Wednesday, November 29, 2006

Rock the Casbah.

Well, this is subtle. Stepping Into Iraq. Saudi Arabia Will Protect Sunnis if the U.S. Leaves.


In February 2003, a month before the U.S.-led invasion of Iraq, the Saudi foreign minister, Prince Saud al-Faisal, warned President Bush that he would be "solving one problem and creating five more" if he removed Saddam Hussein by force. Had Bush heeded his advice, Iraq would not now be on the brink of full-blown civil war and disintegration.

One hopes he won't make the same mistake again by ignoring the counsel of Saudi Arabia's ambassador to the United States, Prince Turki al-Faisal, who said in a speech last month that "since America came into Iraq uninvited, it should not leave Iraq uninvited." If it does, one of the first consequences will be massive Saudi intervention to stop Iranian-backed Shiite militias from butchering Iraqi Sunnis.

Over the past year, a chorus of voices has called for Saudi Arabia to protect the Sunni community in Iraq and thwart Iranian influence there. Senior Iraqi tribal and religious figures, along with the leaders of Egypt, Jordan and other Arab and Muslim countries, have petitioned the Saudi leadership to provide Iraqi Sunnis with weapons and financial support. Moreover, domestic pressure to intervene is intense. Major Saudi tribal confederations, which have extremely close historical and communal ties with their counterparts in Iraq, are demanding action. They are supported by a new generation of Saudi royals in strategic government positions who are eager to see the kingdom play a more muscular role in the region.

Because King Abdullah has been working to minimize sectarian tensions in Iraq and reconcile Sunni and Shiite communities, because he gave President Bush his word that he wouldn't meddle in Iraq (and because it would be impossible to ensure that Saudi-funded militias wouldn't attack U.S. troops), these requests have all been refused. They will, however, be heeded if American troops begin a phased withdrawal from Iraq. As the economic powerhouse of the Middle East, the birthplace of Islam and the de facto leader of the world's Sunni community (which comprises 85 percent of all Muslims), Saudi Arabia has both the means and the religious responsibility to intervene.

Just a few months ago it was unthinkable that President Bush would prematurely withdraw a significant number of American troops from Iraq. But it seems possible today, and therefore the Saudi leadership is preparing to substantially revise its Iraq policy. Options now include providing Sunni military leaders (primarily ex-Baathist members of the former Iraqi officer corps, who make up the backbone of the insurgency) with the same types of assistance -- funding, arms and logistical support -- that Iran has been giving to Shiite armed groups for years.

Another possibility includes the establishment of new Sunni brigades to combat the Iranian-backed militias. Finally, Abdullah may decide to strangle Iranian funding of the militias through oil policy. If Saudi Arabia boosted production and cut the price of oil in half, the kingdom could still finance its current spending. But it would be devastating to Iran, which is facing economic difficulties even with today's high prices. The result would be to limit Tehran's ability to continue funneling hundreds of millions each year to Shiite militias in Iraq and elsewhere.

Both the Sunni insurgents and the Shiite death squads are to blame for the current bloodshed in Iraq. But while both sides share responsibility, Iraqi Shiites don't run the risk of being exterminated in a civil war, which the Sunnis clearly do. Since approximately 65 percent of Iraq's population is Shiite, the Sunni Arabs, who make up a mere 15 to 20 percent, would have a hard time surviving any full-blown ethnic cleansing campaign.

What's clear is that the Iraqi government won't be able to protect the Sunnis from Iranian-backed militias if American troops leave. Its army and police cannot be relied on to do so, as tens of thousands of Shiite militiamen have infiltrated their ranks. Worse, Iraq's prime minister, Nouri al-Maliki, cannot do anything about this, because he depends on the backing of two major leaders of Shiite forces.

There is reason to believe that the Bush administration, despite domestic pressure, will heed Saudi Arabia's advice. Vice President Cheney's visit to Riyadh last week to discuss the situation (there were no other stops on his marathon journey) underlines the preeminence of Saudi Arabia in the region and its importance to U.S. strategy in Iraq. But if a phased troop withdrawal does begin, the violence will escalate dramatically.

In this case, remaining on the sidelines would be unacceptable to Saudi Arabia. To turn a blind eye to the massacre of Iraqi Sunnis would be to abandon the principles upon which the kingdom was founded. It would undermine Saudi Arabia's credibility in the Sunni world and would be a capitulation to Iran's militarist actions in the region.

