Friday, June 06, 2008


Everything in this economic cycle seems to go forward a couple of meters before backing up 1 or 2 or 5 meters. Just over a day ago, it looked like Euroland was following the USA into an economic slowdown. A slowdown that would cause a reduction in the purchase of goods from exporters such as China and Japan and thus a slowdown in the demand for oil. Yesterday, the lead banker in Europe said he sees a rise in interest rates ahead. The reason given was to fight inflation but the implication is that Euroland demand continues to grow.

One must remember that the "big boys" play a constant game of "hide the info". Since long before the days when Rothschild gained economic advantage by gathering advanced news of the outcome of war by carrier pigeon, wealthy and sophisticated investors have enjoyed hiding the important news or by confusing the public by assigning great importance to relatively unimportant matters or by diverting attention from important matters. Right now, when little information is available about what is essentially an oil embargo in Iran, the "news" that the central bank in Europe may or may not raise or lower short term banking rates has caused a multi-trillion dollar move in the markets! Please forgive me if I am wrong, but I do not believe oil is up more than $10 per barrel in two days because of a mixed message by one central banker; there is more to it than that.

US and UN negotiators have implied that the deal with Iran will not be finished during the Bush term of office. They have also implied that the terms acceptable to the next US President will be no better for Iran or Syria. Iran and Syria, after making concessions have once again drawn unacceptable lines in the sand. The deals will not be made unless the IAEA inspectors are granted full access in Syria and Iran. The prospects of a quick resolution have declined.

My belief is that the world is as united on this matter as it has been ever before on any matter. I do not recall a situation where there has been as much cooperation between parties from all continents as this one. As such, it is a matter of time before a deal is made. Until a deal is made, economic pressure is going to be intense. Europe will keep interest rates up and world growth rates will slow such that the world can do without all oil from Iran if need be. The world will suffer but, Iran will suffer greatly.

The historical average has been for a strong stock market from June through December of an election year. The seasonal pattern has supported the "sell in may and go away" adage. I believe the political pattern will ultimately trump the seasonal pattern because I believe a deal is in Iran's best interest. It took just a few days for oil to drop from $132 to $122 and only two days for it to jump back from $122 to $132. The next big move will be down.