As T. Boone Pickens in the Wall Street Journal described hismaster plan for solving an aspect of the US energy crisis:dependence on foreign oil. At its core, this solution wasreally only a swap of foreign energy sources from oil tonatural gas.

In his article , Boone has this to say about the plan: "Myplan calls for taking the energy generated by wind and using itto replace a significant percentage of the natural gas that isnow being used to fuel our power plants. Today, natural gasaccounts for about 22% of our electricity generation in theU.S. We can use new wind capacity to free up the natural gasfor use as a transportation fuel."

"That would displace more than one-third of our foreign oilimports. Natural gas is the only domestic energy of size thatcan be used to replace oil used for transportation, and it isabundant in the U.S. It is cheap and it is clean. With eightmillion natural-gas-powered vehicles on the road world-wide,the technology already exists to rapidly build out fleets oftrucks, buses and even cars using natural gas as a fuel. Ofthese eight million vehicles, the U.S. has a paltry 150,000right now. We can and should do so much more to build our fleetof natural-gas-powered vehicles."

At the time, CNBC's Phil LeBeau aptly pointed out that thereare only 1,000 cars on the road (mainly in CA) that use naturalgas and it's unlikely the auto industry would commit tobuilding more. There just isn't the infrastructure to servicethe cars nor to fuel them on the road nor do they have range ofcurrent cars. Three strikes you're out.

More importantly, there is the law of unintendedconsequences for natural gas. With a shift in demand to naturalgas away from oil, the price of natural gas isn't going to sitstill. It's currently $12.30 and it's going to move up. Howhigh, I'm not sure but it would certainly increase the cost ofsuch a plan. Most importantly, it could significantly increasethe cost of something else: food. Natural gas is a majorcomponent of making fertilizer. Even in the short run,potential higher food costs alone would derail such a plan.

However, Boone's plan is a major positive step forward inthe discussion about energy in the US. His ideas about winddeserve serious consideration albeit with a subsidy. As amatter of fact,the windindustry is currently asking for a renewal of the tax subsidynow. (Was this Boone's way of pushing theprocess?) Also, Texas just embarked upon a multi-billion dollarprogram for new wind capacity to generate electricity for 3.7million homes. The state is now known as a "wind-rich" statewhich refers to energy not politicians.

The more intriguing question is when will Congress/Presidentcreate a unified energy policy? This is why people with visionare so critical for the country: they recognize a major problemand they offer a SOLUTION! Boone's plan is an intriguing pieceof the energy puzzle.

Remember, this isn't just about what we can do now for theprice of gasoline or energy. If this was the only criteria, wewould only engage in short term policy changes that have shortterm impacts like opening up the strategic petroleumreserve.

We need longer term plans to solve the longer term energyproblems of United States. In case you aren't familiar with howmarkets react, a coherent, logical plan of action towardsproviding long term solutions will have a positive impact nowon the price of energy. Why? Because it will shift the shortterm psychology of the market away from doom and gloom towardsa light at the end of the tunnel scenario.

We only need to look at President Bush's lifting of themoratorium on off-shore drilling to see an example of this inthe markets. Did this act significantly change the short termoutlook for oil? No, but it changed the discussion on thesubject at a time when it was needed. In turn, this aided theshift in market psychology back to some fundamentals likedemand.....which is dropping.

This is why it is critical that no long term idea getdiscouraged or disparaged by anyone (Congress, Presidentialhopefuls, or press) when it comes to solving the nations energyproblems. A long term idea can be the short term solution.

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Four out of five major banks have reported better than expected earnings. Wells Fargo even went so far as to raise the dividend. Bank of America started Monday off with a solid beat and a prediction that the recently closed Countrywide acquisition will add to earnings this year.

That's quite a statement when you figure the mess the mortgage market is in. But at a purchase price of $3 billion BAC must figure they have room enough between that price and the stated book value to eat a lot of bad loans. Oil, although up a couple of dollars on Monday, acted well when you take into account that the Iranian talks over the weekend went nowhere and there are a couple of storms that could grow into hurricanes.

