Thursday, July 10, 2008

'Iranian Bank Robbers" Shooting Guns Into the Air

While the "hostage negotiations" continue, the "Iranian Bank Robbers" are shooting their guns into thin air. They do not dare shoot a hostage because they know they are trapped and they fear retribution. If Iran had given up on making a deal, they would have unleashed Hezbollah or Sadr to do mischief. Instead, Iran has been getting a lot of attention by shooting rockets into the air while continuing to try to reach the best deal they can. The US already knew they held the rockets. Firing them into the air gives us kibitzers something to talk about but it will not effect the ultimate outcome. Iran needs to make a deal soon and the leaders know it. In the meantime, more deals are getting done in which Iran is missing "it's piece". A good example is that construction has started on a major gas pipeline from Kazakhstan to China. Such a pipeline is painful to a country that holds 26T metric cubic feet of gas and has a deal on the table to build a pipeline to India and China.

Turkey and Iran have much in common. Turkey is about the same size, has about the same population, is 98% Islamic and it sits on an important land bridge between two whole sections of the world. Important differences include that Turkey is predominately Sunni, it's government is democratic, it is a founding member of the UN, it is a member of NATO and it is working to bridge the divide between the West and the East. Today the Prime Minister of Turkey will travel to Iraq to discuss potential deals.

Tomorrow, the Prime Minister of Israel and the Prime Minister of Syria will arrive at the same meeting in Paris. It is possible that a peace deal between Israel and Syria will be announced at this meeting. Sunnis out number Shiites by a great margin and Sunnis are promoting peace. Commercial deals after more commercial deals are getting done as a result of financial support from Sunni oil wealth. Syria is being "bribed" to switch sides. India has already been "bribed" into agreement. Iran has been offered great incentives to end its support for terror. As a result, the network of active terrorist is migrating to areas like the mountains of Pakistan. The Pakistani government just negotiated a peace with elements of the Taliban. Much still needs to happen in the mountains of Afghanistan and Pakistan but relative peace is at hand in the Middle East. It is highly unlikely that a war with Iran is going to develop. Israel is on the edge of a historic peace with all countries with common borders. The price of oil stayed down yesterday even after the news of the rockets hit.

Making Money Off The Deal

T. Boone Pikens is putting a lot of pressure on the congress to vote on an energy bill. Boone is advertising heavily that he has an energy plan. His plan includes drilling for the abundant natural gas in the USA. Boone helped financed the "Swift Boaters". He is a wily old fox. He knows how to make money. Only in America can a billionaire oil man receive subsidies for building private wind mills, wind mills that are economic jokes. The wind mills being built are 410 feet tall with 148 foot long blades. A single 3 MW wind mill requires 150,000 pounds of steel, concrete and fiberglass. This 150,000 pounds does not include the roads needed to service these monsters. A single 3 MW wind mill requires 60 to 300 acres of land! One of these wind mills is the substitute for about 12,000 barrels of oil per year, a drop in the bucket. It would cost in the neighborhood of 41 Trillion Dollars to build wind farms sufficient to replace the 22% of electricity as proposed by T. Boone! T. Boone likes to talk about the 700 Billion Dollars we spend annually to buy foreign oil. He talks about a 7 Trillion Dollar transfer of wealth every 10 years. That assertion assumes that the oil we buy with the 7T has no value. Buying an asset for fair value is not a transfer of wealth. Using the purchased asset wisely effects ones wealth. It is silly for the government to pay people to build wind mills. Like Russ Roberts says, when the government uses taxpayer dollars to pay someone to do something he would not ordinarily do, the government is paying someone to do something stupid. It is not silly for T. Boone to provide a plan that will increase the demand for US produced natural gas.

T. Boone will make money off building the wind mills and off the production of natural gas but taxpayers will pay. The only way the taxpayers wins on this deal, ironically, is if it pushes congress to stop distorting the free market. Wow! Dick Durbin, majority whip, and Harry Reid, majority leader, have each come out in support of drilling. They had to come out in support because it has become clear that enough "Blue Dog Democrats" are behind drilling that no energy bill can make it through the congress unless it includes support for drilling. The fix is in! Congress is scheduled to adjourn by August 8. An energy bill should pass before the congress leaves town.

