Return to Transcripts main page

Your Money

Terror Arrests in London Impact Market; U.S. Airlines Hurt by Thwarted Terrorist Attack; How High do Oil Prices Have to Rise to Start a Change in Energy Policy

Aired August 12, 2006 - 13:00   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

FREDRICKA WHITFIELD, CNN CORRESPONDENT: President Bush uses his weekly radio address to comment on the propertied terror plan broken up by British authorities. Mr. Bush says the arrests serve as a stark reminder that terrorists are still plotting to kill.
Late this morning Hezbollah leader Hassan Nasrallah opened the door to the U.N. backed peace plan for the war-torn southern Lebanon. While not agreeing with all of the terms of the U.N. resolution, Nasrallah did say he would agree to a cease-fire stipulation once "Israel aggression stops in southern Iraq."

A bomb explodes at an open marketplace in Basra killing two people. And a roadside bomb south of Baghdad kills two American soldiers today. The incident brings the number of U.S. military deaths in Iraq to 2,600.

A Cuban newspaper is reporting on the recovery of Fidel Castro. The communist party paper says Castro is up and walking and even delving into his official duties as president. Castro is said to turn 80 years old tomorrow.

We'll update the top stories at the bottom of the hour. Now back to IN THE MONEY.

ANNOUNCER: From New York City, America's financial capital, this is IN THE MONEY.

TONY HARRIS, CNN ANCHOR: Welcome everyone to IN THE MONEY. I'm Tony Harris in this week for Jack Cafferty. Coming up in today's program, the price of vigilance. This week's security crackdown was a big break for the intelligence world. We'll look at why it worked and where threats still lie.

Plus high and dry, no liquids, clear bags for stuff. Air travel just got tougher. See what the latest scare means for an industry trying to stay high in the sky.

And risky business, oil's getting rocked by this week's BP mess and new terrorism worries. Find out if you've got the stomach for this kind of turbulence.

Joining me today Andy Serwer and our good friend political economist Greg Valliere, chief strategist at Stanford Washington Research Group. Gentleman good to see you. A lot of headlines this week having an impact on business. Terror arrests in London, partial closure of BP's Prudhoe Bay oil field. A pause in the Federal Reserve's rate-liking campaign.

So Andy, let's start with you. What has had the biggest impact on the markets and on our wallets this week?

ANDY SERWER, EDITOR AT LARGE, "FORTUNE" MAGAZINE: Well I think it's the terror arrests and the thwarts of the plot in London, Tony. And the reason why is because you can see how everything is so connected. How global our economy is. The air infrastructure is backed up all around the globe. The price of oil goes down. The stock markets respond, so it truly is a global event.

HARRIS: Greg what do you think about that? What's the biggest impact out of the news this week?

GREG VALLIERE, STANFORD WASHINGTON RESEARCH GROUP: Well clearly, in my opinion it's been a pretty good week. We caught these guys. Their surveillance worked. We thwarted these attacks. Economically we got a pretty clear signal that interest rates may no longer go up. We got a tremendous retail sales report on Friday and we got phenomenal news on the budget deficit, which is coming down to below 2 percent of GDP. Even though it was obviously extremely turbulent, in the final analysis, it wasn't that bad of a week.

HARRIS: Yes, Andy.

SERWER: I don't disagree with that at all, Greg. It seems like we are dodging a bunch of bullets here. All things considered I think we did pretty well.

VALLIERE: Except one little nagging thing and that is we are at war. Sometimes in this country we focus on Jennifer Aniston and Brad Pitt. And we sometimes look at trivial things. We are still at war and we got a wake-up call in the last few days.

SERWER: All right. The London terrorists this week were a big victory for intelligence and security agencies, but some say there are still more things airlines and governments could be doing to make things safer. Joining us now to talk about that and where threats remain is Rafi Ron he is the president of New Age Security Solutions. And the former head of security at Israel's Ben Gurion Airport. Welcome to the program, Rafi. I guess you've seen stepped up security in Israel for years and decades. What do they do in Israel that we should be doing here? What is appropriate right now?

