THEME: OIL
Jon D. Markman who writes for the Street.com wrote about Matthew Simmons, a Houston energy analyst and banker at Simmons & Co. International. The message that Mr. Simmons is preaching has some rather frightful implications. Here are some excerpts:

Simmons is now shouting from the rooftops -- writing think-tank white papers, giving speeches and finishing a book set for publication next year -- that the world is quickly running out of affordable oil and gas, and that no amount of Middle Eastern pumping can bail us out.

While much of the so-called "peak oil" story is well known, what's news is Simmons' startling claim, based on personal analysis, that Saudi Arabia's pumping capacity is in decline.

Aramco, the company in charge of Saudi oil operations, disputes Simmons' assertion and has debated him in public policy forums. But Simmons isn't easily dismissed, as he's no antiestablishment crank. In addition to his role as chief executive of a major energy-focused investment bank, which counts Halliburton (HAL:NYSE - commentary - research) and the World Bank among its clients, he's a member of the Council on Foreign Relations and was an adviser to President Bush's election campaign and Vice President Dick Cheney's infamous energy task force.

Simmons' point of view is especially relevant today because the price of oil appears persistently stuck at $35-plus despite Saudi officials' vows to help push it down by increasing supply. Higher energy prices act like a pervasive, regressive tax, robbing consumers of money that would otherwise go to buy discretionary goods such as cars, clothes and computers.

In a nutshell, peak-oil advocates note that U.S. oil production -- once the highest in the world -- topped out in 1970, while natural gas production topped out in 1973. Both are now in decline. With world oil consumption at about 1 billion barrels every 12 days, oil companies have pressed hard to find oil and gas in other parts of the globe.

Simmons says it's worse than that. Much like the biggest problem in the Enron fiasco was that analysts always trusted Enron managers' declarations about the strength of its financial assets, he says that the world has always taken Saudi Arabia at its word for its oil assets. He now believes that it cannot be trusted.

He notes that the six major oil fields in Saudi Arabia, all discovered between 1940 and 1967, produce about 95% of Saudi oil. The Saudis produce 10% of the world's oil from them at the world's lowest prices, and the Saudis are the only serious provider of "spare" capacity on the planet. A single field, Ghawar, which is the world's largest, was discovered in 1948 and produces up to 60% of the kingdom's total.

He believes that production at these mature fields has peaked. While that doesn't mean they'll run out tomorrow, they're becoming much harder and more expensive to exploit efficiently. It's like a person getting older and suffering from arterial sclerosis: They slow down and become increasingly less capable. The Saudis are now using intense water-injection techniques to improve production, he says, a technique that can ultimately lead to catastrophic pressure failure.

Let's be clear what the implications are. Our leader pre-emptively attacked Iraq not because they believed that there was an imminent threat, but based on the Neo-Con Grand Theory that we had better have ownership of the oil fields in the Mid-East before something really bad happened to us like having the House of Saud fall.

The funny thing is there are voices in this supposed sane society that see no problem with this Neo Con point of view. I was listening to Dennis Miller on CNBC, and what he tried to pass on as comedy was a bleak message: If the Arabs try to screw around with OUR crucial supply of oil then we would send some real guns over there and teach them a lesson. WOW! Miller used to be a comedian on SNL???

The problem with this strong armed strategy is that it is the strategy of Empire. Empires rise and fall. They conquer or are conquered. They also grow old and senile. We have reached our Viagra moment. We are no longer young, but still walk around with the hormones of a teenager. The problem is that the Arab world is young. Very young. The median age of the Arab world is below 20! Unless we recognize that Arab young men without jobs and with little prospect for wealth have a lot more hatred and adrenaline than our young men who just want to go home to the States and play with their Xboxes, then we are in for a lesson in the economics of terror that will be quite expensive. Unless we can truly create a force for social justice, which we are trying to do (lead by an Administration which has failed so far), then I am afraid we will continue to suffer from sky high oil prices.

THEME: Tom McManus Speaks

A Banc of America Securities report from Tom McManus this week notes the best of the earnings growth may be behind us. The securities firm's Cumulative Earnings Revisions Index for the second quarter is up 37 per cent, which is down from the 47 per cent level in the first quarter, "which may well have been the peak for the cycle of this earnings recovery".