Yesterday, the congress got the FISA wire tapping bill out of the way. When democrats took control, it appeared that the US would be forced into a quick defeat in Iraq and that electronic surveillance would be limited by law. While the left is distraught over the passage of FISA, the average American is all for giving our government the tools it needs to capture "the bad guys". Many on the left cannot understand what just happened. The Bush administration threatened to beat the congress over the head with the details of prevented terrorist attacks. It is best for these details to remain classified. If authorities are not allowed to function anyway, then the details could have been used to bolster the administrations position. Democrats were simply on the wrong side of the issue, just as they are on drilling, taxes and Iraq.

As noted before, Obama has been tripping over himself to get to the "centrist middle". An Obama administration will not be greatly different from a McCain administration. With the exception of supporting a strong military, Bill Clinton was about as republican a president as we have seen in some time. Bill Clinton governed to the right of Nixon and Bush (again with the exception of the international area). Even Obama's proposed increases in taxes will have a tough time getting past a congress that includes "Blue Dog Democrats".

Change is Constant

Mercedes plans to be a "zero petroleum" car company within 7 years. Obviously batteries, capacitors and fuel cells will play a part in this "zero petroleum" push. The ability to transport natural gas around the world is being significantly increased by the building of new gas pipelines. Abundant electricity will be used to run "appliances" to convert natural gas to hydrogen for use in fuel cells. (Honda has built fuel cell "stations" in California.) Batteries will be leased out and changed out in a fashion similar to propane gas canisters. Exxon is selling all of its service stations. Are the days of the traditional service station numbered?

The FDA approval, yesterday, of the INTC health monitoring service is the kind of "invention" that will change our world. The elderly and infirm will be able to live at home while having their health under constant survey. Those with high blood pressure, diabetes and other "health maintenance problems" will receive superior care without traveling to and from doctors offices. If we really want to cut the cost of health care, we will stop paying for nursing home care for those who would prefer to live at home. The cost of nursing home care is upwards of $6,000 per month! It will soon become common for children and everyone else to wear communication bracelets or necklaces. Parents will be able to know exactly where their child is at all times and both parent and child will be able to push a button to communicate. Home schoolers are spending computer time to connect with the best teachers and resources in the world.

The world is changing and change is good. We simply must be careful not to go backwards in the name of change.

World Wide Recession or Slow Down

In the USA, Europe and Australia, the people spend less than 25% of their income on food and fuel. In the bulk of the world, more than 25% is spent on these necessities. Since the central bankers of the world are not flooding the world with currency, our "inflation bath tub" is no where near running over but there are big swells and waves in it. The decline in real estate values is being matched with extreme spikes in food and fuel prices. The spikes in food and fuel are crushing those who live in the "bulk" of the world. The people of India and China are being forced to cut back on fuel consumption in order to eat. As a regular reader mentioned, a lot of people will forgo a long distant vacation this year.

It has been difficult to see how the world would enter an economic slow down with so many enormous gains from globalization and technology happening daily. Even the most recent numbers show that business capital spending in the USA is super strong. The good news is that the market will move up long before the worst of the slow down. Lagging indicators, such as high inflation and spikes in unemployment, occur just at the bottom of the stock market. Falling prices are, ironically, good for stocks. The price of every thing from corn and copper to gold and oil have peaked. This week, what happened? Iran shot up rockets in the air and the price of oil went down! A couple of weeks ago, a report about Israeli air maneuvers that had happened weeks before, caused oil prices to jump. Yesterday, oil inventories were down, capacity utilization was down but gasoline supplies were up! Refiners are not eager to buy crude at high prices only to find that they cannot sell the gas at a profit. Has there ever been a bigger fall off in gas guzzler sales?

The time to be the most optimistic is when others are not. That is the situation today. Trying to catch the bottom of this market is a mistake. It will be a V market. The new leaders will jump 40% on value before the average investor even realizes a market rally is in place. The decline in the old leaders will mask the market move. Hang in, stay in and add in to make money now! All the bank robbers have left in their arsenal is guns to shoot in the air, they are past the point of being willing to actually shoot at a real target!