RAFI RON, NEW AGE SECURITY SOLUTIONS: Well I think this has been discussed already since 9/11. And that is the focus on the individual and terrorist rather than detecting terrorist rather than detecting things. Things change and they vary as we saw yesterday morning, liquid explosives is not new in the terrorist market. But they are new as part of an operation plan that has been so presently seen yesterday. But the common denominator of all terrorist attacks no matter what type of weapons they are using are the people behind it and those people have witnesses that we are finding difficult to exploit and that can be done.

HARRIS: Rafi, are you talking about this idea of behavioral profiling? I know it's being conducted at least at Logan Airport in Boston.

RON: True. It is incremented at the Logan Airport and not only there but also in Miami International and San Francisco and some other airports. Including by the way some of the British airport authority airports say they have adopted the program lately. And the focus is on identifying suspicious behavior or suspicious individuals. And taking it to the next level to help us realize whether they really present a threat to us or not.

VALLIERE: Rafi, thankfully we get 24 of these guys but I gather the ringleader is still at large in Pakistan. Do we get 24 more to replace the ones that were captured?

RON: Yes, I'm afraid even that if and when we get the ringleaders, they are still out there. And there are many hundreds of thousands of people that are still supporting this kind of activity against us. So no matter how many people we will manage to get our hands on, we will be fighting the ideology. And we are better off when we would look at every possible aspect of defending ourselves.

SERWER: Is the spot program, programs that your company do, is that profiling? And is a certain amount of profiling good?

RON: Well, first of all I should say that spotting is our TSA program based on our behavior and fact recognition program to be precise. And it is not profiling, as it is perceived here in this country. Which is racial profiling. Basically as a person ran security at the airport for a very long five years, I should mention the fact that we have learned the lesson the hard way having been attacked twice once by a group of Japanese tourists. And the second time by a German, blue eyed, blond hair terrorist. None of which are answered through the expected so-called Palestinian terrorist profile. So we have learned the hard way that just watching for ethnicity and nationality may mislead us and it has misled people in the past.

SERWER: What do you look for?

RON: We are looking for behavior. We are looking for certain patterns in a person's background. If we have access to that information. And there is a possibility to do that through databases. Once the person books for a flight. But more than that, we get a lot off a person's behavior at the airport and through an interview being run across the board with 100 percent of the passengers. Something that is impossible here.

HARRIS: Rafi, can you help me understand, we've known since 1994 and '95 that terrorists have wanted to use liquid explosives to bring down aircraft. Why has it taken the intercepting of disrupting of this plot for us to move forward with this kind of ban that we are seeing in airports now?

RON: Well, I think that it's a question of priorities. I think that through the years we recognize a very wide spectrum of threats. And the investment in our defense measure had to be prioritized. But a good question whether we have prioritized these correctly by investing. Almost anything in detecting certain types of explosive devices and neglecting some others, but I think that yesterday morning's wake-up call would certainly amend that and thanks to British intelligence and international corporation, we are able to do that without counting bodies.

VALLIERE: Rafi, maybe we can sort them on airplanes. But what worries you as you next? Cargo ships, tunnels, what other targets do you think they might look at?

RON: Well, I think that once again you could look at the Israeli example. When aviation became a harder target for terrorists, they started to move to other targets. They started hitting buses. They haven't hit transit because it is not as common in Israel as they are here. And they have attempted to attack shopping malls repeatedly. But I should also mention the fact that not successfully. As most if not all of their attempts were aborted by good security work in shopping malls in Israel. The fact that terrorists have blown themselves up outside of malls rather than inside. Causing much more limited damage. Sometimes even killing themselves only.

SERWER: Quick last question Rafi, do we rely too much on technology in this country to try to deter terrorism?