To be sure, Saudi engagement in Iraq carries great risks -- it could spark a regional war. So be it: The consequences of inaction are far worse.

The writer, an adviser to the Saudi government, is managing director of the Saudi National Security Assessment Project in Riyadh and an adjunct fellow at the Center for Strategic and International Studies in Washington. The opinions expressed here are his own and do not reflect official Saudi policy.

Monday, November 27, 2006

2006 - Building a base.

Quote from

"If you're on the right side of an issue, just keep driving until you hear breaking glass. Don't quit."

I was reviewing a number of charts from the energy sector last night. [For charting, I like to use I generally add Full Stochastics which highlights short term moves a bit more overtly than RSI, put the size at Landscape, and first view Daily data and then Weekly to see the longer term trend.]

My thoughts: 2006 was generally an all over the place year. Some stocks are up on the year, some are down, some are roughly flat. There were a couple of large moves over the year in each direction, but 2006 was a significantly weaker year compared to either 2004 or 2005. However, I think a period of consolidation after a very strong couple of years is both to be expected and healthy. [Somewhere I had guessed that 2006 would be rough, but I'll have to add the link later, as I can't find it right at the moment..] In terms of a driving factor for this off year, obviously the questions about the economy and oil and natural gas prices that came off the boil played a major role, even as many companies in the energy sector reported record profits.

So what's in store for 2007?

As I was reviewing the charts, my impression was that the energy sector is fighting it's way back, some stocks to their highs for the year (and multi-year, or all time highs), others back towards the top end of their trading range, some to flat, and others are still trading below water for 2006. But I would say this is not a sector that has thrown in the the towel, even after a couple of serious downdrafts during the year. I don't know when the long term uptrend resumes, perhaps it did in October, perhaps it will in 2007 or 2008, but I think the uptrend will ultimately resume. [Why throw 2008 in there? I'm still nervous about the economy - the negative effect from housing has quite a lag.]

And, as a kicker, it's always nice to wake up in the morning and read an article that generally confirms your own thesis, with quotes from one of the more prescient guys in the business.

Bloomberg: Oil Shares Signal a Rebound; Pickens Predicts Record 2007 Price.


``I keep thinking we're right at the bottom on oil,'' Pickens, who has correctly predicted rising energy prices for the past three years, said in a Nov. 22 interview. ``I don't see why the run is over if the global economy continues to grow.''

Wednesday, November 08, 2006

Peter Thiel says be careful out there.

Peter Thiel runs hedge fund Clarium Capital Management and since I started this blog in Feb. 2005 his assets under management have risen from a coupla hundred million dollars to roughly $2 billion. And it ain't just dumb luck folks, as Peter strikes me as seriously sharp in his interviews, and has an impressive investment record to boot. One day I fully expect to hear Peter's name listed alongside some of the real luminaries in the history of hedge funds, names like Rogers, Soros, Steinhardt, Cohen, Simon, et al.

In this interview from MarketWatch, he explains his current views of the markets after the US elections. He sees the potential Democratic sweep of the House as a vote of no confidence on the US economy by the electorate, is worried about equities in general and also very worried about the US housing market for 2007. He continues to be bullish on energy equities, and believes that as a result of Fed moves (or the lack thereof), the US dollar may continue to strengthen.

Generally, these are the same viewpoints he has been expressing for some time, and while he was early on his calls on housing, the more we hear from homebuilders and realtors (Toll Brothers and Beazer announced new orders down more than 50% yesterday, Hovnanian today announced a loss due to land charges.) the more it looks like we may still have a turbulent adjustment period ahead of us in housing.

MarketWatch Video: Peter Thiel.

[note: although MarketWatch lists the video as available, the link no longer appears to link to the proper video.]

Thursday, November 02, 2006

October's Weather Surprise.

The predictions for this summer were for an active hurricane season. Those predictions were way off, we got nothing of note.

The predictions for this winter were for a warm winter. Instead, so far September and October have been colder than normal.

[You have to wonder if these are somehow correlated; is there some change in the weather that suppressed hurricanes this year that might also have implications for the winter, perhaps for a colder winter?]

Here's a clip from CNBC discussing October's weather. Note Joe Kernen's question about what October might suggest about the rest of the winter.

CNBC via MSN Video: Weather Trends International CEO Bill Kirk.