A FULL COURT PRESS ENDED WHEN IRAN CALLED TIME OUT

Russia sneaked onto the court and six players put a full court press on Iran last week. It ended when Iran called time out to complain to the referees. Iran claims the 6 want to change the rules and that Iran wants to play by the rules.

Iran has gotten just a little support for its version of the rules. India and Pakistan, who are anxiously awaiting approval of a massive pipeline deal from Iran, have spoken out in support of Iran. Iran is holding the ball. The game cannot restart unless Iran decides to play. The rest of the world has said that Iran is suspended from other sports until this game is settled.


In the meantime, Nigerian rebels have disrupted oil production again. The market has over-reacted once again. When the weekly oil report is announced on Wednesday, I expect the numbers to show more demand destruction. Today, it was reported that a number of car dealers no longer accept the biggest of the SUV's on trade. A parked SUV consumes no fuel. Total US gasoline consumption may go from zero growth over the past 3 years to negative growth.

It is more likely that the Microsoft, Yahoo saga is over than the negotiations with Iran. Hoarding will subside soon after a deal is made. When the hoarded oil comes back on the market, the price will fall faster than most people would believe to be possible. Time will tell.

WALMART IS AN OLD GOOGLE

WalMart just keeps on "doing it". Four dollar generic drug prescriptions have been a blessing to millions of people, including the shareholders of WalMart. Today, WalMart announced 90 day supply generic drug prescriptions for $10. Politicians continue to argue over lowering health care costs while WalMart keeps on delivering.

Huge savings are being realized daily when runny nosed kids are checked by nurse practitioners. Many of these practitioners work at clinics located at WalMart stores. Here again, while the politicians talk about lower cost care, WalMart delivers.


WalMart is a big target (no pun intended). Quite a number of urban legends have been distributed by those who would destroy WalMart. Other urban legends say that Google is in cahoots with the CIA to become the "big brother" of all time. WalMart and Google must be evil!

When an economist draws a set of supply-demand curves, the final price is set at the point where there is zero profit available for even one more unit. Perhaps what is not understood well is that for all the other items sold, there is both a consumer surplus and a producer surplus. In other words, of the consumers who buy an item for $1, almost all of them would have been willing to pay a little more. On the producer side, the seller could have sold for a little less and still made a profit.

Companies such as Google and WalMart make their money by bringing buyers and sellers together at a price acceptable to both. By cutting down the cost of bringing these folks together, they save customers billions of dollars. Google and WalMart are private profit making companies. They have each built up capacities that are unmatched by competitors. In the physical world, no other company brings together so many buyers and sellers in exchange for such a tiny "middle man's cut". In the virtual world, Google does not even bill the users for the service!

WalMart is more mature than Google but it continues to find growth opportunities, particularly in international markets. Google does likewise.

Google is generally loved by the political left and WalMart is generally despised by the political left. This is ironic because Google is the more likely candidate for eventual antitrust problems. Google has cornered something like 56% of the search business. WalMart has no where near that amount of the retail business. Both companies are growing international businesses rapidly because to avoid over concentration in domestic markets.

GOOGLE AND THE POWER OF LARGE NETWORKS

As written last week, the pending merger of DAL and NWA will increase the number of city pairs served by a huge number; 6,000. From Sarnoff, Metcafe and Reed, we know that the value of a network expands exponentially as the number of "nodes" increase.

GOOGLE is building not one but several huge networks. Its large network of advertisers is a very profitable network and its social network could grow into billions of nodes. Yahoo and Microsoft have each started, built and restarted competing networks. Microsoft and Yahoo have each purchased competing networks. Microsoft nor Yahoo have been able to come close to catching up with Google. This weekend, Microsoft tried and failed to purchase Yahoo. A major part of the Yahoo defense against takeover has been the strategy of "doing an advertising deal" with Google. If such a deal is completed, Yahoo will earn higher advertising fees by doing a deal with Google, but the power of the Google brand will take another leap forward.


The price of Yahoo will drop this morning and the price of Microsoft will rise as the arbitrageurs unwind positions. Those who believed that Microsoft would prevail at a higher price were bidding the price of Yahoo up and the price of Microsoft down. They were buying shares in Yahoo and selling shares of Microsoft short. Those who suspect that the Microsoft "walk away" is only a negotiating ploy, will probably keep the price of Yahoo from falling back to pre-bid levels.

