Snowballs Keep on Rolling

When McCain did his 180 on OCS drilling, I wrote about how the pipeline from Alaska is already built and thus the environmentally correct thing to do is to drill in ANWR first. Today, McCain is reviewing his ANWR policy.

Opinions are changing fast. Snowballs are rolling in June. There is about to be a huge shift in momentum! A regular reader says that McCain will win the Presidency if he selects Condi as his VP.

CAL up on global cooperation with UAL.

Snowballs Are Starting to Roll -- BUY, BUY, BUY

Another strong buy signal plus the following.

July 13, Olmert will meet al-Assad in Paris. The deal between Syria and Israel is essentially ready to sign.

Condi Rice reports that North Korea is ready to declare the details of its nuclear bomb program and thus Bush is prepared to remove North Korea from the terrorist state category. Sanctions will be removed and trade deals will flourish.


The Saudi Summit this weekend will discuss ways to lower the oil price. The price is down $3 today and the airlines are cutting out their non profitable routes.

The EU will hold a summit Tuesday at which Brown of England will push for additional sanctions against Iran.

Iran has declared that they are ready to discuss the UN package of incentives.

Condi Rice chaired a conference today where the use of rape as a weapon of war was discussed.

Russia has tested the depths by drilling a 40,000 feet oil well. Mother Russia struck massive quantities of oil.

After Condi Rice visited Lebanon, she said that the new government is good for the people of Lebanon and thus good for the USA.

Patterns that are developing include:

1) High level negotiations are taking place.

2) Leaders from France, Egypt, Turkey, UAE, Oman and others are working hard as mediators.

3) Condi Rice is "in the news".

4) There is steady movement toward drilling for oil in the USA. (A democrat just came out in support of nationalizing the US refining business but common sense is starting to flare up in other minds.)

5) There is a definite push to get nuclear power deals in place quickly.

The info about the 40,000 foot well in Russia came from a Youtube sent to me by a regular reader. Lindsay Williams, the author of "the Energy Non Crisis", says that there is 200 years worth of oil on the Alaskan North Slope. His estimates sound overly enthusiastic to me. One of the factors he does not mention is the cost. I have forgotten the details but Exxon spent something like 200 billion dollars on one very deep well in the Gulf of Mexico. I am fairly sure it was not nearly 40,000 feet deep. Who is going to routinely spend several hundred billion dollars in search of crude that is very expensive to lift?

I happen to believe that oil is renewable. I believe it is being manufactured all the time. I believe only a small portion has been discovered. Still, it is not realistic to expect drillers to spend 200 billion on a well immediately after a big run up in the price. If the price were to remain above $130 per barrel, I would expect super deed drilling to become routine. The huge quantities discovered in Brazil are at about half the depth of the Russian well. Drillers are leasing drill ships for as much as $600,000 per day. The congressman who want to nationalize US refineries is the type of guy that would look at Tiger Woods playing golf and decide that the game is easy.

Iraqi troops just waltzed right into another militia strong hold. Peace is breaking out in Iraq and Iran is ready to talk. Snowballs are gathering momentum. Rice is in the news. I hear a draft Rice for VP chant in the distance.

BUY, BUY, BUY SIGNAL

On top of many other buy signals, check out the following.

Thompson DataStream has produced a chart showing the amount of money on the sidelines is at breakout levels. At the 1981market bottom, the peak in money relative to corporate stocks reached 21%. It hit 18% at the market bottom in 1990. It reached a low of only 7% near the market peak in 1999. It reached 20 at the bottom in 2002 and it is at 23 today!

Fast and Furious Progress and Booming Growth

A Sunni group has taken credit for the bombing of a Mosque in Iran and the government of Iraq, at the request of Iran, has banned all dealings with "MEK" a Sunni terrorist group that was used by Saddam to attack Iranian targets. The MEK is not happy about being "cut off" by the Iraqi government and they have appealed to the UN Security Council for relief; they should not hold their breath. Terrorist who were once routinely supported by governments from Libya to Yemen are being shunned. This great news is not being widely reported but it is great news. An important part of this story is that objections to the deal to permit peace keeping troops in Iraq are being removed one after another. Once this deal is in place, one of the big piece remaining pieces to this puzzle will be the pending deal with Iran.

Over in Lebanon, Condi Rice just met with President Suleiman. The US cut a back door deal just a few weeks ago that allowed his ascendancy to the Presidency despite the political power granted to Hizbollah in the process. It is OK for Hizbollah to have political power but not OK for them to commit acts of terror. The support of the US and Syria for an agreement between Lebanon and Israel is certainly an important piece of this peace puzzle. Olmert and Suleiman are ready for direct talks. This means the deal is basically done. The hang up over the farms of Shaba, which Israel has agreed to return are claimed by both Syria and Lebanon. The French were instrumental in mediating an agreement between Syria and Israel. The implication has been made that the UN will recommend some kind of a split or other settlement offer between Syria and Lebanon.