Mr McManus said: "Stocks always seem to be better indicators of inflection points for earnings than the other way around." Wall Street's bearish response to earnings this season comes amid concerns about the less-than-stellar guidance. Another concern for Mr McManus is that "rising commodity prices are cropping up all over", and not all companies are able to pass along the higher costs.

THEME: JOBS ILLUSION
Tom McManus of BoA has also derided the "Birth/Death Model" that has rendered the jobs report a complete fiction.
This from Bethany McLean of Fortune:

Texas Hedge Report, one of my favorite publications, writes that they believe those stats "are possibly being manipulated for political reasons" by an arcane figure known as the "Birth/Death Model adjustment." This adjustment is meant to reflect the birth and death of business establishments, and from April 2003 through January 2004, the net job creation from the Birth/Death Model estimation was just 374,000 jobs in a span of ten months, or about 37,400 jobs a month. But between February and June of 2004, the Birth/Death Model estimation (I get a kick just out of writing that) has "magically created 915,000 jobs—goosing job creation from the model to 183,000 jobs a month.... What is scary is that last month’s total job creation was only 112,000—meaning that if not for the Birth/Death adjustments, we would’ve LOST 80,000 jobs in June!" reports Texas Hedge.

THEME: THE NAZI BUG

"At a mass meeting...thought is eliminated."
--Adolph Hitler

The greatest evil of the 20th Century was Adolph Hitler and the Nazi party. The truth of this statement is its self-evidence in modern dialogue. Hitler's image is used as one hyperbolic extreme in defining "evil." That is why George W. Bush's image can be placed alongside Hitler's in the minds of those that oppose him.

In my mind, the reason why the lessons of the Nazi Menace are so important is not because its effects can be weighed on some objective scale of evil. It is not because the Nazis killed 6 million Jews as opposed to the fewer numbers of Native Americans killed by the US Army, that the Nazi party is then determined to be more evil than the US Army. No, the true evil of the Nazi Party is that they discovered a "bug" in the human genetic code, and they exploited it so effectively and with more devastation than anyone other group to date.

The true fear lies in the fact that the "Nazi Bug" has not been patched. We try to burn the images of Hitler in our collective conscience to remind us never again to commit such atrocities again. However, my fear is that at the minimum this education only ensures the elimination of the possibility that another Nazi party can ever surface and take power and reign destruction on the scale that they did. It will not prevent other parties from exploiting the bug in other ways.

The Nazi Bug in the genetic code is basically that human rationality can be cancelled effectively through mass emotional hysteria. This is a concept that Adolph Hitler understood well and explicitly stated as much. He used the pageantry and mystery of religion to create mass religious fervor to energize his cause.

"What can we do? Just what the Catholic Church did when it forced its beliefs on the heathen: preserve what can be preserved, and change its meaning. We shall take the road back: Easter is no longer resurrection but the eternal renewal of our people. Christmas is the birth of our saviour."
--Adolph Hitler

The Nazi Bug can be used to explain various phenomenon.

We see now that the Bush Administration manipulated our mass hysteria over 9/11 (fear and the desire for vengeance) to have us agree to launch an offensive attack against Iraq. Colin Powell presented the "hard" evidence to the doubting US electorate and the world. The world was so convinced of the hardness of the evidence that one British tabloid called the evidence "dodgy."

So, the question becomes can we rationally analyze this systemic failure and make the logical choice: fire George W. Bush? After all, we fire managers from losing baseball teams? Or will the fear that it will get worse if we fire him drive us to stick with him. As the GOP t-shirt says, "10 out of 10 terrorist agree" that they
want W out of office.

The 9/11 Report derides the "groupthink" in the intelligence community that lead to this failure. That is an interesting choice of words. I think it is more evidence of the Nazi Bug. Groupthink is happening everywhere.

Fortunately, the markets serve as a vehicle to fight and even profit from groupthink.