Microsoft is still a cash flow machine. The demand for computers and computing services continues to grow by leaps and bounds. IBM is another big computer company that is enjoying world wide growth in demand. Still, the "hot computer growth" is in areas of Internet services offered by Google.

Growth does not assure profits. Back around 1984, Jack Fields, a top producing Merrill Lynch Stock Broker, conducted growth stock investment seminars. His key point was that if a lot of companies are trying their best to become the king of the hill in a high growth industry, they can easily hurt one another. Put another way, a fundamental law of economics is that in perfect competition there is zero profit.

It has been amazing to see how many services and how much service Google has been able to offer free of charge. Google is king of the hill in several areas, but it continues to be challenged. For example, FaceBook has built a very large and active social network from scratch.

Advertising is an economically sensitive business. When there is an economic slow down or recession, companies often cut back or even eliminate advertising. Last year, Google's share price fell a couple of hundred points. In recent months it has been on the way back up. All the while, its networks have continued to grow. If I and the Google management team are correct, advertising revenues on the mobile networks will eclipse desk top advertising revenues.

Mobil computing is going to see great growth over the next 10 to 20 years. Microsoft has invested billions trying to make its Smart Phone software the mobile computing standard. Nokia and others support a software platform called Symbian (spelling?). Google is attacking from all sides. While Google search will work on all platforms, the company and a consortium of partners are preparing to launch Android, another software platform. The Android software will be tailored toward making Google Search Functions easier to use. For example, there might be a map button programed to bring up a selection of available maps of the area. One selection might be a commercial map offering a choice of maps to service stations or restaurants. A click on a restaurant icon might bring up a menu and an order form. Of course, voice commands might increase the utility of search to the driver of a vehicle.

There are millions of people who have already joined mobile computing networks, mostly through their cell telephone. Many of these "nodes" are seldom or never used for mobile computing due primarily to the speed of the connections. As the roll out of 3rd and 4th generation services occurs, the number of working nodes will increase dramatically and the value of the networks will grow exponentially.

Google is the king of the mountain. Google is in a position similar to the ones held by Boeing, Proctor and Gamble or FedEx. All companies have competitors but dominate players have advantages that are difficult to overcome. In the Boeing example, companies such as McDonald Douglas eventually were pushed off the hill. Airbus ultimately became the competition, but it required the backing of a couple of nations. Baidu is the Chinese version of Google. The French are promoting a national version of Google, 75% of all searches done in Russia are done on Google and Yahoo has done well in Japan. Steve Ballmer, President of Microsoft, has the historical example of GM versus Ford as a guide. It will likely take a conglomeration of many to challenge the leader, Buick, Pontiac and Oldsmobile had little chance to overtake Ford by themselves. Google looks at the same historical example and is not following the Ford playbook. When GM offered trade-ins, financing and numerous options (including colors), Ford saw no need to respond. Today, Google is going toe to toe with challengers in multiple areas. All programmers at Google have been granted the freedom to spend 20% of their efforts on ideas they think have merit. Google is not offering only black model T's. Land line connections were AOL's model T's.

Google shares are priced such that 10 to 20 years of growth is needed to justify the price. One can get into great trouble when one tries to extrapolate growth into the future. Last night, a blogger at The Oil Drum based an argument on the idea that the number of cars on the road will increase from 800,000,000 to 3 billion over the next 40 years. What a joke? He simply extrapolated from current trends without accounting for the probability of technological improvements or substitutions. Had this fellow been writing at the turn of the 20th century, he might have predicted mountains of horse manure on the edges of towns all across America by 1940.

At the turn of the 20th century, one might have invested in blacksmith shops and wagon works because these well established businesses were profitable and growing. When Ford standardized auto parts in 1908, making it possible to assemble duplicate cars at a faster pace, one still could have made good money in blacksmith shops and wagon works. In 1914, when Ford invented the assembly line, one still could have done well in "mature industry investments". From 1914 until 1919, Ford was the AOL of the 1990's. Today, Google is the GM of the 1920's and the USA will is not waiting 30 years to build the Internet Interstate Highway System. The "Interstate Web" is already under construction by private enterprise. Under these circumstances, it seems reasonable to bet on 10 or 20 more years of fast growth by Google. No other company can currently match the number of servers spread around the world or the high speed networks that connect these servers.

