Monday, June 09, 2008


Over the weekend, at least three good things happened.

1) The Israelis backed off on their threat to start bombing Iran now.

2) Saudi Arabian officials stated that the oil markets had over reacted to the threat of war.

3) Maliki went to Iran and gave his assurance that the continued presence of US forces in Iraq should not be perceived as an offensive posture against Iran.

The threat of war will only push oil prices so far. The continuation of slack demand will push the price back down. The slowdown of imports into the USA and into Europe will put increasing pressure on China and other manufacturers to cut costs. Soon the slow down in consumption will be virtually world wide. The world can get along fine without Iranian oil.

A card playing buddy thinks I am off my rocker. He notes that Goldman Sachs forecasts $200 oil, he did not know by when. Investors should always avoid making their bids at an auction based on the values stated by the auctioneer, especially at an auction where the auctioneer is an active buyer and seller. Goldman has probably made more money than any other derivatives trader. Goldman has not made its huge trading profits by directing other participants to profitable trades. In my opinion, buying based on information provided by any broker dealer is like buying a used car based on the prices suggested by the dealer.

According to web site, there have been 11,226 deadly acts of terror performed by Islamic Terrorist since 9/11. When the brother of an unmarried pregnant women shot her in the head last week, this action was added to this terrorist list. When four Afghanistan soldiers sitting in a car smoking cigarettes were shot, this action went on the list. When al-Qaeda treated women in Iraq like animals and when they set bombs in Amman Jordon to kill women and children refugees from Iraq, public opinion turned. Al-Qaeda is now being fought by both Shiite and Sunni forces. When the fanatic regime of Hitler was not stopped early, the result was the death of 24 million people from the Soviet Union, 20 million people from China, 8 million people from Germany, 5 million people from Poland, 3 million people from Japan and 450,000 people from the USA. The US attempts to stay out of WWII cost a lot of lives and treasure. The radical brand of the Islam religion condones actions I do not even want to discuss.

Both Sunni and Shiite Islamic people desire hostilities to cease. The leadership of several Middle Eastern nations are actively at work mediating disputes. Rich oil countries are funding deals in order to provide incentives for peace.

This morning oil futures are trading down $1.88 per barrel. Short term predictions are tough and I have been wrong about how quickly new supply will over take demand, but it will happen. The total sum of investments being made to reduce demand and to increase supply is an unknown but incredible sum. The big problem is in how long it takes for investments to bear fruit. IBM, for example, continues to invest billions into techniques to reduce the power consumption of computer chips. One major effort is to cool chips with water rather than with air conditioning. One server farm has taken a page from co-generation power plants to produce electricity with the heat produced by the computers. IBM expects to offer water cooled computers within 5 years which will make co-generation practical.

Day by day, projects are being completed. Thousands increase the supply but trillions of actions decrease consumption. One company says that it can show measurable demand destruction at the point when gas went over $3.20 per gallon. The company suggests that demand destruction has surely increased after the subsequent increases in price. I read the suggestion without noting the source but it is nothing but basic knowledge and common sense. Demand curves slope down and supply curves slope up.

My Sunday School class has been reviewing Black Liberation Theology. One of the reasons I hope for peace in the Middle East is because Condi Rice might then be drafted as a Vice-Presidential nominee and she might be elected based on merit. It is my opinion that many of the votes for Obama are because he is black. Race relations will be improved greatly when a black person of achievement is rewarded by gaining a majority of white votes. The election of a black man, of little accomplishment, by gaining 90% of the black vote would only highlight how far race relations still have to go.


It took years of diplomacy and a cost of treasure and blood to reach the current situation in the Middle East. There are a number of reasons to hope that peace agreements will be concluded.

Negotiations between parties who trust one another can go extremely fast. Negotiations between those who distrust one another are very tough to conclude. The good news is that friends and neighbors are engaged as mediators. The economic "win" of success will be huge. Believe it or not, conditions for comprehensive deals have never been better!