Monday, September 08, 2008


The takeover of Fannie Mae and Freddie Mac by the government will pump new money into the mortgage market. The Sub-Prime Financial Crisis is drawing its last breaths.

Asian markets responded with higher stock prices (Japanese Bonds traded lower). Japan is showing strong signs of economic recovery. Japan will continue to do well for as long as energy prices fall. Mortgage rates are falling. Houses are getting cheaper to buy at the same nominal price. The 10-year treasury note is currently below 3.7% which is lower than all but two or three times in your entire life.


The Nuclear Deal with India continues to leap tall hurdles; it should be sent to the US congress for consideration soon. The Nuclear Deal with Russia has been all but called off. The US has accused Russia of selling arms to Iran and Syria which have then been funneled to Hezbollah and other terrorist. Russia has threatened to assist and train Iran in the production of nuclear energy. US ships entered the Black Sea and others have docked at Georgia despite warnings from Russia. By taking control in Georgia, Russia has denied the Israelis of an airbase that is withing striking distance of Iran.

The US has sent messages and a follow-up messages to Russia. The day after announcing that the nuclear agreement with Russia might be withdrawn, the GE-HIT partnership (US-Japan) announced projected orders to build $60 Billion worth of nuclear plants. A couple of months ago, China made a billion dollar nuclear deal with Russia but China has ordered 100 of the Westinghouse Pebble Bed Reactors. The Russia-US Nuclear Agreement would open western markets to Russia but Russia prefers to fight for control over its neighboring states. The US is ready to negotiate with Iran without Russia's help.

Western Europe has declined to impose sanctions on Russia, as Russia supplies much of Western Europe's gas and oil. Georgia has filed a court proceeding through the UN.

Iran has ordered $35 million of military equipment from a Chinese company that is a subsidiary of an Israeli company! Iran surely knew.

The Al Gore crowd would "retire" fossil fuels within ten years. The reality is that if all the nuclear power plants in the world that are under construction, planned and proposed were to be built, the new energy supplied would be only 40% of the current usage of fossil fuels. Al either has a magic wand or an incredible imagination. There are 36 plants under construction and 97 planned that could possibly all be finished in about 10 years. There is little chance that the 221 proposed plants can all be finished in 20 years.

To accomplish as much with windmills is certainly a pipe dream. If it could be done, the costs would be more than double the costs of nuclear. The hit to the environment would be terrible.

Pundits keep saying that China will snap back after the Olympics. These guys have not read the business news from China. Recent reports say that more than 67,000 small to medium sized Chinese businesses went bankrupt in the first 6 months of 2008. The world wide slowdown is real. China has made the commitment to lower the production of air pollution. Business is taking a hit until nuclear plants can be built.


Sarah Palin has given McCain a solid boost toward the presidency. Over the next 10 days, the electoral college maps will gradually roll over. McCain has already wiped out Obama's lead in the daily tracking polls. As individual state polls are updated, McCain should take a significant electoral college lead. Poor old Biden has been forced into the position of telling the media that Bush has followed the Biden plan and is now following the Obama plan. Yeah, right!


The news from Bio tech labs continue to be amazing. Cures for major diseases are just around the corner. The science of trans-genetics is showing incredible promise while producing weird stuff. Spider DNA has been implanted into goats. The goats "milk" includes abundant strands of expensive silk thread! Cows have been converted into antibiotic producers. The value of the antibiotics produced is far greater than the value of milk. The cost of milk is down because "new" cows produce 16% more. MS and diabetes has been "cured" in mice. The diabetes cure has been tried on monkeys and it works for them as well. Cancer cells are being attacked by gene altered bacteria.

Bio-tech start-ups tend to burn dump truck loads of cash and few produce successful products. The potential is so large that lots of stuff gets tried. Cures for major diseases will pay huge rewards. Buy the exchange traded funds to spread the risk.


Yes, China is cutting back. No, China is not "done". Not long ago, the cost of clothes went down in America because of trade with China. Today, China is making ever more sophisticated products. For example, China is the largest cell phone exporter. This says a lot about future inflation as the cost of consumer goods will continue to fall.

One can see the trend gaining momentum again by watching the spread between the 10-year nominal treasury note and the 10-year TIP note. This spread has been falling fast and hard. As the price of resources, such as oil, continue to fall, inflation expectations
should continue to fall.


Thirty-nine republican Senators have signed the Jim Demint letter. The promise made in the letter is to oppose any legislation that scuttles the expiration of the drilling moratorium. Two more votes are needed.

The "Gang of Ten" is now up to the "Gang of 16". There are now 8 republican senators who are willing to go along with pork barrel energy policies. Newsweek posted a big article suggesting that the American people are pushing for action now, compromise now. The vote is going to be close.

There will be a lot of horse trading going on in September. The nuclear deal with India should be a slam dunk but some will block it unless it is included in the "grand compromise". Of course, T. Boone and his investors (which include Nancy Pelosi) would like for congress to pass wind mill subsidies. Will the McCain message get through? The winning position for the republicans is to say no to pork, no to government spending and yes to drilling. We will see?