In many areas, Microsoft is matching Google. For example, Microsoft has web enabled its Works Software, offering free word processing, spread sheets and other services like Google. Microsoft is not done. The company has something like $40 Billion in cash. It will buy or build businesses to compete with Google, however, it will take more than money to overtake Google. If Google does not make a major mistake or two there will be great growth in its future. There will be so much growth that the number two player might make billions of dollars. The number one player will make much more than number two.

AIRLINE PAUSE

A pause may be in order for the airlines. Harry Reid has set a Tuesday deadline for a vote on the re-financing of the FAA. Democrats are determined to insert an amendment to penalize AMR and CAL. Ms. Kitty, from Texas, a friend of Marshall Dillon, is holding her own against these bandits. She needs 41 votes to stop the government thieves. CAL and AMR did not dump their pensions onto the government as was done by bankrupted carriers. They should not be penalized for being faithful to their employees. Goodness wins in the long run.

GREAT NUMBERS

The settlement of the long drawn out labor dispute in Nigeria is the reason the price of oil fell from 119 to 112 so fast. The result will be the immediate flow of about 800,000 barrels of good quality oil every day. (Source of info: stratfor.com)

This morning factory orders for February were revised upward and they came in very strong in the month of March. As anecdotal evidence, an employee at Flowserve says that industrial values are jumping off the shelves into the hands of Chinese and Indian vendors.


The market has had a nice run. As such, a short term pause would not be a surprise, however, another big leg up would not be a surprise either. It is not the time to get too cute or the time to be too timid. Keep on averaging those dollars at as rapid a pace as you can. Money invested before a boom is powerful money.

The dollar is showing strength in anticipation of strong US economic strength, relative to the rest of the world. The rest of the world may slow a bit while the US moves ahead. BUY, BUY, BUY!

IN THE OLD DAYS

In the old days, at the mid-cycle turn the US would get a runny nose, several other developed nations would come down with the flue and several developing nations would almost die. Countries, such as the USA, or international organizations would be forced to "doctor" the dying back to health. For the longest time, this slow down has been more than a runny nose for the USA while the rest of the world seemed to have taken an effective flu shot. Only recently has the data turned. Other nations are catching a cold just about the time the USA is showing signs of recovery.

US STOCKS

Yesterday, US stocks had another great day.

Here are some of the numbers, NASDAQ 100 up 3.2%, Consumer Discretionary up 5.8%, Technology up 4.2%, Airlines up 5.6% (up 16.3% in 5 days, up 23.4% in 7 days), Banks up 4.4%, Broker Dealers up 4.6%, Semiconductors up 3.9%.


On the other hand, the price of wheat is down 40% from the peak! Yesterday, Energy down 2.2%, Oil Services Down 2.84%, Gold down 4.14% (down 21% from the peak) and the CRB was down 4.14%.

The poor countries of the world, where food expenditure is still a large percentage of the family budget, have been hit extremely hard by the run up in food costs. To fight this inflation, government authorities have tightened the money supply. Countries such as England and India are experiencing a slowdown and countries like China appear to be rolling over. In visual terms, the USA is the engine on a long roller coaster train, China is the caboose. The engine has come down the mountain and has already started climbing the next hill while China is just now on the downward slope.

YAK, YAK, YAK

Some TV pundits have been quick to suggest that the US economy cannot recover because the Michigan Survey of Consumer Sentiment is the lowest it has ever been. Don Hays points out that this survey has hit a number below 65 4 times since 1979 and in every case the average stock was up more than 20% one year later.

Other TV pundits (I admire Larry Kudlow but he needs to get off his "King Dollar" mantra) whine and complain about the weak dollar. They suggest the Bush administration should "do something" about the weakness. This is antithetical to the free market capitalism espoused by Kudlow. The fact is the price of the dollar is and should be set by the markets, just like the price of everything else.