On the other side of Israel, a cease fire between Israel and Hamas has been mediated by Egypt. Every nation in the region is involved in the peace negotiations in one way or another and politicians in every nation are prepared to take their proper share of the credit. Of course, cease fire agreements are frequently broken but the bigger deal is the negotiations with Lebanon, Syria, Afghanistan, Pakistan and Iran. The direct talks between Lebanon and Syria should pave the way for direct talks between Syria and Israel.

Booming Growth

The current boom is in resource rich countries such as Russia. Russia is currently in the midst of a real estate bubble. Prices in Moscow have jumped at the annual rate of 40% and laws concerning the private ownership of real estate are having to be adjusted to protect those who have been paying "socialist rental rates" (sounds like New York city doesn't it).

The boom in the US continues to be confined to certain areas. Examples include US export growth of 19.2%, business construction up 15.4% and core consumer spending up at the annual rate of 10.2% over the last 3 months. Earlier I mentioned the boom in high tech equipment and the boom is sales of super computers. There is another hot, hot, hot sector of the US economy.

Incredible Spending on Research and Development

There are so many hot research projects to be mind boggling. Some are huge and others are relatively small with huge potential. An example of a small project is the work being done on "Black Light Power". A start up has acquired $60 million in funding to develop this source of energy. This is one of those too good to be true stories in which some very smart people have great enthusiasm and faith. If the concept works out, the cost of generating power will be reduced by 70 to 90% in a few years. For umpteen years, we have been teased by the promise of hydrogen power. These guys think they have figured out a few things that Eisenstein might have learned if he had worked 40 more years or so. Their program converts hydrogen and a solid fuel catalyst into hydrio while releasing heat and energy and while breaking down water into its components of hydrogen and oxygen. The hydrogen from the water can be feed back into the loop to keep the process going. This is not one of those impossible perpetual motion machines. This is a bit like finding the way to increase the efficiency of nuclear fuel from 5% to 10% (other scientist are coming close to accomplishing this feat).

Folks, it is time to be optimistic. Our energy problems are going to be solved one way or another. Today, Charlie Crist, governor of Florida, came out in favor of drilling off the Florida coasts. With Cuba granting China and many others the licenses to drill within 60 miles of Florida, it would be silly to allow Cuba to "drink our milkshake". The law of oil, which developed around the "western law of capture", is that the man who has the longest straw gets to drink all he wants (provided he does not drill sideways into the other mans territory). It is absolutely silly for the US to buy foreign oil while not allowing US reserves to be tapped. It is great that politicians are seeing the need.

The momentum for drilling in America has turned. Since a couple of weeks ago, when the Senate pounded to the death an attempt to impose cap and trade taxes on oil, coal and gas, there has been a growing sense that the environmental gestapo has finally met its match, $4 gasoline. Senators are scrambling to make it look like they are doing something. If nothing else, they are trying to squeeze a little more pork out of the situation. Eleven Senators have asked the Bush administration to file trade complaints against 8 OPEC countries. Yeah, they want to sue OPEC for price collusion; good luck with that. All the while, Brownback, a republican from Kansas, has submitted a bill to mandate that half the cars in America built in 2012 be flex fuel equipped. When are politicians going to learn that we do not want corn alcohol rusting our cars from the inside out?

In another interesting development, the Senate just blocked a 17.7 billion dollar boondoggle to give consumers money to build private windmills and roof top solar panels. Can you imagine the joy on the faces of ranchers and farmers 80 or more years ago when they received access to electricity? Do you suppose they regretted depending on wind mills to pump water? It made no sense to keep on using windmills back then and it makes no sense now. They appeal to our sense of getting something for nothing but there is no free lunch. Of course, GE, a major seller of wind turbines just put out a study saying that governments tax revenues will fully repay windmill subsides. In case you didn't know, the government cannot operate on an eventual break even basis. The way the government works is the taxpayers put in a dollar and hope to get back 80 cents worth of services. When windmills are subsidized, for the government to pay out a dollar, it has to take in at least a dollar twenty from somewhere else. Who should be forced to waste the extra 20 cents? The democrat response is to take twenty cents from the investments of the rich. They do not appreciate that they take the money most productively deployed. The government had better be thankful for the oil business. The government makes more money off the oil business than does the oil companies. The problem with government has always been how to generate the governments slice of the pie.

450 for 1

Israel is prepared to release 450 prisoners in exchange for the 1 kidnapped Israeli soldier. It sounds like a good trade to me. One honorable soldier is worth at least 450 terrorist.

Is it not unreal that the mind set of Islam is that it is better to die by homicide--suicide bomb than to spend time in jail? The Taliban just took extreme measures to do a prison break out in Afghanistan. The good news about this kind of break out is that the rats can be followed back to the nest. Since the breakout at least three-dozen Taliban have been killed. When the negotiations with Iraq allow us to keep only 50,000 or so troops in Iraq, it will be time to send the other 90,000 to Afghanistan to finish the job there. We do not celebrate the deaths of the terrorist but the lives saved by the death of the terrorist!