So just as it looked the bear market rally could continue, the floor fell out. American Express reported a significant earnings miss after the close and noted consumer spending slowed even among the companies "established members with excellent credit." Texas Instruments earnings were only a tad light but they said chip weakness was spreading to analog chips (not just wireless chips) and analog chips are used in everything from consumer electronics to industrial applications. Apple also issued a weak outlook. All these stocks, along with Merck and Schering-Plough, which shared a failed drug test, were down sharply in after hours trading. Look for a continuation of the bear market as economic weakness appears to have caught up with what had been strong non-financial earnings.

But all is not lost. The average bear market shows a decline of 30%, but then has an average 30% plus bounce when the bottom is reached. We are off more than 20% so it's possible the end is in sight. While it may take more time for the financials to show earnings growth, the stocks will turn long before the earnings bottom is reached. In the S&L crisis in the early 1980's 1,400 banks failed. But, says J.P.Morgan's most recent letter, the stocks bottomed and turned before half of the failures even happened. The banks are now priced at 1 times tangible book value, the same as in 1990.

There have been any number of lists produced by analysts with their bets as to what banks will need how much capital and what banks will cut dividends by X amount and yadda yadda yadda.

Wells Fargo was highlighted by quite a few and they surprisingly raised the dividend last week which by most books would mean their capital base is secure. That's probably a good thing since raising new capital will be tough. A lot of smart investors have been badly burned by moving in too soon. Citadel is off 40% on its investment in E-trade, Abu Dhabi off about the same on its CITI buy, Kuwait off almost 50% on Merrill and TPG off much the same on its buy into Washington Mutual (Business Week, July 28). Sooner or later even the most optimistic will back off and let someone else take a turn at bat.

Bank of America and Wachovia report this week and their results will go a long way to answering the question how long this rally might last. We are in a bear market and counter-trend rallies are sharp and steep, but, all too often, brief. If these two can mildly surprise as Citi did last week with results that beat very negative expectations we will probably move higher. I would bet that BAC has a better chance of helping than WB. The board at Wachovia saw the oncoming train wreck and tossed the CEO overboard. The new guy, Robert Steel, has an enviable resume and an impeccable reputation. He didn't have time to analyze anything before he took the job, but, rather, jumped at the challenge. A smart guy like him will take a hatchet to the balance sheet and income statement to rid himself quickly of the last guy's burdens. Can't be good news coming from WB.

There was decent news from GE when it reported a week ago and the stock has shown a little life, very little. Jeff Immelt is coming under increasing fire, but, first quarter disappointment aside, he has put up good numbers. The July 28th issue of Business Week reminds us that GE has shown 13% revenue growth the last five years and 14% earnings growth. This year will be at best flat, but this is an "interesting" year. Immelt has bought $88 billion in mostly high tech assets and has sold $55 billion in less attractive businesses. GE's dividend yield is 4.4%, a bit higher than a 10 year Treasury. And, I figure GE will raise the dividend regularly for the foreseeable future. I'm long GE and think it's a very attractive play.

There was a very interesting guy on Larry Kudlow's show Friday . William Rogers is a former avowed anti-drilling advocate from California who has, as Sir Larry put it, had a burning bush experience and has seen the light. Mr. Rogers has a very good sense of humor, took the kidding well, and made some good points. His organization, "Stop Oil Seep", figures that there is the equivalent of a 1969 Santa Barbara oil spill occurring every year from natural oil seepage along the California coast, and the equal of an Exxon Valdez spill every four years. His solution is to drill offshore Santa Barbara and the resulting release of pressure will go a long way to stopping the seep. When I looked up the web site, SOS (Stop Oil Seep) figures that 1.8 billion barrels of oil could be produced starting almost right away since the oil was discovered long ago and needs to be developed. At current prices, tax revenues to the State of California would total $1.6 billion over the life of the field. Arnold ! Are you listening ?