Kudlow correctly is repulsed by government intervention in markets. The fact is that there are always unintended consequences when the government tries to regulate markets. For example, the French Revolution was ignited by the attempt of the king to regulate the price of food. The King put price controls on food in Paris. The vendors in Paris could not charge more than a certain price, which meant that the vendors could not afford to pay the farmers more than a certain price. The farmers kept their best produce for sale outside the regulated city market. They shipped poor quality and even over ripe (rotten) vegetables to the city. The hungry people rose up in revolt.

Anyway, data from the past 30 years show that after the dollar has fallen 10% year over year, the US stock market has on average gone up more than 20% over the next year.

Of course, high beta stocks are the ones you want to own when the above conditions exist. High beta stocks include small cap stocks, airline stocks, and high tech stocks. These are the kind of stocks that are likely to go up 50% when the average stock goes up 20%. Of course, there will be some stocks in these groups that will go up 100% or 200% by the time the average stock is up 20%. Obviously, the decline in energy and basic material stocks must be offset to get to an average of 20%. Therefore, very large groups of large and small stocks, including low beta stocks will go up more than 20% while the average stock is only up 20%. GREEN IS A BEAUTIFUL COLOR!

BLAZING SPEED

I do not understand 20% of what I read about Intel and other electronic stocks. As best as I can understand, Intel will put out chips over the next few years that cut the consumption of electricity while calculating at many times the prior speed. From the Gigaom website, I gather that Intel is expanding its product line. Intel has introduced a 10 gigabyte Ethernet adapter for less than $1,000. The Gigaom site calls this "blazing speed" at a price that will force the widespread adoption by enterprise networks. My understanding is that the Internet is ready to kick into another gear, which will make very powerful applications plausible. As I wrote last week, a technically savvy doctor says that the practice of medicine is ready to change dramatically as electronic monitors are swallowed, implanted or worn in volume and when doctors "view" the patients and the data without "seeing" the patient.

CHUCKLE

Yesterday, I wrote about how the Israelis claim to be able to produce solar electricity for 7 cents per kw. Leave it up to Scott Adams of Dilbert blog .fame to come up with a beautiful slant. He notes that the Israelis have extra incentive to be the first nation to eliminate its need for oil. He says the Israelis would enjoy destroying the entire Middle East Oil Industry. They still have a way to go but 7 cents for solar is substantial progress. It is estimated that the new standardized nuclear power plants can produce electricity for 4.2 cents per kilowatt. Of course, no matter how cheap electricity, the cost of making electricity mobile means that oil might still be competitive for transportation needs.

General Motors is covering all the bases while keeping a few key legislators fat and comfortable. Cars in America are being built to "flex standards" to help insulate US manufacturers from future competition. Sometimes we forget that the whole rational for trade agreements is to protect the politically connected. Even our free trade is not really free and has been manipulated by the politically powerful. Just because I have recommended the purchase of GM does not mean that I believe the company qualifies for saint hood.

GM has made investments in two cellulostic ethanol start-ups. One of the companies claims it will be able to produce ethanol from from trees, corn stalks and old tires for less than $1 per gallon using a thermo-chemical process. The other investment is in a company that has invented a new combined microbiological process. In other words, a number of steps have been eliminated and a mixture of microbes in one large container, adjusted by computer automation, will digest the raw materials. A university spin-off is starting field trials of methanogenic degradation. The idea here is to enhance the speed at which bacteria converts coal and heavy oil to gas. This is the process that I believe has the greatest potential. In any event, the building of "flex fuel cars" gives US cars manufacturers an advantage if government regulations can dictate which cars qualify to use new fuels.

THE FED IS AT IT AGAIN

This morning, once again the FOMC is pumping money into the banking system. The FOMC is determined to boost the US economy. Of course, all the politicians who voted for the $600 rebates are indebted to the FOMC for pumping in liquidity just as the checks begin to hit. The economy is going to boom and the politicians will take the credit between now and November (and for years to come). The public is hardly aware of how many billions of dollars have been pumped into the banking system by the FOMC.