From the Iranian Point of View

The Iranian View starts with their correct statement that refining ore to LEU power grade is different than refining it to HEU weapons grade. Of course, the fact that they have been working on missiles designed to carry nuclear bombs and the fact that they have in the past tried to acquire weapons grade technology all makes the current program the precursor to a weapons program. Iran points out that Brazil and other nations that are quietly working on nuclear power are not under sanctions. The new 123 agreements require all nations to acquire their nuclear fuel from IAEA supervised centers. I have not heard the government of Brazil propose that Israel or the USA be wiped off the map or that they have paid people to blow themselves up in the middle of crowded markets.

Other Iranian arguments look back a very long time. Going back just 60 years or so, British Petroleum (BP), is seen as the devil. For Iran, BP is like Exxon to the lefties of the USA. It is seen as a greedy profit machine that does not share fairly with oil owners. In case after case, when countries nationalize oil fields, they learn that the oil companies produced profitable results for all parties. BP and Exxon are like the Tiger Woods of golf, he sure makes the game look easy. He can play better than the rest of us even when he has one broken leg bone and another torn-up knee. Nations like Iran and Venezuela would give Tiger's golf clubs the credit for his success and confiscate them from him.

The support given to various Iranian regimes by the British and the USA over the years is seen as the manipulation of a sovereign nation for the purpose of stealing Iran's oil wealth. Based on history from many more years back, Iran believes it should own the land all the way through Spain. We cannot correct the mistakes of history but we can move forward in peace.

Iran sees itself as a progressive country in areas where outsiders view it as reactionary. Iran believes it treats women well. Seventy percent of university graduates are women and a large number of Iranian women hold professional jobs, doctors, lawyers and professors. Some are members of parliament. The strictly enforced "special rules for women", such as the rules about dress, are considered laws of protection. A small percentage of Iranians are Christian, Jew or Sunni. The leadership "demonstrates tolerance" by showing minorities respect.

Iranians see Iran as a modern country. Major cities are filled with skyscrapers, there are modern roads and foreign cars of all makes and sizes. There are even car races. Before the recent troubles, the people lived relatively well. The average GDP per person was about $12,000 compared to about $50,000 in the USA.

The country is also a place of beautiful architecture, culture and antiquities. The age of enlightenment in Persia long preceded the European Renaissance. Sitting at an important crossroads and owning great natural resources, the country is ambitious. Since the 20th century was not kind to the country and the 21st century has been worse, the people are looking forward to the good times.

The Intrade Betting Site has Obama as a 65% probability to win the Presidency. The Iranians have their fingers crossed. They know if they hang on until Obama is president, he has pledged to pull troops out of Iraq (he has backtracked on this pledge but Obama would likely go along with the desires of the expected democratic congress). The absence of US forces would significantly boost the influence and power of Iran. However, drilling for oil is going to be a central issue in the upcoming elections and it could dramatically change the outcome. Some polls show that 70% of Americans believe it is time to drill in the USA. McCain continues to show his zebra strips. He announced today a proposal to spend billions of government dollars developing clean coal. Still, it is the democrats who are out of step in regard to energy. The market fears the tax increases promised by Obama. A lot of things will change if Bush is able to successfully conclude the mission he began in October of 2001.

The End is Near: A Gross Simplification

The movement of Iraqi and US forces into Maysan and Amarah is another demonstration that the end of major conflict in Iraq is at hand. Iranian forces are scattering but a few are sticking around for the fight. Key arms smuggling areas are coming under the control of Iraq. Iraqi forces are functioning well. To some extent, there is still a game of "whack-a-mole" being played, for example, 150,000 Taliban are grouped in the mountains of Pakistan, ready to do battle in Afghanistan, but Iraq is close to being free of insurgents. Yesterday, the bomb in Baghdad that killed 45 people in a public market reminded us that suicide bombers will be around for a long while but, again, the sweep into Maysan and Amarah shows that insurgents are quickly running out of places to hide.

A Complicated Negotiation

So, if the war is essentially over, why does Iraq need US peace keeping forces? Maybe this seems like a tough question and maybe not. After all, the battles between the Mesopotamians and the Persians go back a few years. Can we foolishly assume a lasting peace is at hand? Yes and no! It is my belief that the long negotiations with Iran are almost at their conclusion, both sides are ready to "make a deal". A simple cost benefit analysis clearly supports the common sense of signing off on several long term trillion dollar commercial deals that will enrich the Iranians and provide lower cost fuel to the world. Doing so requires and attitude modification. How difficult is that? There is nothing simple or easy about these negotiations.


The push of the US political left to withdraw from Iraq now is absolutely silly. It would be absolutely silly to come this close to ending the support of terrorism by Afghanistan, Iraq and Iran only to withdraw just before succeeding. Iran needs to know that US forces are not going to go away for as long as there is a need for them. As a sovereign nation, it is up to Iraq to negotiate the terms of the US deployment of troops in Iraq.

After WWII, many in the USA were opposed to the Marshall Plan. At the time, who would have believed that today Germany would not only be reunited but would be a member of a 27 nation European Union with one currency, a central bank and a rotating presidency. Who would have thought it possible that the French would take the presidency of this European Union this year? But the European Union continues to struggle and just this past week Ireland voted down the new "constitution".

