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June 17, 2004

Stick Figure Theater, aka Observations in Parallax
by Warren Pollock

The majority of the people in the financial media are concerned with the business of marketing stocks, mutual funds, and bonds. We also know that politicians are engrossed with the task of election. With an anemic media and an election in play information must be shaped, managed, and spun to perception so people hear what they want to believe is true.

Representations are being made in hopes of supporting the status quo perception that we, as a society and economy, are in a risk mitigated situation. Frankly, political and economic risks are off the charts. A trigger will eventually force a reality check to occur. Until such an event occurs its impossible to invest because the risks outweigh the rewards. Risks cannot be measured to reward. That is why some advisory services have been suggesting increased liquidity and gold.

Vested interest has caused newspapers, magazines, opinion pieces, and TV to become dimensionless as is illustrated in this stick figure drawing. Incomplete or misleading information has been provided to us by objective. Conspiracy theorists, and self proclaimed "debunkers" should see the following quote from the CEO of Associated Press.

Quotes of the Day;

Clearly, we're in a time when the challenges to the public's right to know are large and growing. You would expect in such a time that news organizations would be mounting more determined efforts to meet and overcome those challenges. But that doesn't appear to be the case. Tom Curley President and CEO The Associated Press The Hays Press-Enterprise Lecture Riverside, California May 7, 2004

Black Helicopter Theories Whir Through Markets: Caroline Baum, June 15 Bloomberg It must say something about fear and greed that normally sane people take leave of their senses to construct financial market conspiracy theories.

News regarding Iran continues to be omitted. Shortly Iran will have the military potential to interdict or control Middle East oil supplies at will. The political and economic cost of dealing with this issue has been deferred therefore it will be paid for at higher cost later.

The Winner in the War for Iraq is Iran May 30, 2003

Iran has successfully tested medium range missiles, which are capable of projecting force throughout the region. Concurrently it has been suggested that North Korea has been working to miniaturize nuclear warheads so they can be outfitted on long range missiles.

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As the battle for Iraq transitions to a guerrilla "Infatada," Iran has at least for the moment emerged as the clear winner of the wider war.

The US remains under-strength in Iraq and the only reason the battle seems to have been won was dominance of enemy communication channels and the willingness of Iran to let the victory happen. Iran has positioned itself to take the reigns of leadership as a regional and nuclear power.

-From an Iranian perspective the stops have been pulled out to build a credible nuclear deterrent and we can expect that nation to leverage the expertise of both North Korea and Pakistan. The US may be in a race for time in terms of retaining the perception of superpower status as a hegemonic military and economic entity. The nuclear proliferation clock ticks quickly and relentlessly to confrontation.

-The religious leadership of Iran may not have growing domestic support however they are not losing control of that nation nor are they positioned for revolution. In fact Iranian leadership and influence extends beyond their boarders to many of the people of Iraq, Palestine, and Saudi Arabia. They are part of an emerging Islamic economic block.

-Iran has control of a major portion of productive oil supplies and it can choose to allocate these reserves selectively. Iran also has the ability to use the Straight of Hormuz as a choke point to restrict the flow of Oil from four nations. Currently oil inventory and capacity problems are pervasive.

-The US dollar and treasury instruments may very well be the next front in the battlefield. With the US threatening to take action against another member of the "Axis of Evil" (Iran), the specter of Iran and its proxies letting loose with a blast of US Treasury instruments into the marketplace in the first quarter of a US election year looms large.

US dollars and debt are being issued at an astounding rate yet the velocity of money has been declining. This has resulted in a deflationary trend, which has been offset by inflation in captive goods/services and taxation. The result of this policy, and a war economy, will be economic stagnation.

Low levels of interest rates will prevail but net wealth, savings, and purchasing power will erode into sectors of inflation and net negative return on investments.

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No doubt exists that the entire world is at war and that the most dangerous and desperate battles are yet to come. The next battlefronts will be fought with Iran, North Korea, Syria, within Iraq, with terror at home, and via the economics of oil and the US dollar.

Warren Pollock
The Macroeconomic Newsletter

This generalized publication seeks to discuss macroeconomics, technical analysis, investing theory, politics, news, and markets. This newsletter does not provide specific advice to any individual. Its our recommendation and opinion that individuals should seek the counsel of a licensed financial adviser who can design a plan appropriate to specific financial conditions, objectives, and risk tolerance. The publishers of this letter may purchase, hold, and dispose of positions in financial instruments discussed herein at will. The newsletter is published to its subscribers on a regular basis. unattainability of expectation?

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