I need to pass along the beginnings of a note from JP Morgan strategist Michael Cembalest. In his latest commentary, he writes,

"'I have come to the conclusion that one useless man is a Disgrace, two are a law firm, and three are called a Congress.' So said John Adams.

"The same applies to energy independence in 2008. As the US endures an energy crisis and imports 60 percent of its energy needs, the House and Senate decided to take action: they overwhelmingly voted to allow OPEC to be sued in US courts for running a cartel. The mind reels.

"Over the past 30 years, elected officials blocked nuclear build-out and spent-fuel storage construction, impeded construction of oil refineries, refrained from passing meaningful alternative energy legislation, imposed a tax on cheaper Brazilian ethanol, prevented offshore drilling in Alaska, California, and Florida, blocked the construction of LNG ports, killed wind farms in their own backyards (or back bays) .......They got it wrong; Congress should sue itself."

Amen!

On "The Call" today Bob Pisani made the excellent point that in a bear market all the sectors usually get shot. So it is today, as the materials and energy names, especially the natural gas names, are being sold. Byron Wein, a deservedly famous strategist, feels that the market is bottoming and will do better later this year. (See Market Insider blog post: "Market Strategist Wien: Stocks Are Bottoming ")

Joe Belestrino of Federated Investors hasn't yet seen capitulation on the part of individual investors, as there haven't been large redemptions of funds by the private investor.

All of the above opinions can co-exist with one another. I'm thinking that by the time the markets are off the 20 percent needed to declare it a bear market, two-thirds of the damage has been inflicted and I'm more inclined to look for opportunities. A couple of names offered today on the show by different money managers were Monster Worldwide, Boeing, and Philip Morris International. I happen to own Boeing, but the quick case made for the other two names was intriguing enough to make me want to look at them.

Oil is off sharply, and I'm hoping this will continue as the inflationary implications of high oil prices are severe.

The highest marginal cost of production of a barrel of oil anywhere in the world is close to $75 and I'm probably much too high. Add to that some sort of geopolitical risk premium and my target for oil is towards $100. I think that oil will be only more expensive as time goes on, but this super-spike we are in should correct back to where demand won't be destroyed. I'm figuring that is around $100.

I'm not negative on the oil equities, as they haven't gone up with the price of crude. If I didn't own any I would try to wait a bit and then buy Chevron (which I own.) Lehman just issued a report and said if oil were to average $115 a barrel next year, CVX would earn over $13. With the stock around $98, the P/E multiple is less than 8 times.

Ben Bernanke also indicated in a speech that the Fed will keep the Primary Dealer Credit Facility (PDCF) open for investment banks. This is, in my opinion, necessary to allow the system time to heal.

Since there is a stigma attached to going to the Fed, the investment banks are avoiding this avenue of liquidity, but it's necessary to have the vehicle. If it were to become permanent, different regulations would be needed to put commercial banks and investment banks on the same page. But that can be worked out.

I will be on Larry Kudlow's show tonight (Tuesday) at 7pm NY time. Financials looking okay at this hour, so maybe I won't have the dotted line around my neck cut too much tonight.

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If Barrack Obama wins the presidency, the price of oil could fall by $40 per barrel. The financial markets will discount the possibility before hand, at least partially. There are three ways in which this could happen:

1) As was the case during the Clinton administration, Obama might be more inclined to intervene in the foreign exchange market to support the value of the dollar. The U.S. has not intervened in the FX market since Treasury Secretary Robert Rubin did so in September 2000 when the Treasury sought to support the Euro, then costing about 80 cents per dollar (yes, the cost has almost doubled since then). Intervention or the threat of intervention could shave $20 off the price, based on the divergence in price between oil quoted in dollars versus that of other currencies.

2) Obama will speak in a more concilatory tone toward nations in the Middle East. If he does, some of the risk premium would likely be extracted from the oil price.

3) Energy conservation and investment in energy infrastructure are likely to increase if Obama wins, as it will be part of his mandate. Announcements of a nationwide effort to both decrease consumption and increase the supply of energy would have an announcement effect on the energy markets, lowering energy prices and burning speculators.

Points 2 and 3 are probably the most bankable ideas, but the mere threat of point 1 is still enough to impact the markets.