The political struggle in Iraq is no different than the political struggles of the US and of Europe. There are many factions with many agenda and with many ideas and attitudes about the deployment, but the Iraqi people generally recognize that US bases are important. The stationing of troops in Europe has been a good thing. Centuries of war in Western Europe have ended. It is possible to end centuries of war in the Middle East.

Ending the Energy Crunch

It is interesting that the NPRA (the National Petroleum Reserve - Alaska that is bigger than ANWR) is seldom a part of the drilling debate. The Bureau of Land Management occasionally leases part of the NPRA for drilling but it also throws a bone to environmentalist along the way and declares a little bit more of this 23 million acre petroleum reserve to be a nature reserve.

The NPRA was originally created by Harding as a Naval Petroleum Strategic Reserve. This was back in the days when ships were being converted from coal power to oil power. Nuclear powered vessels show that the times have changed much more than our attitudes. I mention the NPRA to ease the anxiety of the "peak oil" alarmist who believe we are about to suffer greatly when we run out of oil, soon. The point is that there are still trillions of barrels of oil in the ground, enough supplies to last a very long time. The question remains, are we going to produce our oil or are we going to pay out the nose for foreign oil?

This week, McCain did a partial 180. In 2000, when he was running as the "maverick" opponent to George Bush, he became a zebra republican. Like Obama and Hillary, McCain has been willing to go with the politically expedient answer rather than with what makes economic sense (it is sometimes unclear if Obama or McCain understands the economics of a situation but they both seem to understand the politics). The result has been his opposition to drilling off the coast of America. His 180 was partial because he did not include ANWR in his "conversion experience". McCain now supports drilling of the Atlantic and Pacific Coasts with the stipulations that the states should decide and that the states should share in the massive revenues.

McCain, like the rest of the "falsie environmentalist" totally ignores the TAPS. TAPS is the Trans-Alaska Pipeline System. It cost billions of dollars to build this system and, yes, building it was harmful to the environment in many ways. Interstate 40 from Wilmington, NC to Las Angeles, CA was in harmful to the environment in many ways. The cutting down of trees to build your house was harmful to the environment in many ways. Air conditioning your home is harmful to the environment in many ways. Drilling for oil off the coast and building the pipeline system to transport the goods will be harmful to the environment, but the TAPS is already built!

At the peak, about 2 million barrels of oil per day flowed through the TAPS. Today, about 700,000 barrels flow through. This number is about to go back up a few notches as other projects are brought on line but why not drill on a small part of ANWR instead of on the Atlantic coast? Better still, why not auction some leases in ANWR and some along the coast so that the market price will tell us what to do next. You see, no one really knows just how much oil and gas there is in either of these areas. The geological information leads us to believe the coast is very rich in gas and a little bit rich in oil and that ANWR is very rich in oil and only a little bit rich in gas but a little exploration would tell us a lot.

Four Hundred Trillion Metric Cubes of Gas

In recent weeks, interested parties have become well aware of the 26 Trillion Meters of Gas in Iran. It is easy to make fun of a people who sit on the second highest reserves of gas while freezing in the winter time. It is estimated that there are more than 400 Trillion Meters of Gas along the coast of the USA and we do not laugh about paying $4 for gasoline.

Many an Iranian has converted his car to run on natural gas because there is rationing of gasoline, but a free people understand the laws of supply and demand. We understand that the price will allocate supplies to where they are needed the most. We understand that supply will meet demand at the market price and that the way to keep price down is to increase supplies as much as possible while using those supplies as efficiently as possible. Iran's failure to allow the market to price supplies has resulted in great waste of supplies in past years. The market still works, even after the government artificially sets price. The extra low price in Iran has resulted in massive waste and forced rationing.

Where is Obama's 180

So far, Obama has struggled to move toward the middle. He is no longer calling for an immediate pull out of troops in Iraq and he is no longer ready to meet with terrorist leaders without preconditions. The question for Obama is, How fast can he move toward the middle without making his lefty supporters really mad?

He just did another partial 180 in regard to his social security plan. During the primaries, he was ready to raise the payroll tax on everyone making more than $90,000 per year. This week he moved the increase way up. He now says only those making $250,000 or more will see the increase. The good news for those who want to privatize the system is that his proposal breaks the social security concept into pieces.

His plan converts social security from a retirement plan to a welfare plan. Those paying the extra get no additional benefits. In the end, it will be the middle class who will suffer, when SSN becomes the minimum welfare benefit. In effect he is going back to the democratic play book. He is pulling the AMT trick again. The AMT was passed as a tax only on the rich. Today, millions of Americans pay higher taxes due to the AMT. $250,000 is high enough to make us all think this is a rich mans tax, but is it indexed for inflation? What an upside down world? It was once a single dictator who won control of a government and then confiscated the property of the people. Now it is a tyranny of the majority. So many people are feeding off government grants that they are willing to convert a supplemental retirement plan into a tax and spend plan. The revenues that Obama will raise with this plan will be added to the general fund spending until the year 2017.

