Monday, July 21, 2008

Operation Brimstone -- OOOPS!

I mistakenly wrote that Operation Brimstone included 15,000 ships instead of 15,000 sailors. The armada is still impressive. French planes will be deployed from a US carrier and the armada will include several ships that are loaded with cruise missiles. This will be the first US maneuver that includes participation by Brazil. These maneuvers will be conducted off the coast of North Carolina. The purpose will be to train for enforcing a petroleum products embargo against Iran. Iran produces crude oil but has little refining capacity.

After Saturday's meeting of negotiators, Condoleezza Rice met with diplomats from six nations to discuss the upcoming sanctions and their enforcement. There is no rush to war here. The training maneuvers end on July 31 two days prior to the deadline for a response from Iran. George Bush still has 6 months to make life miserable in Iran and six months to help pass UN sanctions. Leftist bloggers continue to state that Bush can hardly wait for the conflict to begin. The reality is that the strategy of Chinese water torture is being played out. The UN/USA coalition is gradually dripping on Iran. The sanctions have been gradually tightened for 29 years. The pace is much faster this year than in the past but Iran is being given every opportunity to negotiate. Iran has much to gain by negotiating peace.


Today, Mexico and Malaysia announced soaring inflation rates. Mexico bumped up short rates and Malaysia will be forced to follow as inflation hit 27 year highs. High inflation means high short rates and high short rates means economic slowdown. Economic slowdown is consistent with falling commodity prices, today the price of corn fell 3%. This market cycle has been a slow mover but it continues to move forward. Stock prices have historically bottomed 6 to 9 months before economic bottoms. In other words, stock prices go up right when it seems the wheels are falling off the economic bus.

The primary distorting factor to this cycle has been the drive to force Iran and other countries to stop supporting terror. The irony is that the left keeps slamming Bush for wanting to invade Iran while his approach has been to surround Iran in order to produce the desired results without a "major war". Had the USA started by attacking Iran directly, the pain experienced by the whole world would have been many times as great. Iran sits on the Straight of Hormuz and it took a lot of preparation to be in the position of being able to impose an embargo on Iran without causing a huge disruption in available oil supplies. It took a lot of years to set aside sufficient reserves and to develop replacement supplies. The rapid growth in China, India and other developing nations has made the task all the more complicated. Never-the-less, the plan laid out long ago is coming together. The timing is just right for playing tough with Iran. During a world wide economic slowdown, Iran understands that its oil is no longer critical. The situation is that the rest of the world can do without Iran's oil much better than Iran can get along without refined oil.

Operation Brimstone is the Sword of Damocles, the height of Chinese Water Torture. The leaders of Iran must decide their next negotiating step while knowing an embargo is being practiced, one that includes an aircraft carrier, a nuclear sub, numerous cruise missile carriers and small craft designed to operate in the shallow waters of the Persian Gulf. The Iranians know that this force has the capacity to dish out a lot of economic pain. The time for Iran to make a deal is before they are in a crippled position.

Today there was hardly a mention of Iran in the news. Obama's sweet treatment by major news carriers sucked all the air out of the room. The most common reason given for the $2 bump in oil prices was the hurricane in the Gulf of Mexico. The majority of investors will be greatly surprised at the ultimate significance of a peace deal with Iran. There are good times ahead but few people know this. Take advantage. Buy leveraged, depressed assets such as resort beach property!