIVE TO BONDS AND REAL ESTATE. A SHORT TERM PULL BACK MAY OCCUR BUT IN THE LONG RUN YOU WILL BE PAID WELL TO INVEST IN THE BEST VALUES--STOCKS CURRENTLY WIN THE PRIZE!