Great Opposition and Great Freedom

Senator Baukus is trying to tie Bush's hands in Iran and Iraq. The conference of Mayors, the new experts on foreign policy, have voted to tie Bush's hands in regard to Iraq and Iran. The situation is that it take a gross simplification to say that the end is near.

In the mean time, the heavy tax of high oil prices is causing a slowdown in the world economies. It is also causing a boom in high tech spending. US production of high tech equipment soared 25% this past year! The US economy, in particular, will benefit from the resolution of the conflict with Iran. 80 nude cyclist in England got very cold last week as they rode around in protest of global warming. Like Ron Weasly said, "She needs to get her priorities in order!"

Time are good. We simply do not believe it!

1 + 1 = 3, The Concept is Called Synergy

In recent years, well meaning people, politicians and environmentalist, have pushed antagonistic policies. Policies that result in 1 + 1 = 1.5. On the other hand, Google is making a big 1 + 1 = 3 push. Google appreciates the benefits of synergy.

The Google Android development kit has been downloaded in record numbers. The kit is free and the software will be distributed free. This means the new Android based phones, coming to market in a few weeks, will sell for less than iPhones which are sold with built-in software license fees. Google has also made its Google Apps software open and free. This software includes all sorts of free services including email, instant messaging, photo albums, and office productivity programs such as spread sheets, word processing and presentation programs. The free package is certainly a lot more than free web pages and email with 6 gigabytes of free storage, but 6 gigabytes of free web space and off site, backed up, storage is nothing to sneeze at. Enterprises, everything from schools, to businesses, to churches, should consider getting rid of in-house servers and using the free hosting provided by Google. The savings are substantial. The Google deal this week that will connect Google Talk with the Yahoo Instant Messaging program will dramatically expand the usefulness of yet another free service.


On another front, it appears that the market is going to move toward free wireless Internet connections and free basic service but metered cost for heavy users. It is becoming clear that those who constantly consume huge quantities of bandwidth in activities such as transmitting videos, should pay a higher price than someone who surfs the net a little and sends a few emails. Google is an advocate of totally free basic connections.

The Mobility Factor

The big leap forward is the mobility of a slew of free services. The cell phone company practice of finding the way to sneak in an extra charge has always been frustrating. Companies that charge extra for text messaging is a prime example. Text messages cost less than phone calls to deliver but consumers are often stuck with an add on rate or with per message charges. Mobil WiFi devices can access the Internet and be used for unlimited phone calls, unlimited browsing and unlimited instant messages, for un-metered service and very low fees for metered service.

Produce a letter or spread sheet or presentation on Google and share it with whom ever you want. Edit the document from any computer, allow others to edit or have an online jam session about what the document should say. Who needs a desk top computer or a server? Put the whole enterprise online and do your work with a laptop on the beach.

Our politicians are in antagonistic mode. They are looking for ways to take money away from the most efficient and most productive ventures in order to subsidize their pet but unproductive ventures. Politicians are often willing to shrink the economic pie if they or their friends can be given a larger piece. The Google program is designed to grow the pie greatly but to get a very small piece of this very large pie.

International Shrinking Pie

High energy prices are acting like a tax increase on the economy. The difference in the US economy and other economies is that our interest rates have come down (while the recent trend is back up). In the USA lower interest rates are the antagonist to higher energy prices, 1.5 -1 = .5, the result has been slow growth but no recession. Higher interest rates in emerging economies are working in synergy with higher food and energy prices. The combination is striking a blow to these economies. Several of the formerly fastest growing economies are slowing down rapidly. The result is demand destruction. The pressure on commodity prices is subsiding. The reduced pressure on commodity prices has given the "5+1" support for tighter sanctions against Iran. Iran is no longer holding all the aces. The "news" has made it to prime time. This morning a guest on CNBC talked about the oil backing up in in storage tankers. Just yesterday, European leaders joined Bush in saying sanctions against oil and gas production will follow the financial sanctions that have been in effect. The pressure on Iran has been increased by making the announcement after the program has already produced results. When questions are asked, the answers are already available.

Not Effected

Lots of businesses are either not effected by higher fuel prices or even supported by higher fuel prices. An example of a non effected business is the research lab that just came up with a method for regrowing bones. While it will take years to bring this to market, it will ultimately make a dramatic difference in heath and health care. Many older women are very healthy with the exception of weakened bones. Take a pill, regrow bones and live a better life! It makes sense to fund this research no matter what happens to the price of oil. It makes sense for the government not to subsidize the project. The constant mistake made by politicians is for them to assume they can pick which project by which researcher should be funded. The result is that the politically connected research gets priority over what will prove to be the best research.

The research going into new sources of energy or reduced consumption has been encouraged by higher fuel prices. The money being spent is incredible. We already have a lot more than the "Manhattan Project" proposed by politicians. Take the break trough in brewing beer as an example. Researchers have developed a process that will cut a half hour off the time required to brew beer and it will cut the energy consumption by 10%! Many an industrial process is worth retooling for a 1% reduction in costs; new construction will automatically include the new process. Another interesting example is the power plant to be buried in a remote village in Alaska. Toshiba has developed a sodium bromide cooled nuclear "battery". Toshiba will dig a hole in Alaska, deposit the battery and leave it to produce electricity for the next 30 years. The cost of electricity in the village will be cut by more than half!