More: Click for Latest Economic coverage ...

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The commodity sector appears to have taken a roman candle shot to the head over the Fourth of July Holiday weekend. The spikes in crude oil, gasoline, heating oil, corn, copper, cocoa, too name several, have been largely erased.

The malaise being exhibited by the equity markets and the deteriorating economic outlook appear to have affected the psyche of market participants. A major component of the macro commodity bull run has centered on unyielding demand. So far, we have only seen energy demand destruction of any significance in the United States.

As I write this, I sit here in Western Pennsylvania, atop the Marcellus Oil Shale Deposit, which may become one of the largest sources of natural gas in the world.

The CEO of its development company recently told Larry Kudlow that things were going pretty quickly for him because most of the land above the deposit is privately owned. Negotiating with private owners, he said, who have an incentive to negotiate mineral rights, works a lot better than negotiating with governments. (See the video)

Some western states are almost all government owned, and the resources of those states remains buried in the ground. Not so with Pennsylvania, which is historically a farming state. That’s why the world’s first commercial oil well was sunk not far from here, in Titusville, on what previously been a farm.

Energy prices continue their rise, and why not? They continue to get support from every quarter that determines their calculus. The round robin of factors is familiar to anyone that has paid attention to the rise: global security issues, unrelenting demand strength from Asian nations, and the weakness of the US dollar, among the financial levers.

The extensive speculation over a possible Israeli attack on Iran’s nuclear facilities set off a renewed speculative fervor over what a post-attack crude oil supply landscape would look like. It’s not pretty. Iran’s Foreign Minister, Manouchehr Mottaki spoke of a line of fire from Lebanon to Tehran, across the Middle East, in an attack’s aftermath. The shutting the Strait of Hormuz by Iran, disrupting one-fifth of world supplies, is a given, in the scenario analysis.

In a disappointment for the hopes of consumers, the energy market failed to take some obvious clues from Washington and the very same Iranian official. Diplomacy was clearly emphasized in all the various commentary of President Bush and others.

Lies and Mendacity seem to be spreading thickly through thefinancial markets today as we watch the Dow Transports dropsharply as energy continues to rally and gasoline demand in theUnited States drops.

With both President Bush and US Treasury Secretary Paulsongiving speeches today, you wonder how important it is to seethem engaging reporters ahead of the G8 meeting. Isn't thisjust a bit unusual for the President to talk about a financialsummit almost a week before it occurs?

I'm watching Paulson get grilled on his speech from Europeanreporters and stating the obvious: the financial regulatoryinstitutions we have are far from optimal.

Life with Kudlow is always interesting. Last night's lively discussion/debate centered in part on John Mauldin's (newsletter writer par excellence) bearish view of the earnings outlook. He feels that the price level of the S&P is too high relative to what will be disappointing earnings.

I'm not sure what earnings are going to be so let's plagiarize some of Jason Trennert's work from Strategas. Jason looked at all the recessions since WW II and calculated that on average earnings fell 17% from whatever the peak had been. I don't see a recession on our table yet, but let's declare one for the sake of argument. The recent peak in earnings was the four-quarter period ending June, 2007 when the S&P earned $91.50. If we take 17% off that, and remember, those that don't study history are condemned to repeat it, then the trough in earnings will be $76. That number is far below any estimate I have seen, so that might be bearish enough.

I have been noting over the past couple of months the likelihood that the Institute for Supply Management's monthly purchasing managers index would increase to 50.0 or higher, offering the prospect of a rebound in share prices and placing Treasuries at risk of another setback.

This idea was based on the strong historical correlation between retail sales and the ISM index.With the ISM index having moved to 50.2 in June and marking the first time since January that the index was above 50.0, the chance at a rebound in the prices of risk assets has increased. The problem, of course, is the price of oil and other commodities, and the still-unknown effects of the credit crisis on the real economy. Hence, the ISM's rebound provides a foundation for a change in market sentiment, but it is a very shaky foundation.

A rebound in the ISM could turn a vicious cycle of self-reinforcing decreases in production, income, and spending, into a virtuous cycle of self-reinforcing increases. As companies raise output, incomes will raise, boosting spending and setting off another round of increases in production, income, and spending. Such is how economic expansions are underpinned. The current rebound will be tainted by doubts about its sustainability, but there is still a chance it latches on. Whether it does depends on oil and the impact of credit on the economy.

