Tuesday, July 29, 2008

$5 Million Well Spent

A "buzzer" rained down pain in Pakistan yesterday. The Long War Journal says, a US Predator drone either fired a Hellfire Missile or it spotted for a precision guided artillery strike. Six of the bad guys bit the dust. Three of these were Taliban leaders and three were foreign insurgents. Abu Khabab was the big prize. The US "Rewards for Justice" bounty was $5 million. Khabab was of Egyptian descent and was an expert in biological and chemical weapons.

In recent months, there have been at least 6 occasions of US strikes within Pakistan. It takes intelligence within the community to know when and where to strike. The war in Iraq was won by paying local citizens to help kick the bad guys out. A similar process is now underway in the mountains of Pakistan. The Saudis are helping to fund the payments. Should a deal be made with Iran, then low and behold, the Saudis and the Iranians will be on the same side in the war on terror, as will the USA!

It is my belief that 1,000's of American lives will be saved by the demise of al Qaeda leaders. Five Million seems a fare price to take out one who has trained thousands of insurgents who have killed 100's of American soldiers and thousands of innocent civilians.


Mop-up operations are underway in Iraq. Bombs continue to occasionally explode but the bad guys are being mopped-up or they are "high tailing it out of there". There is evidence that Iran is allowing insurgents being chased out of Iraq to travel across Iran and into the mountains of Afghanistan/Pakistan. The vice-president of Iran says that a lot of problems will be solved soon after serious negotiations between the US and Iran are begun. He says Iran can help with problems in Pakistan, Afghanistan, Lebanon, Palestine and with the price of oil. In case you have not noticed, serious negotiations have been in progress for a long time.

Condoleezza Rice is about to set a new record for travel by a Secretary of State. This week, she will visit Pakistan, China, Israel and Italy. She is playing several 3-D chess matches at the same time. Diplomacy here, there and everywhere. She and the Bush administration have enlisted a lot of help. Russia and China are for allowing Iran to join the Shanghai Cooperative Council but not right now. When China, Russia, Kazakhstan, Kyrgyzstan, Tajikistan and Uzbekistan meet, the Iran delegation is allowed to attend but only as a provisional member. The recent natural gas deal between China, Russia and Kazakhstan gave Iran just one more dose of heart burn. Iran is getting pounded from all sides. The Saudis recently offered to buy 2.4 billion dollars worth of Russian Arms, provided, Russia agrees to limit its support for Iran. As best as I can determine, Iranian oil exports have fallen from 4+ million barrels per day to 2.5 million barrels per day. The world has replaced the decrease and is still well supplied. US consumption of gasoline has fallen by the largest percentage ever.

One of Iran's "friends", Libya expressed a willingness to limit oil production a couple of months ago in support of Iran. A couple of days ago, Libya announced a new oil discovery that will produce at least 50,000 barrels per day by 2010. Americans who scream for energy independence must come to realize that even the bad guys will keep selling oil to us. We need strategic reserves and we should drill to produce as much as we can but we should continue to trade what we have for what we need.

No, it does not make sense to leave billions of barrels in the ground. Our SPR of 700 million barrels, in addition to millions of barrels stored by commercial users, is about right. Leaving 10 billion barrels in ANWR is pointless, especially since the price of the nuclear alternative continues to decline.


In the old days, the USA and Russia were in an arms race. Breeder reactors were used to make some electricity plus some plutonium for use in nuclear bombs. In this new age, burner reactors are being used to produce electricity and to turn excess plutonium into even more electricity. All sorts of new nuclear technologies are under development. The old reactors originally burned 4% of the nuclear fuel. Those reactors have been boosted to 5% and will soon be boosted to 6% but new designs will burn 65% and will take the 94% waste from the old reators and burn 65% of that "waste fuel" as well! Based on these new technologies, world wide annual consumption of uranium will be reduced from 64,000 tons to 3,200 tons! There are 5.5 million tons of discovered reserves on our planet. There are probably at least as many more that are undiscovered. In addition, it is know that there are 4 to 4.6 billion tons of uranium in ocean water. The Next Big Future web site reports that Japan has harvested from the ocean but the cost of earth mined uranium is much cheaper. With or without the uranium from the ocean, we have the energy to last thousands of years.


I get a big kick out of democrats who say that it is senseless to drill for oil in Alaska because the production will be small relative to total usage and because it will take years to produce. When the score is tied, 85 to 85, a 1 point foul shot is all that is needed to win the game.

World supply is about 85 million barrels per day and world demand is about 85 million barrels per day at today's price. To win this game, we do not need to find another 85 million barrels per day. If we add a million barrels per day from Alaska, the new supply will be 86 million barrels per day. The new demand will be 86 million barrels per day at a lower price. No one knows how much lower but OPEC leaders believe $78 oil is in the near future. How long are we going to leave Michael on the bench?

The high price of oil has boosted demand for uranium. Tio Rino and others are making massive investments to increase production. USA production of nuclear power produces the equivalent of 3.5 million barrels of oil per day. We import about 11 million barrels per day. Those who desire to be totally energy independent should support 3 times the number of nuclear power plants that we have today (104 US working plants).


The "normal" drop in commodity prices is past due. For example, there was a steep fall in the price of oil from March of 1980 to September of 1982 before the stock market soared. The price of oil went down during the bulk of the years of slowdown. The price continued to fall after the stock market took-off. This time, the slowdown is long in the tooth and oil prices only recently began to fall. The perceived risk of war with Iran and the failure of the congress to use common sense has held off the sharp decline.

The market is responding. Dozens of countries are raising short term interest rates to snuff out the inflation of high food and fuel. Do a Google News Search on the words "central bank" and you will see how widespread the move, nations on all continents, developed and non developed, resource rich and resource poor, countries of all stripes are tightening down. Under normal circumstances, high short rates would cause commodity prices to fall, bonds to rise and stocks to rotate. This time, energy and related stocks are being propped up by the same forces that believe there is a long term energy crisis. There is one in Iran.

The citizens of Iran are having to wait in long lines to procure gasoline. Everyday, Amadinejhad tries to move the UN-Iran negotiations forward without suspending the production of nuclear fuel. It took North Korea a long time to suspend its nuclear activities. The country is in sad shape but it has a bright future. Trade relations are already being rebuilt and negotiations are in progress that will bring North Korea out of the cold. Iran has until Saturday to respond. I believe the two sides are very close to agreement. Once there is agreement, a lot of connected events will take place; lower oil, lower inflation, improved investment performance.


Harry Reid has angered the extreme left by suggesting it is finally time to allow Blue Dog Democrats the chance to vote for drilling before the elections. Reid's idea is to offer drilling in certain areas. The lefties say they don't care if the score is tied 85 to 85. They had rather lose the energy game than to lose the election. This is the same crowd that would rather lose the war in Iraq than lose the election.

Holding back oil production is like preventing water from flowing over a dam. Brazil has discovered about 40 billion barrels in deep waters while the US has made 80% of its waters off limits. We can buy from Brazil or we can drill for ourselves. A vote to drill is likely to occur next week. I bet the price of oil will fall by $15 per barrel within a week of a decent drilling proposal.