This week Karen went to Germany for business for 5 days and I have been playing single parent getting up at 5:45am with the kids and putting them to bed at 8 and then staying home alone afterward, grounded as it were. Elizabeth gets up and has her list of demands “Want Elmo, want Curious George, want photos, want eggies, want jelly, want strawberry, want park…..” Jeremy just cries and hopes you’ll figure out what he wants. Frankly, I’m sure mothers are built differently than fathers because by 6:15 I have no idea what I am going to do with the two of them all day. So I do what daddies do — put Elizabeth in front of a very long DVD Curious George series of back to back episodes (I went all over the neighborhood looking for just such a thing) and put Jeremy back into his crib and hope he goes back to sleep.
Karen and I took off a few days by ourselves and visited a lovely Orient Express hotel in Maryland about 90 minutes drive from Baltimore on the Chesapeake Bay called the Inn at Perry Cabin in the town of St. Michaels. It is best visited in May, early June or late September and October. The town offers an hour of shopping and a boat ride on the bay at sunset is a nice activity. An excellent relaxing and adult-oriented getaway 4 hours drive from New York City. Amtrak is the nation’s passenger rail monopoly and for whatever reason it costs $225 to rent a car for 3 days and drive it from NY to this hotel. The Amtrak cost is $320 per person to Baltimore with the train that goes the fastest one way and the regular train the other way (2.5 hours versus 3 hours) and then you still have to rent and drive the car. No wonder people drive and don’t take the trains. Despite the high cost of fuel, it cost about $60 to put petrol in the car for the round trip. That’s not enough to deter me from going, although I was told that there were definitely fewer cars on the road this Memorial Day weekend when driving is at its peak.
Moving onto current events, I will be visiting Jerusalem (as well as other countries in Europe) later this month to get some feedback from people in Israel and will report back next month.
Lebanon — I am tending to accept Stratfor’s conclusion that what happened this month in Lebanon is that Syria basically was given the green light to take over the country and to sideline Hizbullah even though it looks to the naked eye that Hizbullah is running the show. Look around and see if the Lebanese intelligence service actually goes and destroys the heroine crops that the Hizbullah has planted. If so, then you know that Syria is acting against them because that’s where the money is that funds Hizbullah in Lebanon. Hizbullah has become much more suspicious of the Syrians since they believe that Syria had a hand in the assassination of their military commander earlier this year and no longer allows them free access to their military installations. The Saudis have been pushing Syria to make a deal in Lebanon and asking the US to stop preventing the Syrians from dealing with Israel and Lebanon. The Saudis want a stable Lebanon and have told the Syrians that if they want to see money they better look to the Saudis for it because the Iranians have less of it and the Saudis have already bought off all the other jihadis in the region so there is nobody left for the Syrians to mobilize to agitate the others. The Syrians, it should be noted, only got in bed with Iran when the US helped to throw them out of Lebanon and so they set up Hizbullah as their proxy in a bigger way at that time. Take away the objection to Lebanon being a Syrian sphere of influence and the rationale for bunking up with Hizbullah goes away. There is a good reason why Iran sends military advisors to Syria every month to check and see if they are still allies.
Oil — The law of unintended consequences is making a guest appearance this month in this space. Countries that export lots of oil are not getting as much benefits as they hoped; inflation is eating away at profits. Saudi Arabian inflation is sky-high and the costs of things they have to buy have all gone up such as steel, foods and construction materials, just like for everyone else. The Iranians have to import a lot of oil because they don’t refine very much of it and they, like many other developing countries such as India and China, subsidize so much of what is sold inside the country to keep the natives quiet that it is eating away at currency reserves or creating shortages if the petroleum companies cannot raise their prices and they refuse to sell or threatening such companies with bankruptcy if they have to sell at these artificially low prices. Natural gas also went up in price and countries such as Iran don’t have the gas fields to supply their own needs so they have to buy like everyone else. The US has terminals going unused in the Gulf of Mexico because the price of importing gas became too high to be practical. Because of the ethanol rush, corn is more scarce and since it is used in so many foods, the prices of foods have all gone up — as much as 50% over the past 2 years. Things like cranberry juice have corn syrup in it, for example. I just hired a caterer to do a luncheon in my synagogue and the bill went up 20% this year due to the higher costs of food. You can imagine what this means to people in poor countries and even in the US where food stamps purchase less than they used to although the allotment hasn’t increased. All in all, people are complaining but the US is a food exporter. The high price of petrol is resulting in some changes but the question is whether or not habits will revert if prices fall or if the changes will truly stick (this time around people think the changes in consumption will be long-term). All around the world I see huge investments in alternative fuels and even the UAE is putting billions into such projects. But then the Saudis just said they will spend $125 billion to increase refinery capacity, meaning they will make more profit from the oil they do sell and will be able to set harsher terms because they will be one of the top 5 refiners in the world selling the premium grade fuel that people really want. Iran, by contrast, has reserves of $53 billion which means they can in no way afford to compete. And, by