THE MARKET IS AT IT AGAIN

The boost to the economy is a boost to the stock market. The futures contracts indicate that the Dow Jones Industrial Index will open up more than 100 points. The Nasdaq up 1%. While the oversold conditions are well on the way to becoming overbought conditions. I would not dare be a profit taker now. Now is the time to let your profits run and to add to positions. The average citizen is still angry with the average congress member. A full court press is on to take away that anger. This morning the job figures were much better than expected. There is no recession! There will be no recession in 2008! BUY, BUY, BUY!

THE DUTCH DISEASE -- HAVING TOO MUCH

Back in the mid 1960's when a barrel of oil sold for $2.90 (the increase has been 4,134% over 40 plus years or about 8.3% compounded), the Netherlands struck an abundant supply of natural gas. The country was suddenly resource wealthy. In short order, the countries manufacturing base fell apart.

Over the years after the Dutch gas discovery, economist noted what is now called the Paradox of Plenty or the Resource Curse. The country that strikes oil or gold or other natural resources, is the country that grows more slowly than other countries. Even worse, the country with great resources is likely to experience inequality, conflict, corruption, and excessive reliance on borrowing, in addition to the elimination of the manufacturing base.


Once one understands the Paradox of Plenty, one can easily see it in history, including the history of ones own family. The child who grows up with everything, has difficulty developing a set of marketable skills. The same deal with the poor person who is taught to rely on the welfare of the state and the gifts of charity. Of course, there are exceptions that prove the rule.

In the history of the USA, in the early 1800's the south enjoyed an abundance of good farm land. The Europeans had already subdivided all the good land in Europe into small, relatively unproductive, plots. The American plantation owner had the opportunity for great wealth by using the Ricardo law of comparative advantage. In other words, to make big money, the Southern American needed to grow hundreds of acres of crops.

The industrial revolution was in full swing. Industry was building up all around the world. The average standard of living was making great strides. The average family could suddenly afford more things. In the thousands of years prior to this time, extra clothes were a great luxury. Only Kings and Queens had worn underclothes in the prior centuries. Soap was just becoming cheap enough to allow the average man to bath once a week or even to wash his clothes. Prior to this time, when and if clothes were washed, human urine was the commonly used soap. By the mid 1800's, many a person could afford to buy tobacco, soap and under garments.

As the industrial revolution progressed, some industry built up in the South but, as the demand for cotton grew, the price and profits soared. Suddenly, the southern factory found it could not compete with farms and plantations for labor. Even slave owners moved the slaves out factories in town and to the country plantations. By 1850, the economy of the south was dominated by wealthy plantation owners. The largest and most profitable included rice, cotton and tobacco plantations.

THE WAR

US wars have been re-fought in hundreds of books. Yes, if the brilliant commander, Southern General Lee, had done this or that differently the outcome would have been different. Yes, Japan could have followed through after Pearl Harbor and doomed the US. Yes, Hitler was on a roll until the US converted its manufacturing capacity into a "war machine". Yes, the South was wealthy before the Civil War but it did not have the manufacturing base to compete with the "manufacturing war machine" of the North.

The USA manufactures more capital goods than any other nation. The doomsters have declared that the US is caught in a great downward spiral but they are absolutely wrong. The USA makes more goods today than ever before. The big thing that has changed in the past 50 years has been that we have used good old American know-how to reduce the number of people it takes to make a quantity of goods. We have automated manufacturing processes to such a degree that we can afford a higher quality of life. We can now afford service providers such as dentist, dental hygienist, travel agents and stock brokers. The USA is not suffering from too little but from the Paradox of Plenty.

Millions of Americans have grown up with hardly a care in the world. Parents have given children all the comforts without teaching them what it is like to have to work for supper. View the countries with a super abundance of oil and you tend to see the rise of "control freaks", dictatorships of one form or another. You see Kings in the Middle East who oppress women and the crazy man in Venezuela who uses government power to confiscate control of one industry after another. Those in power in rich resource economies tend to be very willing to take away the freedom of others (often "for the other persons own good"). Those in power tend to think they are smarter than everyone else. A few months ago, when a women in Saudi Arabia was raped by two men in a car, she was imprisoned. The law of the country is that she should not have been in the car with strange men. The leaders "protect" the women by keeping them out of "dangerous" situations. In the deep south, slavery was the path to great wealth for the plantation owner and many owners truly did offer slaves a better economic standard of living than that enjoyed by millions left in Africa.

