This analysis has a very limited focus: the Saudi role in oil prices, and the prospects for future Saudi action on this critically important issue. We are not here attempting to predict either the future course of oil prices or the level oil prices may seek as the unfolding global "slowdown" plays out. As for the fundamental issue of future supply/demand ratios, we would simply reiterate what we have said in prior posts. We continue to expect that the favorable balance (for the producers) will continue. Whatever cyclical tempering or reduction in demand, the secular trend is clear and will be impossible to reverse absent some spectacular alternative energy breakthrough or a truly massive energy conservation/alterntive energy development policy. (Said policy would require vast sums of money, in contradistinction to the vast quantities of hot air currently being expended on the project).

Huge bundles of money, and reportage about same, are zipping around the globe so fast it is making our heads spin. Today's reports bring news about firm or near-firm commitments of $6.6 billion to Merrill Lynch, and mucho additional billions supposedly headed toward Citigroup.

Now, this raises one teeny, tiny question from little 'ol us. The question is this: since these capital infusions seem to be structured in the form of the issuance of special classes of stock by the needy firm, with said stock to pay a 9% dividend, or thereabouts, and since the recipient firms seem to be recording losses which maybe, just maybe, astronomers can comprehend ($10 billion by Citigroup alone in ONE QUARTER), we wazz just a'wonderin -- How are these firms going to be paying a 9% dividend when, as lenders (in the case of Citigroup) in a low and declining interest rate environment they will be lucky to earn 2 or 3 or more points LESS THAN THAT -- unless, of course, they decide it's time to buy some high yielding investments, like, mmmm....some mortgage-backeds? Or maybe, just maybe, the recipient firms are going to use LEVERAGE to enhance the return on the new capital, so that they can pay the rich dividends their foreign benefactors are requiring.

This morning, according to news accounts which we presume are reliable, the FED high command has decided to take concrete measures to rectify problems in communication between the FED and the outer planets. (That would be us). According to these accounts, either Dr. Bernanke or his Vice-Chairman, Mr. Kohn, will speak publicly at least once before each Federal Open Market Committee (FOMC) meeting. The objective will be to meet criticisms which allegedly focus on the FED's lack of success in communicating its "message."

We find this development very, very interesting. The slant the FED is giving is that the problem is a technical defect in finding an effective mode of communication with the financial markets, Wall Street, the economist community, business, and the rest of us mere mortals. By focussing attention on the "communication" problem, the FED neatly deflects focus away from issues of infinitely larger significance.

We continue to be struck by the remarkably low valuations of certain very carefully selected ultra-high quality stocks. Some of these stocks are selling at price/earnings multiples we have not seen for 15 years or more, without any real impairment of their long-term earnings growth prospects. Moreover, when considered in the context of the current level of interest rates -- not to mention the prospective level of same -- some of these securities are cheaper than they have been since the 1970s.

Does this mean that they cannot drop in coming days, weeks, or months? Of course not. The pendulum-type movement typical of equities will, normally, carry any individual stock from the extreme of over-valuation to the extreme of under-valuation. The question of what is the extreme, and the related question of whether the stock will move to NEW EXTREMES, are unanswerable. All we can reasonably infer is that long-term investors desirous of acquiring high quality securities at low valuations and willing to tolerate short-intermediate term volatility can find some mighty tempting bargains in today's market. We are assuming, of course, that our economy does not become Japan-like. Since the odds are, we judge, that this is unlikely, we remain very bullish on CAREFULLY SELECTED INDIVIDUAL EQUITIES.

Not yet. But we are getting closer and closer to the infection point.

What, precisely, is the Japanese disease? The Japanese disease is the ailment which brings an economy as close to a classic depression as is possible in the Keynesian era -- the post-Depression era where the core of economic wisdom is the following: in the face of economic contraction where aggregate demand is sinking, the government borrows, borrows, borrows, and spends, spends, spends. This is popularly termed: DEFICIT SPENDING.

"Those whom the gods would destroy, they first make mad" -- Ancient Greek saying

Friday was a bloody day for Ben Bernanke in the markets. Both the bond and the equity markets gave Bernanke and his confreres a THUMBS DOWN in no uncertain terms. Long-dated Treasuries continue to ascend to new highs in price (and new lows in yield) and equity markets are LOWER than they were BEFORE the FED's 3 rate cuts. What is going on here? Didn't the equity market like the new Bernanke? Didn't they comprehend his fine words, with the implicit promise for BIG rate cuts SOON? Didn't the market understand the words of Bernanke's colleague, Professor Mishkin, who said that dramatic action was needed NOW, PRE-EMPTIVELY (i.e., before the economy really implodes)?

No central banker has been more aggressive in asserting that there will be no bailout of failing financial institutions than Bank of England Governor King. King has insisted repeatedly that central banks uphold the priciple of "moral hazard." Speculators must eat their losses; niether the government nor the central bank must come to their aid when they are keeling over. To do so would be to encourage more reckless speculation in the future. The malefactors of speculation must be held to account! Hear! Hear!

We wonder how today's news about the situation of Northern Rock Bank comports with these somber principles? Northern Rock, as we all know, made a tremendous number of unwise mortgage loans and speculated unsuccessfully in mortgage-backed securities, bringing it to the brink of bankruptcy. Now, it turns out, the Bank of England has loaned Northern Rock the rather tidy sum of 49 BILLION POUNDS. This money is gone forever, of course. Never mind the ancillary issue of "moral hazard" -- the question here is: has the British government been bailing out the banking system? A collateral question is -- is the Federal Reserve bailing out the U.S. banking system?

Well folks, the big news this morning is that Bank of America is actually ACQUIRING Countrywide. This forces us to repeat the question we posed at the time of BofA's original $2 billion investment in Countrywide a few months ago: Now that Bank of America has rescued Countrywide, who will rescue Bank of America?

We find this deal very, very interesting. On the surface, it would seem that BofA does not care to take its $2 billion lump entailed in the virtual devaluation to next to nothing of its $2 billion investment. The forthcoming action is most assuredly NOT throwing good money after bad, according to BofA's PR. Not at all. Countrywide is a great franchise, a great buy, the #1 mortgage company in America, etc etc. Of course, these assertions rather neatly skirt the obvious question: if Countrywide is such hot stuff, how come the stock has lost nearly 90% of its value and is poised to sink to ZERO, with bankruptcy but a hairsbreath away? Since Bank of America remains a profit-seeking institution as far as we know, and has not joined the world of philanthropy, we view what is clearly an ultra-risky move in an industry which has suffered grievous losses by taking too much risk in the extremely recent past, as being a tad fishy.

Well folks, brace yourselves for the impending tsuanmi of analytical detritus which will shortly be inundating our audio and visual senses. We expect the Greek Chorus of Doom to pick up the new banner of looming disaster. We expect this new rallying cry to amount to the following: rate-cutting by the FED isn't working and isn't going to work! Indeed, we have already seen the outliers of this nonsense in recent days. One "analyst" announced that "all the FED can do" is lower interest rates. Said guru stated that this would not work. This "assessment" is akin, in our view, to saying that the only thing that the heart can do is pump blood. Try having a heart that declines to pump blood, on the grounds that it won't do any good. Well, what can we say? Such is the quality of contemporary financial analysis and reportage.