October 12, 2006 –
As an afterthought on my blog entitled “State of Denial”, I thought about the accusation author Bob Woodward made that the Bush Administration, prior to the 2004 Presidential elections, asked then Saudi Ambassador to the U.S., Prince Bandar bin Sultan, to keep oil prices down (watch the video here). Again, given that Bob Woodward is a respected journalist who broke the infamous Watergate scandal, and whose first book, Bush at War, was just as heavily praised by the current administration as his current one is being denounced, one can hardly accuse Woodward of any strong political bias. In fact, earlier I blogged about how Goldman Sachs was most likely also asked, through former Goldman CEO and now current U.S. Secretary of Treasury, Hank Paulson, to help out in the upcoming U.S. mid-term re-elections. In turn, I speculated that they responded to this request by dumping 73% of their unleaded gas positions in their Goldman Sachs Commodity Index.
Now I know a lot of people don’t believe that such collusion occurs on the political-economic front, but as I have stated repeatedly, it is irrelevant whether you believe certain market behavior is triggered by “cause and effect” collusion-driven events or merely just a series of innocent coincidences. Whether or not you attribute political scheming to be the cause of abnormal market behavior is insignificant as long as you dig deep enough down the rabbit hole to uncover certain events that will “trigger” market consequences.
Woodward’s claim that the Saudi’s deliberately interfered in the sovereign affairs of the United States and helped Bush become re-elected in 2004, to his former opposition candidate, John Kerrey, was “shocking” and “outrageous”.
The only problem with Kerrey’s narrow-minded assessment of the situation was that if this happened once, surely it wasn’t the only time that such an arrangement between the U.S. government and the Saudi Royal Family was struck. Surely Democrats must have asked for similar assistance in the past, right? So I dug down the rabbit hole. Sure enough, I discovered, according to Prince Bandar himself, that former U.S. Presidents have been asking for his country’s assistance in manipulating oil prices for ages. On CNN’s TV program Larry King Live, Saudi Ambassador Prince Bandar stated. “President Clinton asked us to keep the prices down in the year 2000.” Bandar further stated that President Carter also had asked the Saudis to help keep oil prices in order to save his reelection bid in 1979. If Prince Bandar is telling the truth, government manipulation of commodity prices is obviously not a partisan issue.
When it comes to predicting the price behavior of gold, I also heavily weigh political factors. Again, whether one believes that there is collusion between governments to control the price of gold is irrelevant. What is a far more relevant exercise is predicting the consequences of certain political actions of governments all over the world. This is what I study more than anything. On my blog entry dated September 11, when gold was trading near $600 an ounce in the AM London Price Fix, I stated, “I have strong reason to believe that it will possibly challenge the June lows of $570 an ounce and perhaps even head lower before sharply rebounding and heading much higher.” My ”strong reason” again was predicated upon political actions that I had uncovered. On October 6, the PM London Fix of gold dipped under $570 an ounce to $560.75 an ounce.
So whether you believe in collusion or not, what is undeniable is that politics and investing are so intimately linked that it is impossible not to keep track of politics and expect to make fundamentally sound investment decisions.