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Energy watchers need pay close attention to the outcome of the Saturday meeting in Geneva, among Iran, European Union representatives, and most interestingly, the United States. Secretary of State Condoleezza Rice has confirmed that this meeting represents a change in U.S. policy toward Iran.

In my view, much of the recent pullback in crude oil prices centers around the lessening of fears over the potential for an attack on Iran’s nuclear facilities by the U.S. and/or Israel.

In two short weeks, the energy market has gone from dealing with rumors that Israel had war planes in the air and on the ground in Iraq -- in preparations for an attack on Iran -- to witnessing the first high-level direct talks between the U.S. and Iran since the 1979 Iranian revolution. This, is in addition to word that the U.S. is considering opening a sort of sub-embassy in Iran, referred to as an “interests section.”

What a difference two weeks can make!

The crude oil market’s weakness this week may prove lasting. In technical trading terms, the oil chart carnage is patent and reflective of the hits taken, most notably, by corn and natural gas. Crude oil could now extend its losses all the way down to $121.61. Consumers should keep their fingers crossed.

Gasoline prices have fallen 40 cents from their recent high, and, for the most part, spot checks of the wholesale markets in the Gulf Coast and Los Angeles have followed suit. Relief at the pump is already showing up, and I would expect prices to fall as much as nickel a gallon over the course of the weekend.

As I mentioned above, the outcome of Saturday’s meeting is the key to follow-through selling next week -- or could provide the makings of a reversal of prices back higher. Regardless, I would expect a relief rally to start things off on Monday, and then watch to see if prices can maintain themselves. Keep in mind, the ability of this meeting to disappoint market watchers is great, right now.

In terms of trying to make some money off these recent moves, investors might want to revisit the beleaguered refining sector. Even slightly lower gasoline prices should result in modest up-tick in demand for fuels. The profit margin on gasoline refining rose seventy-five cents today, and I would look for this to continue.

Sunoco, Tesoro, and Valero are the pure plays in this space, and they have all fallen a long way. Any rebound in gasoline sales will benefit them the most.

The fall in energy prices is proving to be a great salve for the equity markets, and we can only hope that it will continue. Interestingly, of all the ideas floated or considered for what could be done to lower oil prices by the government or anyone else, it never dawned on me that a diplomatic overture to Iran might be a winner.

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Just when it looked safe to get back into the water, sharks were sighted.

Merrill Lynch showed a bigger loss than expected (a much bigger loss), Microsoft was indeed soft and Google could have done better. On the other hand, JP Morgan surprised us as did United Technologies and IBM . So maybe you pay your money and you take your chances.

My best guess is unless Citi comes in Friday morning with a positive surprise, we will use Merrill and Microsoft -- but especially Merrill -- as an excuse to take some profits from this wonderful two-day rally.

Oil prices cooperated on Thursday, falling to below $130. The unemployment claims we follow so closely were up less than expected and the all-important four-week moving average was at 376,000 -- which still indicates sluggish growth.

Because of the strength of our exports and the consumer spending generated by the tax rebates, it looks like second quarter GDP will easily exceed 2 percent. Some optimistic folk are thinking as much as 3 percent.

There is some Congressional talk about another rebate, but I hope they lie down and let that feeling pass. Rebates artificially raise sales and artificiality is a Washington specialty -- but if we want to stimulate the economy via deficit spending let's spend money on infrastructure.

Mark Zandi of Moodys.com figures that "within the first year on enactment, increased infrastructure spending and aid to states generates roughly four times as much economic growth" as a bunch of other alternatives. But that "within the first year" time line puts you out past the election, so why bother if you won't get votes..?

Housing starts were startlingly good, but it was due to a quirk in the NYC building code which caused plans for multi-family home construction to be moved forward. Without that the number would have been poor. Actually, that is okay, in that we need to reduce the inventory overhang before we can be clear of the housing debacle -- and we may as well accept that.