Recent case in point: the effective blocking of the Wellpoint-Anthem healthcare merger by John Garamendi, the California State Insurance Commissioner. Wall Street being predominantly Republican fell into a groupthink on this one. It gave the merger a nearly 90% probability of completion. Garamendi's recent rants on excess executive pay was seen as nothing more than political posturing. Once he got his "deal," so the line of reasoning ran, he would just beat his chest and the merger would go on. Wellpoint certainly used this as its operating principle and offered up over $400 million to the poor uninsured community of CA. What they didn't realize is that Garamendi objected to the excess pay packages on philosophical ground and was willing to take this case to the edge of the cliff and then push it over to make his point.

Finally, this groupthink is also appearing in the consensus denouncement of Fahrenheit 9/11. Hardcore Republicans either saw it and shut their minds off after first 10 minutes, or the majority refuse to see it at all. This is to their detriment. All across America, this film ends with spontaneous applause. If Republicans and market participants fail to notice this, they will be surprised when they are finally forced to notice.

Please stay in tune for other groupthink opportunities.

THEME: STOCK MARKET TELLS
Along with Thomas McManus, Paul Desmond is the other guru that got the whole bear market pretty much dead on. Desmond has been hesitant to turn bearish but is recently changing his tune to a stronger bearish stance. McManus is not really bearish, but more bearish than I've seen since the heart of the bear.

My view is that the market is beginning to recognize that Kerry is not only electable, but may well trounce Bush. The tell of the market was how it responded to the June 30 quarterback sneak Iraq handover: it sold off! Bush carefully engineered a Cisco style lower expectations and then beat by a penny in the sneak hand-off. The market was unimpressed. Its clear that the very bullish stock pundits believed that a quiet hand-off a major hurdle that the market needed to clear for a rally. Well, they were wrong.

Even though there haven't been any major terrorist attacks since then, the market is still not rewarding Bush with the victory.

Remember Hom's Law of the Stock Market:
1. stocks up = people happy = bear market
2. stocks up = people un-happy = bull market

People are long again, and the market has not yet cleared.

Paul Desmond, head honcho at the institutional research firm Lowry's Reports in Florida, says that this sort of complexity probably has always existed in the market but statistical measures were not set up to capture it. Today, the market is sliced and diced a million different ways via a variety of indexes that let us understand micro-climates within the big market ecosystem. He believes that big-cap Nasdaq stocks may be headed back to their 2002 lows while relatively cheap makers of steel, oil and gas drillers, coal miners and munitions makers gun to new highs.

Indeed, he notes that if investors would stop fixating on the Nasdaq or market-cap weighted S&P 500 Index and look at a broader range of stocks, they’d feel a lot more comfortable. He says his firm’s unweighted index of New York Stock Exchange domestic “operating” companies -- that is, the NYSE Composite minus closed-end funds, preferred shares and foreign companies -- hit a new high in late June and is only slightly off that level now. “On the Big Board you have the majority of stocks still going up,” he said.

THEME: SENTIMENT
This quote from BusinessWeek validates the reason why studying market sentiment is very important:

Zogby International did a poll a few weeks ago of individual investors. They said that 65% of investment decision-making depended on how they felt.

MEME: STAGFLATION
Well, it took 20 days, but stagflation has finally made it to the front of market sentiment thanks to Alan Greenspan:

"This is always our concern. Most of us lived through the stagflation of the 1970s. It was a very disconcerting experience," he said in response to a lawmaker's question.

It is still early for this one, as people are still convinced that inflation is low. The official numbers may never fully reflect this inflation until housing prices come off, and rents go up. Inflation is acknowledged by anyone who owns a car, pays a utility bill, buys food, and has tried to buy a house. When will Greenspan acknowledge it? When it is too late.