Small no maintenance nuclear "batteries" will ultimately be used to power commercial ships and "unique" situations. The heat generated by nuclear plants will help liquefy tar sands and shale oil.

The Bakken Formation is progressing well. In February, North Dakota reported production at the annual rate of 50 million barrels. By May, the annual rate had increased to 54 million barrels. Over on the Canadian side, producers are gearing up to develop Bakken. Iraq appears to be headed for a 400,000 barrel per day increase by year end. The IEA reports that total liquid production has increased from the average rate of 85.4 million barrels per day in 2007 to 86.8 million barrels per day in 2008. Demand is down in the USA by more than the increase in world wide production. When demand goes down and supply goes up, the price is likely to fall. My friend keeps telling me that Goldman says that oil is going to $200 per barrel but he has not been able to answer my question, "Is Goldman buying or selling"?

Airline Capacity Cuts

LCC made additional capacity cuts this week and the prospects for major carrier profits increased, again. Airline stocks are benefiting from the capacity cuts in that the demand for jet fuel has been cut at the same time that demand for the remaining seats has been increased. Higher seat prices and lower cost will lead to major profits. I am waiting for someone to give me another example of companies with positive cash flow which shares are selling for less than their "cash on the books value".

News From the Middle East

Jack,

I am curious as to how you know more about the situation in Iran than the great majority. Is it your research, connections, unique sources. I would like to believe that an agreement is at hand, but I am very doubtful.

Thanks,

My sources are not so unique but make me a list of how many mentions you have seen about the numerous multi-billion dollar pipelines being built around Iran or any commentary outside of mine about the strategic importance of these pipelines. Or, make me a list of how many times you have seen information about the major new 123 Agreements that have been signed or the magnitude of the deal with Russia or any commentary about the importance of the spent fuel deal with Russia. Reading about these pipelines and the 123 Agreements should have given you a sense of what is going on in the Middle East that you would not have gotten from the mainstream media. Make your list from what is on your TV news and in your regular newspapers and then make it again after doing some searching on the Internet and then compare to what I have written.


I have had a bit of inside information about the Soroush and Nowrouz oil fields and the "blockade" of oil in Iran but most of what I have written has been freely available on the Internet. The exception is my subscription to Stratfor.com. George Friedman often includes some coverage that is either difficult or impossible to find in the public media.

Most of what I do is tie the pieces of information together to make common sense out of them. For example, it has been more and more widely reported that Bush has proposed that the USA be allowed to keep 52 bases in Iraq after the UN authorization expires. The back and forth on this item in the main media has been primarily stories saying that McCain wants to keep troops in Iraq for 100 years, stories about how Bush is thirsting for a spot from which to attack Iran, or stories about how Obama would go ahead and talk directly to the Iranians. The implication has been that the USA is blood thirsty and unwilling to negotiate with Iran but those who read can easily discover that there have been negotiations going on between the "allies" and Iran for 30 years, very intense negotiations for the past couple of years. For example, the Bush administration has had numerous meetings with Iran and Iraq about "security in Iraq". Bush has said repeatedly that US channels are open and will remain open for continued discussions. Maliki went to Iran weekend before last to try to work out a compromise. This was covered but the coverage did not put these negotiations into context nor did they tie these negotiations to the set of negotiations being advanced by Javier Solana. Ahmadinejad has stated that the biggest impediment to a deal is the continued presence of the US in Iraq. The public announcements are about refining uranium but both sides are ready to allow uranium to be enriched on Iranian soil under the supervision of the IAEA. Of course, the US does not go splashing around telling the widely known "secret" that predominately Sunni nations such as Saudi Arabia desire the continued presence of the US in the Middle East. Leaders in Saudi Arabia and in Iraq have to be political cautious about supporting the presence of troops, but they do. Most articles give the impression that the US is not wanted in the theater. Many partisan democrats will not admit that there has been progress in Iraq, they will not admit that there is a need for peace keeping troops and they will not admit that we need more domestic oil drilling. The democratic focus is on $600 vote buying checks for the average man while ignoring the threat of Iran.

As I said this morning, part of the problem is a problem with simple addition. Those who never liked math, do not bother to add up the numbers before taking a position. Congress has spent billions to subsidize windmills and billions more to subsidize solar panels but we produce less than one half of one percent of our electricity with windmills and solar panels. Had the same subsidies been spent on building clean coal plants or on drilling for oil (not that I would recommend such subsidies), huge amounts of energy would have been produced and gasoline would not be at $4. Any company that entered a side business like windmills and lost money year after year for 30 years would shut down the business. The company that invents the cost effective solar panel will make billions of dollars, we do not need to build scores of demonstration plants at a loss in order to encourage research. It is only government subsidies that keep the wind mill business in the forefront of the news. I am not saying that there is no place for windmills but that mathematically it is not practical to expect windmills to provide a major portion of our power needs. In a few years, the left will be able to attack T-Boone Pickens for making millions of profits off the great windmill farms of Texas but the government dollars given to him will be long gone. The good news for Exxon is that it is coming off the top of the list of villains because the pork spending freely given to ethanol and windmill farmers is so wasteful.