the way, they have low-grade crude sitting on tankers unsold because it is not desirable goods; it is the only real explanation for the fact that they have all these ships offshore holding their oil because when they did this a year or two ago hoping that the price would rise they were big losers as people went and bought oil from other countries. So my guess is that over the long haul the petroleum industry will change; a few suppliers will meet the world’s needs and get a decent living from it but the overall price will probably be lower than it is now. The rest of us will be moving toward other forms of energy consumption as new sources of energy production come on line. There is a guy at MIT working on energy production from algae, for example. The Americans are not a highly industrialized country and although people complain about their cars, it is not as big a drag on our economy as it is for many other countries but it is a nuisance affecting everything from airplane tickets to Fedex to groceries (transportation and ingredients). Problem is that it is a huge waste of money being spent raising the prices of all sorts of things that drag everyone down just because the price of oil is high. Makes the US want to just go in and take over Saudi Arabia. But would that actually solve anything? As I said, the Saudis also want the price to go down; what’s the use of buying up all sorts of companies that can’t make a profit because oil is dragging down everyone’s ability to purchase anything. Oil basically is responding to supply and demand and the markets are working because people are changing their habits and new investments are being made as the price goes up — but because such changes take a long time to effect, the results are not instantaneous. The supply is not being withheld; the demand is simply responding to fears that future supply will not keep up. An interesting thing about oil is that when the price does fall, it falls fast. Oil went down over 10% just this past week and there is precedent for oil prices to fluctuate wildly. And then in a day it went back up almost 10% to a record high. People speculating in the Gulf region ought to think about this because their economic bubble is totally being subsidized by high oil prices and the excess cash it creates for those with investment capital. In keeping with the Unintended Consequences theme here are a few additional thoughts: 1. Because airlines are cutting their services, expect fewer sits on runways waiting to take off. This is a great thing because a 15% or so cutback is just what the system needed. 2. Travel became really expensive lately; maybe it will come back down as the luxury market cuts back and people stay closer to home. 10% of Americans are cancelling their vacations this year and 57% are cutting them down or staying closer to home. This is bad for the overall economy, but good for those who travel who hope for better bargains. 3. As developing countries stop subsidizing oil, demand will go down. These countries are responsible for almost all of the increased demand especially as demand in America has begun to drop. But in countries like China, a higher price for oil might actually increase demand because investment in refineries will become more feasible and domestic production might actually increase.
Israel — Olmert may or may not be out of office immediately but he cannot survive much longer — or can he? According to Israeli law, if he took money and didn’t report it, he is guilty even if there is no evidence that he was bribed. Olmert admits that he took the money and hasn’t shown that he reported it. So all that is being argued about is whether or not he was bribed but he is due to be nailed in any event. He obviously wants to go out looking better than he currently does and is looking forward to cross-examining Mr. Lashinsky (the guy who gave him the money) next month. Barak and the majority of the parliament doesn’t want elections because it is clear that Netanyahu would win them and many of the parties in power would lose seats such as Labor and Kadima. Livni’s stock went up this week with a London Times story telling the world that she was a secret agent hunting down terrorists in Europe during the 70’s. So if I had to predict I would guess that Olmert either stays or at worst takes a leave of absence while the Kadima party holds primaries this summer and that Livni gets the job temporarily while elections take place in the fall after the Jewish holidays in October. If Livni performs well, she has a shot at continuing in the job. If she fails, it will either be Barak or Netanyahu by the end of the year in that chair and Barak will be hoping that she does fail but from what I understand they do get along and the most important thing to know is that both Livni and Barak are represented by the same political advisor who obviously has an interest in seeing both of them succeed. Barak has a problem with his own taking of money in paper bags and is not in a position to be too moralistic. He is also right now more valuable to the country as defense minister than prime minister. Livni is good at getting consensus from inside and outside the country while Barak is a loner. Olmert has a problem — he has been working for over a year trying to make deals with Abbas and Assad but right now he has so little credibility at home that people will accuse him of selling out the country’s interests just so he can look indispensable and popular by making peace. The Arabs will be afraid to close any deals with him because they want to know it will not be cancelled a month later with elections in which his party is the loser. If Olmert is God’s messenger to peacemaking in the region, it’s too bad that he had to take money from people on this earth to screw it all up. I still think that Gaza is in for a military operation rather soon. Livni, it should be noted, is hawkish as far as Iran goes. The betting on Iran is that for all their bark, a military action against them would yield a rather weak Iranian response and it is hard to ignore the drumbeat of threatening statements coming out of Israel that military action against Iran is coming, with or without the F-22 aircraft that Israel may be receiving.