THEME: Real Estate Top

Excerpts from a recent article in Business Week:

Baby boomers are seen as spendthrifts, credit-card addicts unable to deny themselves any pleasure, blithely ignoring the need to save for old age. "The boomer culture doesn't lead to saving for retirement," says Ann A. Fishman, president of New Orleans-based Generational Targeted Marketing. The vision of an aging group of 76 million heading toward financial catastrophe is deeply disturbing. Yet it could well be wrong. An impressive body of economic research paints a far more benign picture of the graying generation that makes up more than a quarter of the U.S. population. Many of those who rocked at Woodstock 35 years ago have accumulated more real wealth and earn more real income than their parents did at a comparable age. Boomers are also saving at roughly the same rate as their parents, suggesting they'll have more to tap after saying goodbye to their workmates. This generation is also expected to inherit at least $10.4 trillion, though most of that money will be highly skewed toward the rich.

...

Still, the fear of a collapse in residential real estate seems overblown. The strongest single predictor of the direction of home prices is household income growth, and in 42 states that growth explains all the price increases in housing of recent years, says Karl E. Case, economist at Wellesley College. The spectacular price spiral that dominates the headlines is confined to eight states, including Massachusetts, New York, New Jersey, California, and Florida. Markets in those states risk a plunge in prices, he adds, but everywhere else prices are more likely to simply stall for a considerable period. Overall, taking into account long-term forecasts of income growth, the housing market should appreciate at a 4% annual rate, or 2% after adjusting for inflation, figures Mark Zandi, chief economist at Economy.com.

Now contrast that language with the now famous line uttered in the fall of 1929 by Yale University economist Irving Fisher, one of the most highly regarded experts in the nation: "The nation is marching along a permanently high plateau of prosperity."

This was the same language that I remember for the dot.com Bubble, too. I remember people saying although many tech stocks were overpriced and would crash, the winners in the New Economy would far outweigh the losers, so it made no sense to sell tech stocks wholesale.

I am still unsure as to the timing of the Great Real Estate crash, but certainly Boomers tapping into inter-generational real estate transfer means that supply should eventually hit the market.

All I can do is to continuously monitor the patient's vital signs.

THEME: FAHRENHEIT 9/11

The effects of F911 are starting to show. Typically, surrounding a major studio release, the cable networks play movies related to the movie (usually featuring the star) to either stoke interest or to reinforce continued interest. A movie like F911 not being a studio release certainly had no such support. ABC did not play Bowling for Columbine.

So, it is curious that today, on Fox's The Simpson's, the plot involved the entire Simpsons family being carted away by the government to an undisclosed detention center where other supposed dissidents are being held. One of the dissidents was Michael Moore! I wonder how the producers snuck that one by Murdoch!

Also, TCM featured Fahrenheit 451. This shouldn't come as a surprise given Ted Turner's politics, but my guess is that interest is slowly being piqued. Look for the movie version of 1984 or Animal Farm on your cable tv soon!


On a related note, the stock market remains soft. Friday was the first appearance in market sentiment by a few of the respected sentiment authors of the Bush Can Lose meme.

Don Straszheim of Straszheim Global Advisors said he was not concerned by the recent softness but projected the economy going forward would be only “decent,” not strong. And that, he said, is not a good sign for Bush.

Over the past four decades, he said, strong employment growth generally has benefited the incumbent president, while weak employment has boosted the challenger. When economic conditions are more neutral, as they are now, the election tends to turn on non-economic issues, he said.

“I think the election is being served up on a silver platter for Kerry,” Straszheim said this week in a conference call for clients. “This looks increasingly like a 1968 kind of election cycle in which global issues swamp those domestic economic issues.”

Jim Cramer got the ball rolling by declaring the market to be "sick from the top down," and citing "a gradual realization that Bush will be forced out in November and a new man will be president, a man who may not be better for the stock market but one who arguably may not be worse if simply because a gridlocked government is better than the drunken spending and the no-vision team we have in now."

THEME: FAHRENHEIT 9/11 & ITS IMPLICATIONS
First, full disclosure, I am a registered Democrat who voted for George W. Bush in 2000. As for my political views, I was pro-Bush during the 2000 election circus, and I am now virulently anti-Bush since the Iraq War.

Prior to seeing Fahrenheit 9/11 I had never scene a Michael Moore film, and I never had any wish to see a Michael Moore film because they always seemed too obviously Liberal to me. However, I wanted to see Fahrenheit 9/11 simply because I thought that regardless of your affiliation, the movie has new information to offer and you should approach it without fear and prejudice. Watch it and simply judge for yourself.

