Monday, August 11, 2008


One of the biggest fortunes ever accumulated was by the Rothschild family who believed in buying on the sound of cannons. This week the cannons are blasting away. While Russia is busy taking control of the BTC pipeline, the US is conveniently busy with other matters. reports that France, Britain, Canada and the USA are in route to deny Iran the importation of gasoline. Three battle groups, the USS Theodore Roosevelt, the USS Ronald Reagan and the USS Iwo Jima are in route to the Persian Gulf, where they will join the USS Abraham Lincoln and the USS Peleliu.


The USA could have, without notice, sent Stealth Bombers or Cruise Missiles to attack Iranian nuclear facilities (it still can). Sending three additional naval battle groups to the Gulf is not designed as an attack but is designed to encourage a peace accord by enforcing sanctions until the final accord is reached. The presence of this massive armada will intimidate and prevent the rash response of attempting to close down the Straight of Hormuz.

For the Iranian leadership to be willing to suffer so many hardships, they must want nuclear bomb capacity badly. The more they strive for nuclear bombs the more reason to deny them. It seems so inconsistent to sanction Iran and not India or Pakistan. However, the first step to reducing the number of nuclear bombs on this planet is to halt the spread of bombs. The key ingredient of the new Global Energy Bank and the Global Nuclear Energy Partnerships is that they allow countries the benefit of low cost nuclear power without having to learn the processes of refining uranium.


The market knows everything. Just because the majority of Americans have no clue that three US battle groups are underway, that does not mean that the "big boys" do not known. A war has broken out over a major oil pipeline, which has encouraged a lot of little guys to assume that oil and gold will bounce and that financial stocks will fall, but the market has hardly budged. The "big boys" are allowing the little guys to bet all they want on the outcome of the war in Georgia. During the days of great gains by the Rothschild family, other people knew about the wars. The Rothschild family understood which war to bet on.

The war in Georgia has a predictable outcome. The massive Russian Army will be able to force Georgia back into a role of a "satellite state". The BTC pipeline will still be in Georgia but it will be controlled by Russia. The market is calmly betting that this war will not spread and that US and allies will prevail against Iran. Does the outcome between Iran and the West seem predictable? Iran is clearly out gunned by the allied forces. Iran is now in the same spot as the football kicker who wandered into the wrong football teams locker room to pull a practical joke. The eighty five members of the opposing team have the kicker surrounded and they do not get the joke. Russia and China have played the role of good cop to Iran but they have also signed off on three sets of UN sanctions. Iran cannot count on any military help from Russia, China or any other country.


We are lucky to be living through exciting times. One of the most interesting days of my life was on Black Monday, October 19, 1987. It was a "good day" for me because I was "in sync" with the market. During the past 18 months or so, I suffered through tough times as a result of being out of sync with the market. In 2005 I decided the big real estate down turn would likely occur after the presidential election because I could not see the time for a winning strategy which included a downturn before the election. I was wrong. The most important issue to American votes is an improved economy due to lower energy prices. The most important issue to the left wing of the democratic party is higher energy prices in order to make alternative energy attractive. Republicans are likely to maintain control of the presidency and an easy filibuster in the senate.

The Iranian leaders are not total fools. They play a great game of diplomatic chess but their king is lonely. Their neighbors, including the UAE and Kazakhstan are moving quickly toward nuclear energy while Iran sits with an idle nuclear power plant. To avoid checkmate, they must accept a whole new game. In the new game, they will sell trillions of dollars worth of oil and natural gas, enjoy abundant nuclear power and enjoy a leadership roll in a regional nuclear power partnership. Their sales to Pakistan, India and China alone will make them trillions of dollars. Latter, they will support the destruction of nuclear warheads in the US, Russia, India, China, Pakistan and, off course, Israel. I am not suggesting utopia. I am suggesting continued progress in the global trade that has brought more people out of poverty in the past 25 years than all the charitable gifts ever given.


Many people lost money during the march from the peak of 2005 to the bottom of January 2008. If you ever rode a bike, there is a probability that you have fallen off. If you never got back on, you missed some wonderful rides.

The last surge in the price of oil from about $120 to $147 was a direct result of fear of war with Iran. From today's price, the fall will be a function of real final demand versus real supplies. It is well documented that new supplies are coming on line just as big vehicle plants close for good. The laws of economics dictate that the price shall fall to the marginal cost of producing the last demanded barrel. We know for certain that there are billions of barrels coming available for which the marginal cost of production is less than $80. Oil prices still have a long way to fall. If you have fallen off your bike, get back on and enjoy the fun of going down hill. The good times are here.