Friday, August 08, 2008


Georgia and Russia are at war. As you might guess, the war is over energy. All of Europe is eager to get out from under the thumb of Russia's control of natural gas supplies. Georgia is a potential route for oil pipelines to flow from the Caspian Sea countries through Turkey and into Europe. Of course, Russia wants a monopoly on supply to Europe.

The US backed network of pipelines through Turkey include a pipeline through Georgia with other branches to go through Turkey-Syria - Iraq -Saudi Arabia, Turkey-Syria-Iran-Qatar, and Syria-Jordan-Egypt-Algeria. Only a very few people know if the US and Russia have made a deal in regard to Georgia. The US has backed Georgia's bid to join NATO and Georgia has supported the US with troops in Iraq, but, in the world of diplomacy, you sometimes must dump on a "friend" for a greater purpose. The primary foreign policy objective is to end the war on terror.

If Georgia is not available for natural gas routes out of the Caspian Sea area, Russia, Iran and Syria benefit. Iran has already agreed to build a pipeline from Iran to Syria. To give Iran what it needs to make a deal is more important than building a pipeline through Georgia (even though the USA would not want to divulge this fact to Europe).

In any event, the response of the USA has been a verbal protest. Under the circumstances, Russia should end this war with Georgia quickly.


Yes, this morning I wrote that this market seems PERFECT. A new war breaks out over energy and, contrary to expectations of millions of investors, oil prices go down, gold goes down and dollar trades up. When I wrote that the Kudlow Guest was WRONG, WRONG, WRONG, this is the kind of action I expected. The guest said that the big decline in gold and oil was a tremendous buying opportunity. Today, he is suffering from what he bought two days ago and he surely thought he had timed it just right when the news of war came out, wrong again.

The analogy of this situation, one I have used so many times in the past, is that of a battleship turning. It takes a long time to turn a battleship around but once it turns and gets a head of steam it is hard to stop. The timing of the war was perfect for causing speculators to double up on energy and gold at just the wrong time. One always has to be careful when the timing of an event can be controlled by powerful interest.

Gasoline is down 11 cents per gallon today. In a week or so, we should see $3.48 at the pump. Hoarded gold is dead money. Outstanding futures contracts to buy oil at $150 for the next 10 years is dead money. Six trillion dollars in money market accounts is dead money. It will take a lot of confidence building for the public to move huge back to the stock market and, ironically, much higher stock prices will be what gives many the confidence to jump back-in.

Jump in ahead of the crowd. Your total returns are likely to surprise.