What is disturbing about the reaction to Fahrenheit 9/11 is just how lazy reporters & the media are in response to some serious allegations. I see the most important polemical stab in Fahrenheit 9/11 as not against President George W. Bush, but against the corporate media machine that Bush implicitly uses to propagate his "mission." I think that is the whole message of the opening montage where we see the now infamous Wolfowitz comb licking scene. What you see from the media is a movie, not unlike the one you are about to watch.

I experienced many feelings while watching this movie. The most unexpected feeling was a feeling of relief. I felt the same way that Winston felt in Orwell's 1984 when he first made love to Julia, committing their first act of "sex crime." The audience was shy about laughing at first to Moore's cheap shots and slapstick comedy. Were we afraid of being filmed by Homeland Security? But as the movie progressed, we laughed louder and louder. We let down our guard and communally shared our feelings alone in the dark. As the movie progressed to its emotional climax, the Lila Lipscomb story, we all then went willingly the other way and communally had a good cry. A man in his late 40s was crying next to me, as well as two ladies in their 60s.

The ability of Michael Moore to allow his audience to vent their feelings of anger and sadness after 4 years of being told to just relax and trust the administration, is what makes to movie so powerful. Yes, Moore is a master manipulator. Ironically, he has been compared to Leni Riefenstahl by his detractors. However, the message that I take is that Moore openly confesses to manipulation, the difference being that his agenda is in plain site, whereas the master manipulators, i.e. the corporate media has a hidden agenda and yet pretends to be protecting the public interest by being guardians of the truth.

Michael Moore can take no greater satisfaction that he has done a good job than the fact that in my theater, as well as at Cannes, as well as in other theaters in other cities, the end the movie is met with spontaneous applause. The last movie that I saw where the audience erupted in spontaneous applause at the end was Lord of the Rings: Return of the King, which won the Academy Award for Best Picture.

Michael Moore is like a modern day Socrates. He is a pimple on the pristine, smooth skin of polite society. Attacks on Moore focus on character assassination. How many times have I heard him derided as a "fat slob"? Now who's lobbing the cheap shots? Like Socrates, he goes about his unkempt ways morally corrupting youth with his clever polemic. Like Socrates, he is seen as a public menace. Polite society seeks to distance itself from him because to actually address his concerns would threaten so many of the assumptions that underlie the workings of this society.

Here is an excerpt from an article by By Sumana Chatterjee and David Goldstein of KNIGHT RIDDER NEWSPAPERS:

Michael Moore's film "Fahrenheit 9/11" has been called many things: incendiary, thought-provoking, satirical, propaganda.

But is it true?

...

Bush's actions on 9/11

In one of the film's most controversial sequences, Moore shows the president at an elementary school in Florida on Sept. 11, 2001.

Two planes have crashed into the World Trade Center towers, and Bush is sitting in front of second-grade students reading "My Pet Goat."

...

Bush remains in the classroom for seven minutes before leaving to talk to his staff about the attacks.

Moore suggests the president's possible thoughts during those minutes: Should I have vacationed less and worked more? Should I have listened to anti-terrorism experts warning of an al-Qaida attack?

The commission investigating the Sept. 11 attacks and the government's response interviewed Bush.

The commission staff said in an interim report that the president "felt he should project strength and calm until he could better understand what was happening."


Saudi flights after 9/11

Moore says the administration allowed 142 Saudi Arabian nationals, including about two dozen relatives of Osama bin Laden, to leave the United States after Sept. 11 without proper questioning by law enforcement agencies.

In the film, Craig Unger, author of the book "House of Bush, House of Saud," tells Moore that none of the Saudis underwent serious scrutiny.

"So a little interview, check the passport, what else?" Moore asks.

"Nothing," Unger replies.

The Sept. 11 commission's interim report said law enforcement interviewed 30 of the 142 Saudis, including 22 of the 26 people on the flight that took most of the bin Laden relatives out of the country.

The report said none was of interest to the investigation.