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Housing starts increased 9.1% to a 1.066 million annual rate in June, about 100k more than expected. Permits increased 11.6% to a 1.091 million rate. The Commerce Department said that the increases reflected new construction codes in New York City , which resulted in a surge in starts of multifamily dwelling, with builders apparently looking to build homes before more stringent building codes took effect.

As a result of this anomalous factor, starts in the Northeast increased 120k to a 237k annual rate. Adjusted for the anomaly, starts ran at a pace of about 940k in June, a level that if sustained would increase the stock of new homes by about 750k to 800k (because some starts are restarts--teardowns and such).

The rate of increase in the housing stock is below the current level of household formation, which is running at a pace of about 1.2 million per year (Census Bureau data). The divergence will eventually help reduce the supply of vacant homes. This is obviously a crucial condition for stabilization in both home prices and the financial system.

More: Click for Latest Economic coverage ...

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Energy prices are experiencing a major pullback today on a one-two punch of news on the geopolitical front and of fundamental import.

Crude oil, in particular, has broken most of the major moving averages that I monitor, and the current low of the session – $132.00 – represents a 10% retracement or pullback from the high set last Friday at $147.27. Before consumers get overly exuberant, however, crude oil prices need to really break $131.00, before the massive losses seen in natural gas and corn can be realized here.

The first part of the referenced one-two punch involves the potential for a significant de-escalation of the international tensions over Iran’s nuclear program. News broke late last night that United States Undersecretary of State William Burns will be in attendance at a meeting in Geneva over the weekend that will also include Iran’s top nuclear negotiator, Saleed Jalili. No matter how it is spun, otherwise, it represents a major policy shift for the US, and will be the first high level direct talks, since 1979.

As I have been saying, much of the recent sizzle in the race toward almost daily record price levels is attributable to the tensions over Iran, and the recent tangible statements and actions by Israel, Iran, and the US, in terms of military exercises. While the reality of a unilateral strike by Israel is remote, the energy market, of late, was not about to be confused by the facts.

It’s worth noting that Secretary Burns, in particular, is favorable toward engagement, and he has previously cited the approaches taken toward Libya and North Korea as “properly practiced” engagement. Forward progress on the Iran situation was precisely Israel’s end-game, in my view, and their strategy appears to be seeing some early success. Of course, anything still could happen, but the reality of a “line of fire” from Syria to Tehran seems to have renewed enthusiasm for further discussions, at the very least.

The weekly inventory reports are the other motivator today. There were larger than expected gains reported, across-the-board, which have furthered the bearish sentiment that emerged, yesterday. Again, I must caution readers that moves centered on the weekly inventory data can prove fleeting; however, demand declines in gasoline, jet fuel, and diesel-type fuels made the report unassailably bearish.

The backdrop of testimony of Federal Reserve Chairman of Ben Bernanke and Treasury Secretary Paulson is also a factor. The plans to bailout the mortgage industry and the impact on the US balance sheet has implications for the dollar. The extent of the proposals had the potential to blow a hole in the side of the dollar’s value, but, so far, the greenback has hung in there. In fact, at this writing, the dollar is in positive territory on the day against the euro, pound, and yen.

While we need more time at these lower levels to have a sense that the back of crude oil and gasoline prices have been broken, consumers can take some solace from the breakdown in the prices of natural gas and corn that more generalized commodity selling will ensue. Again, the critical breaking point for crude oil will be the $131 level. It’s the level to watch.

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I would like to think that the Wells Fargo news (a dividend increase !) would be enough to change the market sentiment, but we have a lot more bank earnings to get through this week before we can breath easier. Sure is nice for the moment though.

What is also nice is oil is off again, and, at this moment, off a lot. The news around the world should sell oil off. A large Spanish construction company went bankrupt highlighting that countries growing economic troubles. Germany's previously robust manufacturing business is slowing appreciably. French consumer spending has hit a wall and it looks like Europe is headed for, as the WSJ says, "a hard landing and perhaps recession." Ben's gloomy assessment of US economic prospects and the fact that emerging economies are raising rates to curb inflation all add up to a slowing world wide economy and a fall in the demand for oil.

