THEME: OCTOBER SURPRISE Pt. 2 -- OIL
Sentiment this week is about one thing: OIL.

I have been talking about oil and its effects since Q1 of 2004. Now people are finally starting to get uncomfortable. There are a lot of bogey-men dancing about: al-Sadr, Chavez, Putin, etc. Let's go beyond the obvious and look at the real reason why oil is going up.

Loyal readers of this blog will know that I have been speculating that the nature of the Bush October surprise is going to about Iran. Now that the economy is no longer a big selling point for Bush, he has to do an about face and swing the other way: TERROR. Strategically, it makes sense: he knows that his ratings were highest post 9/11. He also consistently scores better than Kerry in the Terror department. Also, let us not forget Clinton's Iraq attack during Monica-gate.

Iran is playing its role perfectly: it openly flaunts its nuclear capability. Iraq and Saudi Arabia hate Iran. Israel wants to bomb Iran. The EU is trying to talk reason into Iran, but to no avail. Iran must be hit sooner or later. Sounds like something Paul Wolfowitz would say.

So, Bush keeps filling the SPR (Strategic Petroleum Reserve). Ominously, it is at 666 million barrels right now. The White House says that the SPR will continue to be filled until times of emergency.

So, let's just say Israel gets trigger happy. The US says "OK, let's get 'em." So, then in October there is a joint air strike on Iran. Oil then spikes up to $75 per barrel, and BOOM! Bush releases the SPR and the market collapses!

Sounds too Wag the Dog for your tastes? Well, just consider that Bush the elder did just that when he launched Desert Storm.

Here is a quote from a leading analyst that is worth considering:

"President Bush is the only person in the world who can break this cycle of fear and anticipation and greed … by releasing oil from the Strategic Petroleum Reserve or by just telling the world that if things don't improve we will step in," said Fadel Gheit, senior energy analyst with Oppenheimer & Co. "If he releases between 1 and 2 million barrels per day for the next 30 days, I guarantee you that oil prices will go back to $30."

ACTIONS:
Its too early to fade oil. Stocks will continue to rise a bit but will then falter. Wait for the October Surprise before diving into stocks or shorting oil. Keep dividend paying stocks, REITs, gold, and plenty of cash.