It is now public knowledge that Iran has had plans to "suit case sized" nuclear bombs for 10 years. How much money should we spend to keep suit case sized bombs out of the hands of terrorist? If it was your decision to make, would you spend a trillion dollars of tax payer money to keep nuclear bombs out of the hands of terrorist or would you spend that trillion dollars subsidizing wind mills? Understanding what is news is understanding what is important. A few days ago, there was a major push by the left suggesting that it is time to talk directly with the sponsors of terror. They do not appreciate the risk of letting nuclear bomb making skills spread to the hither lands. This is a fundamental misunderstanding of what we need to do to protect our "environment".

The fact is that countries from every continent are working together to encourage Iran to lay down its arms and to participate in trillions of dollars worth of commercial deals. After 30 years of sanctions, Iran, the second richest oil and gas nation on earth is rationing gasoline and suffering from hyper inflation. The leadership is considering increasing its expenditures on imported gasoline from 7 Billion Dollars per year to 9 Billion Dollars. It is not clear that this gasoline will be available at any price. Living in Iran right now is not a lot of fun. Theoretically the leadership could hold out for many more years but if they want to participate in the "new nuclear power age" they need to sign on within a couple of months.

The sanctions on Iraq lasted about 10 or 12 years. They worked only to an extent. They ended with regime change. The latest sanctions against Iran include the participation of Russia and China. Many a mainstream news article or editorial mentions Russia and China as being on Iran's side. One Senator on the committee that is reviewing the 123 Agreement with Russia, made statements a couple of weeks ago revealing that he was not aware that Russia has assisted with enforcement of Iranian sanctions. The nuclear power plant built by Russia would be operating by now if Russia were cooperating with Iran. Not only is the public ill informed but members of the US Senate committees choose to read the fluff and not the news!

Are Iranian Leaders Crazy or Crazy Like a Fox?

Some folk say that Ahmadinejhad is a crazy man. The cleric who leads the country is "crazy like a fox". Last week, when a University Professor was charged with sexual discrimination, the clerics clamped down on the lose dress habits of the female students. This male dominated society knows how to twist the news and how to apply pressure. The twist that oil is being put in tankers in order to block the Straight of Hormuz is a convenient story. This super tanker storage began right at the deadline for trading out of dollar deposits. Oil bulls and leftist politicians have been quick to declare that oil will go to $200 and that Iran is in control. The facts do not support their case. The building of billion dollar pipelines around the Straight has been in progress for years and the pace is picking up. The rapid pace of exploration and developing around the world will soon make Iran's oil of little importance in the short run. Iran still has levers, but it is not in control. The oil being exported from Iran has been reduced because the world has decided not to buy it. Iran does not have the refineries to produce enough gasoline for its own people because the world will not supply the equipment and knowledge necessary. Iran, has over 26 Trillion Metric Cubic Feet of natural gas and cannot supply its own needs even though its 16 billion dollar deal with China to develop a major gas field has been on hold since February. If Iran does not make a deal with Bush, will Obama desire to reverse the three unanimous votes by the UN Security Counsel to sanction Iran? Would Obama make a deal to allow Iran or any other Middle Eastern country to refine uranium? If so, what would be the circumstances, $10 per gallon gasoline?

The story of Bush's just completed tour of Europe is that in every case he won support for additional sanctions. France and Italy have given enthusiastic support and the UK will keep troops in Iran and add troops in Afghanistan. Another major offensive is ready to start in southern Afghanistan. France has even helped negotiate the early give up of Israeli lands to Syria in order to encourage Syria's split with Iran. Have you read about this deal elsewhere? It is not secret but I doubt if it will be widely reported. The loss of Syria's support would be a major blow to Amadinejad.

The Bigger the Surprise or 'Un-Belief' the Better

Oil bulls, having made good money, have gotten bold in their predictions. Bullish predictions range from $150 to $300 per barrel. Many of those who predict extra high prices in the near future have seen pictures of Iranian fighter planes flying low, close to full oil tankers docked in the Straight of Hormuz. They join the words of Ahmadinejad with the visual image of oil tankers and fighter planes and assume the "Battle with Iran" is going to turn out badly.

Deadlines have been coming and going quickly. The deadline for Iran to move money out of US dollar bank deposits was apparently in late April or early May. Soon after the scramble out of the dollar ended, Germany froze some of Iran's Euro Dollar funds and other Euro Nations threatened, the result has been a new scramble out of Euro banks. The dollar went well below the mid 1990's lows during Iran's scramble out of dollars but it has since recovered about 4%, the "return to normal" will provide an extra bounce to US assets when it comes. Press reports say that in just a few weeks Iran has moved $75 Billion from Euro Banks to Asian Banks and to Gold; about 10 months worth of Iranian oil revenues. With inflation rates running at 50% or more, Ahmadinejhad is once again battling his cabinet about how to handle its financial holdings. EU negotiators have not publicly shared specific new deadlines but they have said they will give Iran a short time to consider the latest offer before imposing new sanctions. In this high stakes game of poker, the "5+1" have a lot of potentially powerful hands to play but non-specific threats are best used like Swords of Damocles; always present and ready to fall. Since the French have given such bold support of late, maybe the better analogy would be that the French Guillotine has been hoisted above Ahmadinejad's head.