It says Saudi Arabia asked for help to get its nationals out of the United States. Because 15 of the 19 hijackers were Saudi citizens, the Saudi government was worried about reprisals.

The commission says it doesn't know the person in the administration the Saudi government contacted, but that the request eventually reached Richard Clarke, who was the White House counterterrorism chief at the time.

Clarke told the commission he refused to approve the request, suggesting that it be sent to the FBI so the agency could vet the Saudis for any terrorism connections.

He said the FBI approved the flights.

However, an FBI spokeswoman denied to The Hill, a newspaper that covers Congress, that it had "anything to do with arranging and clearing the flights."

She said the bureau interviewed some passengers, but none was "of investigative interest."

Despite some media reports, the movie doesn't allege that the Saudis were allowed to leave while U.S. airspace was still closed.

The Bushes and Saudis

The movie paints a sinister connection between Bush and the bin Laden family.

It implies that James Bath, a friend from the president's days in the Texas Air National Guard, might have funneled bin Laden money to an unsuccessful Bush oil-drilling firm called Arbusto Energy.

The accusation is a stretch, said Bill Allison, the managing editor for the Center for Public Integrity, an independent watchdog group based in Washington.

Polite society takes comfort in such an article. Issues addressed by the movie can be politely explained away as inaccurate or misleading. We all feel better about ourselves if this were indeed the case. We don't need to spend any more time thinking about these issues because they are being presented by a fat slob who is inaccurate.

However, the fact remains that there is a non-casual relationship between the Bushes and the Saudis. One of the deep foundations of the US economy is the dependence on not only Saudi oil, but the stability and influence of the House of Saud. Why are we afraid to discuss this? Why is it uncomfortable to question whether it is healthy to have a President who has clear business ties with relatives of Osama bin Laden?

One of the most profoundly disturbing questions raised in the film is that of the whole system called the Terror Alert system. Will the terror alert ever be green again? Why does Tom Ridge see it fit to cite in a recent press conference that new evidence of a "credible threat" exists from Al Qaeda, and yet not raise the terror alert? Is the Terror Alert system effective in either thwarting terror or preparing its citizen? What is the price economic or psychic of this system?

Again, its easier to brush these questions off because they come from a fat slob.

Here is a disturbing excerpt from some presumably young Republicans. From The Battalion the college newspaper of Texas A & M, "Fahrenheit 9/11 - Conservative View" by Julie Bone:

As for its accuracy, who knows anymore? An undisputed truth barometer seems nonexistent nowadays, as Moore has created a "war room" of fact-checkers and political analysts dedicated to defending all information in the film (interestingly, he also threatens to sue any who libel him), and despite that, there are already hundreds of published reports, articles and Web sites contesting every allegation and fact stated in the film.

It is clear: Michael Moore is a fat ignorant slob. There is no need to check his facts. We just don't like him so we won't even bother. This is the saddest aspect of the state of the body politic in the USA circa 2004. Democracy fails when its constituents are lazy. I would hope that young people in this country have a bit more energy to do some "fact checking."

Finally, the other criticism of Moore questions his profit motive. I guess that as for making a profit, only Republicans are allowed to profit from their work, and Democrats can only prove their sincerity by not profiting.

It is my view that the outpouring of emotion generated by this film is not to be ignored. The feelings are there and they have been smoldering. The deepest irony is that The Passion of the Christ and Fahrenheit 9/11 illustrate that the passion of the people cannot be denied by the corporate media that would simply like us to eat our Happy Meals and not think too much or complain about its taste.

The right, which counts most of corporate America and Wall Street is more than likely underestimating the power of Fahrenheit 9/11. My message is see the film without fear or prejudice and decide for yourself.

THEME: IRAQI INFLATION SOURCE
Iraqi debt has an implicit US guarantee. That is why the T-bills will trade as low as 5%! This has to be a source of inflation as essentially the Fed is expanding its money supply overseas to cover all of these dead dinars. At the same time, the US wants to kill off the existing Iraqi external debt. The net effect is like injecting dollars into every Iraqi's pockets. Inflation is here to stay.