Today, Americas face a great risk. Millions of Americans have lived their lives under the Resource Curse. As a result they have developed attitudes much like those of the plantation owner, the Middle Eastern King and the benevolent dictator of Venezuela. These Americans believe they know what is best for all Americans and they are willing to force their goodness upon the rest of us. A large group of these "smart people" believe it best to confiscate the wealth of some Americans so that this wealth can be redistributed to those who need it most. Benevolent dictators do their good deeds because they really care. The socialist movement in America is pretty strong right now. The socialist now call themselves progressive but it is socialism in which they believe. They believe it is right for the poorest half of Americans to have free health care, free retirement funding and free necessities and equally fair for the wealthiest half of Americans to pay for all of these services. Of course, they would argue that they only want to confiscate wealth from the top 2% but the numbers show the reality.

Today, a very large percentage of Americans pay no income tax. Slap on free health care and this large percentage will have become wards of the benevolent legislators. They will have become dependent people much like the slaves of the old south. The risk is that this voting block will continue to grow and the power to take more will lead to the power to take more.

Many a reader will think that I have over stated the risk, but the risk are not just economic. The risk of war is greater than the risk perceived by those who suffer from the Paradox of the Plenty. The resulting attitude includes a perversion of the concept that War is never necessary.

I hate war. I was not in the thick of any real battle while in Vietnam but I am still shaken to my very core by the deaths of 56,000 American soldiers. As the great majority of people know, war is terrible. Still, there will always be some bully somewhere who is willing to confiscate the property of others. Done through "legal" or illegal means, the risk is strong for an eventual reaction of equal and opposite force.

The way to prevent great wars is to "nip them in the bud". Yes, this often can and should be done through a battle of words. It must be made clear to the bully that taking the lives or property of other people will be met with the combined force of those who seek free and peaceful living.

PEACE IN THE MIDDLE EAST

Peace in the Middle East still sounds like a great fairy tale. Most observers of history say it is not gonna happen. On the other hand, one has to be impressed by the fact that the Israelis and the Syrians have negotiated a rough draft to a peace agreement. The terms include the deeding over of the Golan Heights to the Syrians while Israel will retain the water rights (Stratfor.com). There will be a demilitarized zone between the Israel and Syria and Israel and Lebanon. Syrian armed forces will move back into Lebanon to insure the peace.

The Israelis have never suffered from a natural resource curse. They have learned to use drip irrigation to turn a desert into a fertile valley. For the protection of peace, they have built a power military. When Syria brought nuclear materials from North Korea, the Israelis destroyed the materials in order to "nip the war in the bud". Sometimes it is right to hit a bully in the nose in order to get him to talk.

Time after time, America has tried to enjoy a peace dividend. George Washington initially did not see the need for a permanent army. US military might was dismantled after WWI. Bill Clinton and other Americans enjoyed a great economy, partially at the expense of reducing the power of our military, only to be "surprised" by the attacks of 911.

SOVEREIGN WEALTH FUNDS

How can the super resource rich country avoid the plague of the Paradox of Plenty? One of the ways is to "sterilize" the huge but depleting cash flows by creating sovereign wealth funds. This is a great solution as there are always other countries in need of cash and willing to pay interest for the use thereof. The arguments for sovereign wealth funds are the same as the arguments for borrowing and lending in general. The typical Christian and non Christian American believes that the bible says, "neither a borrower or lender be". The reality is that this quote is from a man who lived life to the fullest, William Shakespeare. Many Christian and non Christian Americans believe that "money is the root of all evil". The correct quote is, "the love of money is the root of all evil". Money or debt are not bad or good. They are the tools by which we are able to treat one another fairly. The old person needs to safely loan money for income to the young person who needs to borrow money for shelter. The nation with great natural resources needs to avoid creating dependent people by spending all the cash generated from the sale of natural resources. The resource rich nation needs to gradually find productive and efficient ways to use the cash. This is nothing more than the age old idea of teaching a man how to fish rather than constantly giving him free fish. When the oil is no longer of great value, will the investment of the cash have created another source of income?