Saudi Arabia has leaked plans to increase its production by an additional 200,000 barrels, the announcement is expected on June 22. The key point is for Iran to come to understand that the world can do without Iranian oil if it must. Newspapers around the world, many of which write with an anti Bush slant, are reporting Iran's support for terror and the probability that Iran and North Korea purchased nuclear bomb planes from a Pakistani scientist. Many pressure points are being tightened; Afghanistan and coalition forces have given Pakistan encouragement to take away the "home base" for militants. Coalition forces appear to be willing to cross Pakistani borders in the high mountains if necessary. The financing of the gas pipeline through Afghanistan and Pakistan does not mean it will be built. Pakistan must cooperate in isolating the terrorist and their sponsors.

I have not seen a complete list of which countries have yet to sign 123 Agreements with the USA but it is clear that nations do not want to risk not reaching agreements during the Bush term. Even Ahmadinejhad has stated his desire to have an agreement in place by September. While getting the deals through congress now may be close (a 50% vote to block is required to kill the agreements), getting them passed next year is highly unlikely.

THE BIG SURPRISE

The signature of a peace agreement with Iran is going to be a huge "surprise" to most people. The great majority, including numerous international affairs reporters, do not realize how much work has gone into and how much progress has been made toward an agreement. A significant minority know a small part of the story but do not believe the odds are even one chance in ten that a deal will be reached. Only a very few know 50% of the whole story and of those most would suggest the odds are less then 40-60. I do not know major details of the story but I know more than the great majority of people and I put the odds at better than 70% for an agreement. The good news is that if there is no deal, few will be disappointed and if there is a deal there should be great surprise.

MILITARY STANDOFF

Many folk believe that before this "battle" is over, a military engagement will be necessary. Who wants to start this battle? There will be no winners and the side that gets credit for starting the battle has a lot to lose. The world economy, including Iran's would be severely damaged. The damage would be temporary.

If war is started by Iran, causing gasoline to hit $5 or more, it would certainly cause the US congress to vote for drilling in ANWAR and on the OCS (outer continental shelf), most likely in a compromise bill that would include yet another boondoggle subsidy program. There would be government, tax payer support, for for everything from switch grass to liquid coal. The vote would switch from marginal support for nuclear power construction to "get it done now votes".

We can pull 4.3 million barrels per day out of our strategic reserves. Iran claims it can stop the flow of 17 million barrels per day but the trans-Saudi pipeline is currently underused because it cost a little more to use that shipping route. As we saw during the days of "Shock and Awe" in Iraq, the battle itself would be short. Some may say a battle would play right into George Bush's plans but it is wrong to assume Bush desires war. The US strategies in Afghanistan and in Iraq have been designed to minimize war not to provoke it. Compare the strategy and death toll in Vietnam or several other wars to that of Iraq and the story is clear. The offering of packages of carrots and sticks has clearly been for the purpose of reaching agreement without reaching war. The carrot and stick approach was tried for 10 or 12 years on Iraq before the attack was made on 9/11. Can you imagine the difference in World History if one side in each conflict had always offered hundreds of major commercial deals with multiple neighbors as the incentive to avoid war?

ATTITUDES ARE CHANGING -- DESPITE THE MATH PROBLEM

When a country like Italy does a 180 in regard to nuclear power plants, it is clear that attitudes are changing. When a senator such as Bryan Dorgan talks in favor of more drilling in the USA, we know the light is beginning to shine (it helps that the Bakken reserves in his home state of North Dakota are at least 4.3 billion barrels). Even so, Dorgan is like the others who suggest that we replace hydrocarbons with windmills and ethanol. He and millions of others don't do math! The largest windmill farm consumes thousands of acres of land, thousands of tons of concrete, thousands of tons of steel, kills millions of birds annually and produces less than 4% of the electricity produced by a conventional power plant. Windmills are not environmentally friendly.

By failing to "do the math", the environmental crowd has worked themselves into a corner. They have failed to understand that the lowest cost methods are also the most environmental methods. Conservationist, such as me, support actions to include the full costs into the energy equation. For example, coal should not be burned without removing pollutants, but clean coal is still cheaper and better than destroying our natural resources with millions of acres of expensive windmills.

Back in the 1980's, the President of Legg Mason Wood Walker was fond of saying, "I do not like to make predictions but in the long run economics wins." In other words, it makes economic sense for the world to pay for and use the trillions of BTUs of oil and gas from Iran and it makes economic sense for Iran to sell these trillions of BTUs for 100's of trillions of dollars. That a deal will be made to allow this should be no great surprise but, right now, the majority in the world believe something else.