An Early Summer Lull
Jude Wanniski
July 8, 2004

With Senator John Edwards of North Carolina causing the most excitement since summer began (Zzzzzzz), you know I do not have much to add to our most recent market analysis. Here are a few quick points before I doze off again:

IRAQI OIL: Whenever oil tries to get back toward the $30 range where it belongs, the forces of darkness show up with a new scare. The new "interim" government of Iyad Allawi was supposed to calm things down, we thought, by restraining the American forces in the practice of "collective punishment." In his first important decision out of the box, Allawi went the other way last weekend, giving the U.S. Air Force permission to bomb a house in Fallujah, killing ten people including children, on the grounds that there was good intelligence it was a "safe house" for insurgents. Weíd thought this practice, imported from Israel, would end with Allawiís new regime, and henceforth coalition troops or Iraqi police would knock on the doors of the target homes and arrest those suspected of being bad guys. The Fallujah bombing supported those who have insisted the interim government has no interest in holding elections next January and knows it can prevent that roadmap to peace by provoking the militants. The oil delivery system was blown up again and I must assume it will continue to be blown up as quickly as it is repaired, until it becomes clear the interim government is serious about detaching itself from their overlords at the Pentagon.

GOLD: The yellow metal is still where it was when I wrote last week, about $400, but in just a few days it dove $8 and rebounded $9, expressing confusion as conflicting signals arrive on the likelihood the Fed will raise interest rates again next month (the consensus Tuesday) or hold (the consensus Wednesday). The stock market seems to prefer the latter, the bond market the former. We may be on this teeter-totter for awhile as news about the economy and "inflation" move in different directions.

KERRY-EDWARDS: The North Carolinian adds nothing to the ticket except charm, enthusiasm, and inexperience. My estimate of him has not changed since I watched him on his first "Meet the Press" appearance a year ago, when Tim Russert tore him to bits and pieces. But he must have the potential to grow on the job or he wouldnít have gotten this far. Senator Kerry continues to "play it safe," taking no positions that havenít been thoroughly vetted by his pollsters. We hear he figures both he and Edwards will win their debates this fall against Mssrs. Bush and Cheney and coast in. But what will they say?

SCHWARZENEGGER: Arnold has been getting lots of applause for his bipartisan approach to governance, but he still hasnít done anything to coax the California economy into higher gear and the revenue increases from the slowly expanding economy arenít going to be enough to meet his budget needs. We donít hear any talk from him about tax cuts anymore and are afraid his bonhomie with the legislature and the voters may soon take a turn for the worse.†