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All guidance from last week remains in place. Supplemental guidance:
1. Oil prices: The driving feature of the system remains high oil prices. There are all sorts of arguments for them going up, down or sideways. Who knows what they will do. What we do know is that they remain roughly one-third above previous records, and the global economy is moving from creaking to cracking. If oil prices break decisively above $150 and move to $160 — and that is certainly not something we can discount any longer — the structural and psychological pressure on the global economy will be unsustainable. We need to focus on who will crack first and how.
2. Asian economies: Asia remains the focal point of this stress. It is the industrial heartland of the world, and Japan in particular has no domestic oil supplies. Asian economies are also export-oriented, narrow-margin economies. An oil price move above $160 is likely to set off chain reactions in Asia. The Chinese are already on the edge of their seats in terms of security for the Olympics. If that concern combines with business failures, unemployment and rampant inflation, the Chinese will not know which way to jump to stabilize their system. Watch oil prices and watch East Asia.
3. Iran: Noise about an attack on Iran has died down and been replaced by some diplomatic moves. It’s like a gambit was played by the Israelis and Americans and they are waiting to see what the Iranians are going to do. The Iranians are making their usual noises — 10 percent conciliatory, 40 percent belligerent, 50 percent incomprehensible. But we are moving to a decisive point. Iran is either going to move forward with the European resolution or not. No one wants higher oil prices, so that might be one of the reasons the noise has quieted down.
4. South Africa and Zimbabwe: It looks like South Africa is going to take a pass on acting as a regional superpower over Zimbabwe. But it is not yet certain. The British would like the South Africans to do something, and so would most of the other African countries. It will take a week or more before we write off the South Africans.
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