US fuel inventories announced today surprised with builds across all categories - crude, gasoline and heating oil (distillates.) Wilbur Ross, a famed contrarian investor, put $80 million into an Indian airline and said high oil prices have hit bubble territory and that he's "looking at everything that has been hurt by fuel."

My pal John Kilduff of MF Global noted in his daily that William Burns, Undersecretary of State for Political Affairs, is to meet this weekend with Iran's nuclear negotiator. Kilduff thinks this is "the most significant US diplomatic contact since the 1979 Iranian revolution and represents a dramatic shift in US foreign policy." No guarantees, but a successful meeting could go towards reducing the geopolitical risk premium in oil.

The CPI (Consumer Price Index) announced today carried the same sort of discouraging headline the PPI did yesterday. The CPI soared 1.1%, a 5% annual increase, fueled by a 10% gain for gasoline. The core rate advanced 2.4% year over year. So much of the increase is about energy. Yesterday's PPI showed the crude oil component up 45% the last year. But lower the price of oil and these headline numbers will start to drift towards the core rates.

I have been hoping for our administration to take actions to defend the dollar, thus lowering oil prices. It's ok with me if events conspire to lower oil and thus increase the value of the dollar. _______________________________________

Federal Reserve Chairman Ben Bernanke threw the dollar under the bus yesterday.

In trying to achieve market stability, he ... and Secretary Paulson ... only rattled the cage. I believe the market sold off on the belief that if we aren't going to defend our currency, why would anyone bother to buy financial assets denominated in that currency.

Federal officials aren’t supposed to cause bank runs. In fact, much of the New Deal bank regulatory apparatus was set up for the purpose of eliminating such panics. When FDR was hit with a massive set of bank runs shortly after taking office, he gave an address in order to calm terrified depositors, assuring them that the banks would reopen shortly, and that everything would be fine. But Chuck Schumer is no FDR. He doesn’t stop bank runs; he starts them. Or, at least, has started one. The collapse of Indymac bank, the second largest bank failure in American history, began with a letter from the office of Senator Charles Schumer on June 27. He questioned the viability of the bank. When a senior senator who is in a number of influential posts regarding oversight of bank regulators directly attacks the confidence of a depository institution, it matters. Not surprisingly, the director of the Office of Thrift Supervision concluded that the collapse of the bank immediately following the Senator’s comments was not a coincidence. Director Reich concluded that Senator Schumer had ‘given the bank a heart attack’.

Why? Why would a federal official with enormous power, destroy an institution on which tens of thousands of depositors (not all of whom are insured) and employees depend? Why would a New York Senator attack a Pasadena bank, acting as some sort of amateur, self-appointed, long-distance bank examiner?

Perhaps this might help answer the question: Indymac has been under attack from the hard left. The Center for Responsible Lending issued an attack on Indymac within a few days of Schumer’s letter. CRL is part of a small army of left of center ‘research’ groups, community organizers, and public interest law firms who make their living accusing home lenders of racial redlining and predatory lending. On June 20th the Center accused Indymac of unfair practices regarding minority borrowers.

A suspicious person might think that a network of lefty attack groups proficient in bank bashing and frequently funded by trial lawyers and short-sellers, coordinated their activities with a law firm on the hunt and a Senator who works closely with the network.

On the other hand, maybe it is a coincidence that CRL and Sen. Schumer attacked the same bank in the same week. Maybe he didn’t know about the CRL report, nor CRL about his letter. Maybe the community group didn’t know about the trial-lawyer class action lawsuit which was launched against Indy a couple of weeks before all of this started.

Yeah, right.

The political class is shifting left. We’re likely to get Obama and Nancy and Harry running the most advanced economy in the world next year. The investor class doesn’t like what it sees coming. That’s why it is scaling back. Capital is going on strike, and we won’t come back to the table until we see that we have a chance to a fair deal.

What are other CNBC.com guest commentators saying?

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