US Elections — My thinking is still the same. Even with a poor economy, I still think that McCain will win in the privacy of the voting booth. People want to feel secure before they worry about their money matters (if they’re not secure then money doesn’t matter), and the Republicans will go around reminding people that the last time America voted for a Democrat with a pretty face with no experience they got Jimmy Carter. And I think that will be enough to knock out a law professor from consideration. Jackie Mason the comedian made lots of fun of Obama; he noted that he claims to have voted against the war (a vote which was 6 years ago) when he only got in the Congress 2 years ago. Who is he kidding? He said that when you say you want change but don’t tell anyone what you will do, the answer is that you will do Nothing. One thing McCain has going for him is that he is a mercurial guy who scares people as to what he might do if he gets pissed off — that’s good for the US viz. countries like Iran that might have to think twice about pissing him off whereas with a guy like Obama they would be tempted to test him to see how far they could push the envelope with him. Clinton has made it virtually impossible for Obama to select her as a Veep candidate without looking like a weak fool — she would always try to sabotage him, has no respect for him, and to bring on a Clinton makes a mockery of his campaign for change and energizes Republicans who hate her. If she is correct that he is unelectable, why run with him? Americans always vote for the president on the ticket, not the veep. If she would have listened to me, she could have saved a lot of money. Someone with over 40% negative ratings is unelectable and winning Democratic primaries in no way foreshadows winning the general election. Republicans have to vote for a Democratic candidate in order for one to win; they will vote for McCain, but Obama? Some will, but I think not enough will unless McCain gives them reasons to.
US Economy — Well of course you should have sold your stock once you found out that I was repurchasing mine. The market has consistently gone down this month. If all else fails, buy Exxon, Singapore and Brazil. When Lehman Brothers goes down 15% in a day on rumors and then goes back up 10% the next day, it means that Wall Street today is a casino and that regardless of what they say, it’s an insider market. It is not a healthy market to be in.
Iraq — I attended an Air Force Week event in Philadelphia this week about humanitarian assistance provided by the Air Force, something that people know little about. When there are cyclones in Burma and earthquakes in China and the US flies in with assistance, it is often the air force that is bringing it. I met with a colonel and a 3 star general and discussed Iraq. They feel that the emphasis on shifting from combat operations to more humanitarian operations (ie: electricity, hospitals, teaching how to set up infrastructure and do medical things) is helping to create more support within Iraq and Afghanistan for American troops; that the ultimate goal is to stabilize the country; that things are becoming more stable; that as things stabilize the Americans can put down fewer combat troops and more humanitarian-type soldiers; that the cost would go down considerably as this happens; and that as people’s basic needs for security, food and health are met, people then become more interested in law and order and finally good government and that at a certain point things would be stable enough that if the US left, things would remain stable. They estimate that it will take years but that it is worthwhile to do this and that if the US would do more of this elsewhere it would prevent more wars and keep more countries stable. I have always been in favor of investment as opposed to putting out fires. The question is whether or not in Iraq this is a good investment of our limited resources. The officers think that it is. I’m not planning to go there and see for myself and the proof of the pudding will be that if Iraq doesn’t make a lot of noise and our troops don’t keep getting killed, the public will probably tolerate a long-term investment in that country considering how much has already been invested and the possible costs of pulling out. I think that the high price of oil plus the Saudis having bought off the jihadis and the Iranians on the defensive for all the reasons I mentioned above, show that the trends are in the US’s favor in Iraq (maybe more so than any success of a surge strategy). And of course there are numerous corporations that want to stay there to benefit and the Iranians are increasingly open to cutting a deal there. One other point about Iran — the election of the new parliament speaker shows that the president is on the way out, probably with next year’s elections. Not that the country’s nuclear policies will change, but the economic policies will change and a softer mouthpiece will do wonders for attracting foreign investment which right now is not happening since the world tide is so hostile to Iran, and the Iranians simply cannot deal with oil refinery and gas production investment on their own. The Iranians are fighting within — a semiofficial government press agency was shut down because it was printing criticisms of certain officials. Basically, the people with money don’t like how the current president is taking actions that screw up their ability to make money. A lot of the religious leaders have solid business interests and Ahmadenijad is not one of them. And as I said above, military action against Iran looks likely this year. It’s interesting that Saudi Arabia had an interfaith conference this month and came out strongly against religious extremism— they didn’t mind pissing off religious conservatives inside the kingdom and they seem to want to show the US that they are going to be on the right side of history. I think that’s the deal — we pay them high oil prices but they promise to be responsible players. Right now, the Saudis are protecting their commercial interests and looking to stabilize the region.
Other Spots — Vietnam is obviously worse off than I thought. Flavor of the month going out of style. Mexico is a problem; what’s going on there I don’t know but the impression is that it is sliding into lawlessness. I would visit to check up on them and I’m told by my amigo in Mexico City that the image of the country being in parallel to what occurred in Colombia a decade ago is a false analogy and that things are better there than they appear. Pakistan is also a strange bird; not much has been heard since Musharraf entered into a power sharing agreement but it seems that the army really doesn’t run the show there right now and the Islamists seem quite strong, but yet the Americans are sending over more jet planes and there is nuclear stuff all over the place. Won’t be visiting there anytime soon, needless to say. I understand that things are about to blow up there and we may soon be hearing much about Pakistan again. (this paragraph edited 10 June.)