Oil is on the boil, again, this morning over renewed speculation concerning Israel’s intentions on Iran’s nuclear capabilities. Once again, we awake to a raft of comments from various officials in the protagonist countries about a possible military strike on Iran.

This has been the season of unfortunate comments. I had previously thought the International Energy Agency’s premature comments about its analysis of global supply, which was never done before and will not be released until November, at the earliest, was a lock for the ill-timed remark of the year award. The recent round of comments surrounding Iran’s nuclear ambitions made it a horse race.

This morning, Isaac Ben-Israel, a former Israeli Air Force General, told Der Spiegel’s on-line edition that Israel’s recent military exercise was in preparation “for the eventuality that the international community will not be able to put a halt to Iran’s nuclear program. Among his statements, he remarked that while this undertaking would be more difficult than the 1981 bombing run in Iraq, “… it is possible. We could do it [strike Iran] today.”

Last week, former United Nations Representative John Bolton gave the upcoming interregnum, as the time frame for an attack. This was given further credence, today, by a comment by an unnamed Pentagon official who said Israel is likely to attack Iran this year.

Iran, of course, does its part foment tensions with fiery language over the future, or lack thereof, of the Jewish State.

The markets are reacting strongly, at the moment, to this latest round of rhetoric. To a degree, the price response is appropriate: just how high prices would spike on such an attack is virtually incalculable.

However, the sky is not falling… yet. While Israel may have the capability to undertake an attack, it would be at the outer limit of their capabilities. In fact, despite the recent exercise, many still believe Israel is not capable of such an attack.

The more reasonable analysis is the Israel is saber rattling not just against Iran, but against the UN Security Council, specifically China and Russia. By raising the temperature on the situation, Israel appears to be trying to pressure a diplomatic solution. As Ben-Israel said, “the problem can still be solved another way: [diplomatically].”

Furthermore, as NBC News Terrorism Expert, Bob Windrem, pointed out, Israel needs the element of surprise for an attack to be successful.

Therefore, while all of this talk is unnerving, it should be taken in moderation. There are still plenty of reasons for energy prices to continue their climb; this latest rally is the hollowest. There is no worse potential price whipsaw than a rally built upon diplomatic discourse. These are people who schooled in the art of the graceful climb down, but markets are not as nuanced.

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Dear Sen. McCain:

Washington watchers know that you are a Teddy Roosevelt fan. That’s a good choice; TR didn’t get everything right, but no one does. He was one of our greatest leaders and I admire your taste.

The way the profiles tell it, Edmund Morris’ biography was a key element in your choice of a political hero. I’ve never read it; just as I’ve never read Morris’ Reagan biography. I always prefer to read my heroes straight up in the form of their own words – speeches, letters, autobiographies, etc. When I run out of those, I go to biographers who are sympathetic to the views of the subjects. My last choice is to depend on someone left-of-center to explain my conservative heroes to me.

Maybe no one ever told you this, Senator, but Teddy Roosevelt was not what we would now call an "environmentalist".

In fact, TR and Gifford Pinchot (his right-hand man on forestry issues) were battled by, and in turn, battled against the people who we now call environmentalists. That’s because the president and his director of the Department of Forestry Services never intended that America’s wildlife reserves should remain pristine and untouched by human industry. In fact, the men who founded the Wildlife Reserve system (of which the Atlantic National Wildlife Reserve is but a recent example) intended them to be dug, logged and drilled by us. Believe it or not, that’s why they were created in the first place.

TR, Pinchot and others were what we would now call "conservationists" as opposed to "preservationists." They believed that they had a moral obligation to prevent industry from using all of the nation’s natural resources in one generation. Lumber, metals, fuels, were to be conserved in such a way that future generations would be able to use them in the future. This was called "wise-use" and it emphasized efficiency rather than abstinence. Development was deemed to be good -- so good, in fact, that no one generation should be permitted to have it all. Some should be saved for, well, us…

-Jerry Bowyer

What are other CNBC.com guest commentators saying?

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