Iraq's Finance Ministry is to auction 150bn dinars ($10m, ?8m, £5.4m) of treasury bills on July 18 in a move to establish a bond market and kickstart Iraq's domestic capital markets.

"It's a way to recover the economy," said Adel Mahdi, Iraq's finance minister, in an interview with the FT. "We are issuing new treasury bills not only to finance the repayment of treasury bills [outstanding from the former regime], but to regulate the market and determine interest rates."

The T-bill issue will be used to repay outstanding debt issued by the previous regime of Saddam Hussein, 1,300bn dinars of which is estimated to be held by Iraqi domestic banks. That is seen as a way to bring funds back into Iraq's banking sector, much of which would otherwise face bankruptcy.

The minister said he expected the T-Bills, which will have a 91-day maturity, to yield between 5 and 8 per cent annual interest - quite optimistic compared with other emerging debt markets.

But Iraqi bankers are hardened to continuing violence, and more importantly, they say they are desperate for secure investments for their cash. Bankers have complained they were deprived of local interest-bearing funds to invest.

"There's so much liquidity in the Iraqi economy at the moment earning zero per cent, the auction seems a good investment," said a local banker.

Under Saddam Hussein, banks received fixed interest payments of 6 per cent for treasury bills, but many feared bankruptcy after the regime collapsed, leaving them saddled with 1,300bn dinars outstanding of debt, say US officials.

Iraq's domestic debt is less than 1 per cent of an external debt the finance minister valued at between 120bn-130bn dinars, prior to any debt-forgiveness, but nevertheless is considered by advisers as vital to restoring confidence.

THEME: RUSSIAN MIRACLE
The Wimbledon victory of Maria Sharapova is quite importance in its symbolism. She declared that her goal was to win for mother Russia. A week earlier, thousands turn out to see the Virgin of Tikhvin, which was returned to Russia from the USA. People believe that the Virgin is endowed with the power to create miracles. This belief is now confirmed with the Wimbledon victory.

This should have a powerful boost to the Russian markets which have been battered by the dirty Yukos affair.

MEME: STAGFLATION
My take on today's sell-off is that the market is now afraid of stagflation. Here's why:
The Fed needs to raise interest rates at least to 2.5% to get it back to "neutral", i.e. to get it back up to the the level of inflation. If the economy is driven by cheap interest rates, and the actual fundamentals of job & income growth really aren't there, then this forced raise in rates could tip it over.

The risk lies in the housing market. Rising house values have cushioned joe public. His stock portfolio was shot, be he "found" money in his house. Not only has he proceeded to spend it, he is actually speculating with it by buying 2nd homes.

In 2000, stocks seemed to be the safest place to put your money in the long-run. Now houses occupy that role.

If the Fed does not raise rates, then clearly we have seen the weak link in the economic chain is commodities prices. It cannot afford to keep rates this low forever.

Consumers are lousy are financial planning. Remember these are the same people to piled all their money into dot.coms! They are also unhedged and unprepard for the great real estate crash that is inevitable.

THEME: STOCK MARKET CALL
Thomas McManus has had the most accurate call on the stock market since I started tracking sentiment. He was bearish on the market pretty much through the whole ride. He turned bullish in Nov 2002 and pretty much rode it all the way up until now. I respect his call very much.

"Please do not let yourself be swayed by politicians posing as economists: Ignore their siren song that 'we're enjoying the strongest economy in 20 years,'" Thomas McManus, equity portfolio strategist at Bank of America, recently wrote.

McManus, who lowered his recommended equity allocation to 60% from 65% in mid-June, noted the 1.4 million gain in non-farm payrolls over the past nine months results in a 1.5% annualized growth rate vs. the long-term annual trend of almost 2.2%. "Some recovery," he quipped, noting that if Friday's June payroll report meets consensus of 250,000, it will "only match the [long-term] trend."

Market participants are in virtual unanimity in expecting a 25-basis-point rate hike Wednesday -- with fed fund futures predicting less than 10% odds for an additional quarter-point. But McManus offered a variant view: "Given the still mixed data regarding the strength of the recovery, perhaps we should not be surprised if the Federal Reserve were to pass on the opportunity to boost rates on Wednesday."