The way to teach a man to fish is to offer to buy his fish from him. The way to help the old lady earn an income off her savings is to borrow those savings from the bank. The way to help the people in a resource rich country is to allow them to invest their cash is the most attractive industry that you have to offer.

For some months, we have been bombarded with the words of politicians running for office. The vote buying attempts have been one sided, transparent and laughable if it were not for the potential consequences. The offers made boil down to telling the obese person that the US Government is going to provide them with free exercise classes, free new clothes two sizes smaller and free ice cream and soda. Of course the free clothes will never fit but, hey, they were free!

Politicians want to abolish free trade and increase American jobs. They want to tax productivity and create new jobs. They want to dramatically increase the total cost of employment by adding free health care while creating new jobs. They want to withdraw from engaging terrorist while enjoying world peace. They want to provide mortgage holders with reduced payments while telling sovereign wealth investors to keep their money out of the USA. They want to solve the shortage of low cost fuel by adding taxes on oil companies. They want to reduce pork barrel spending while adding a cap and trade boondoggle. They either want to increase spending dramatically more than any possible increase in revenue or they want to reduce taxes by more than any possible decrease in spending. They want to pay farmers to not grow food while they want lower food prices. They want lower oil prices but they do not want to drill for oil. They want to spend billions to subsidize corn ethanol and to reduce the cost of a Pepsi. They want college tuition cost to go down and for the government to pay the full cost for the majority of students. They want the education system to improve but they do not want to reward the best teachers or to allow the parents to choose the best schools.

THE GREATEST GENERATION

Tom Brokaw wrote about the great generation of Americans who lived through the Great Depression. I am thankful that I did not have to live through such a tough time. However, I sure would like to bottle the good that ultimately came out of the Great Depression. It turns out that mild recessions are a good thing. Prior to a recession, it is always true that large groups of people have begun to suffer greatly from the Paradox of Plenty. This time, people were buying extra large homes and second homes that they did not need and could not afford. The attitude had become one of "I deserve it".

THE CLEANSING HAS SERVED ITS PURPOSE

Today, the people of the world are much less wasteful than they were a couple of years ago. The sale of massive 6,000 pound vehicles with unused off road capabilities has fallen. Today, if one wants to buy a huge home, he is permitted to do so if he has a down payment, good credit and the ability to make the payments. Businesses have "leaned down". They have made the tough choices necessary to eliminate employees who are no longer needed. Businesses such as airlines have cut costs, cut costs and cut costs again. The airline business model has turned from one of growth no matter what, to profit no matter what. The situation has reached clearing price after clearing price. Top executives are even willing to surrender their jobs (with handsome parachutes attached) in order to rationalize these businesses. As a result, companies such as NWA have hit bottom and bounced 30% off the bottom in just a few days.

Another clearing price that has been reached is the price of oil. Over the past couple of years, so much new oil has been discovered that even the number of oil drilling rigs being leased has recently declined. The discovery of 210 Billion Barrels of Oil in India was announced yesterday. The fact that this oil is underneath 2,000 feet of very old volcanic rock is not the impediment to discovery that it was 2 years ago. The price of oil is so high that 210 billion barrels has a retail value of 30, 870 billion dollars or $30.87 Trillion. Two thousand feet of rock looks pretty small next to 30 Trillion Dollars.

The daily lease rate on the large floating drilling rigs runs in the neighborhood of $300,000. Every day counts. In a 365 day year, the total lease bill comes to $109 million. Perhaps you can see why the discovery of numerous new supplies has caused about 10% of these rigs to be sitting idle. And, the rest of the market is awakening to the new situation. This morning, the futures price per barrel is down to $111. The demand from the billions of emerging middle class will keep the demand from collapsing but the closure of big SUV plants and other measures will gradually weigh on the price of fuel. Thousands of other significant "discoveries" are being announced daily. An Israeli company claims to be able to produce 7 cent per kilowatt electricity from cheaply made solar panels and concentrating lenses! The price of oil cannot stay in the $110 to $120 range while under the barrage of so many other discoveries.

CAL UP 7%, AMR UP 7%, DAL UP 4% NWA UP 3% THIS MORNING.

Those who catch the full ride on these highly levered companies will be surprised by how much money they make!