RON: Yes, I think that you made the right point. I think that we are relying almost totally on technology. And technology has two limitations. One, the first one is that it can only do what you tell it to do, or what you expect it to do. And we expect it to do things according to a pre-determined list from materials and weapons that you are looking for. This is limited by our imagination and terrorists have proven to have better imagination that we have from time to time.

And secondly, it is limited by technology capabilities. And that is not good enough. We must reintroduce the human factor back into the scene. We must create a system that is based not only on technology, but technology and people.

SERWER: Right. All right, well those are wise words. And thank you for your intelligence, Rafi. Rafi Ron is the president of New Age Security Solutions. Thank you for coming on the program.

RON: Thank you.

SERWER: When we come back, risk versus reward. Flying gets you there faster, but it's also getting harder to take. See what this all means for the airlines on the edge.

Also, ahead, we'll look at the market impact of the Fed decision that terrorism arrests in Britain and increased violence in the Middle East.

And the slippery investment. Oil's a tough call right now between BP's problems and the state of the Middle East. Stick around and get one analyst's take.

(COMMERCIAL BREAK)

HARRIS: Welcome back everyone to IN THE MONEY. I'm Tony Harris in for Jack Cafferty this week.

Just when it seemed things were looking up for U.S. Airlines, along comes Thursday's report of a foiled terrorist plot involving planes leaving Britain. U.S. officials immediately raged threat levels for all flights prompting long lines and plenty of anxiety at airport terminals.

Here to tell us if this will cause a major setback is Darryl Jenkins an aviation consultant and former director of the Aviation Institute at George Washington University. Darryl good to see you. Thanks for your time.

DARRYL JENKINS, DIRECTOR, AVIATION INSTITUTE AT GEORGE WASHINGTON UNIVERSITY: Thank you, young man. Good to be here.

HARRIS: Good to be with you. Short-term sort of longer term, what's the impact of the news this week on the airline sector?

JENKINS: I think this will be a very short bleep on the radar. This is really a non-event. The bad guys are captured and will spend the rest of their lives in prison. On the positive side, no planes fell out of the air. If even one plane had fallen of the air due their actions, then we would see difficult times ahead for airlines. But striving airline travel right now very definitely, it's a recently robust economy. And robust economy is an airline's best friend. So as long as the economy has some strength to it, we will see people continue to travel. And they will continue to pay the very high fairs that are out there right now.

SERWER: Hey Darryl, are the airlines really back? We are finally seeing them make some money in the black a bit. Coming out of Chapter 11. Have they turned a corner? And again you are saying this is not enough to stop that kind of process?

JENKINS: I don't believe so. Travelers are fairly flexible right now. And yesterday really was a non-event. Nothing serious happened. The threat of something happened. I don't think this is going to cause people to not travel whatsoever. In terms of the airlines overall financial health, we saw them making money for the first time in many, many years which is very good.

The two things that are out there that are very worrisome are the high price of jet fuel and what might happen to the price of jet fuel in the future. And the second thing that is very worrisome is the enormous debt load that many of the legacy carriers are carrying right now. So we saw American airlines make some money this summer. At the same time they got $20 billion in debt that has to be paid down over the next five to ten years. And those are the things that concern me about airlines right now.

VALLIERE: As someone who flew on Thursday morning and was in an enormously long line that almost missed my flight, what would you tell people flying on this coming Monday morning. Will things be better?

JENKINS: I think so. The problem yesterday was nobody was expecting this. Caught everybody off guard. I was actually surprised how fast TSA and airports, especially Heathrow was able to react to all of this. The news is out now. So travelers when they come to airports next week are going to be expecting different procedures. They are going to pack their bags differently. So the long delays that were experienced yesterday will be a thing of the past very soon.

HARRIS: Darryl, are you painting too optimistic a picture here? Are you telling me you don't believe for one moment that travelers will say look, the terrorists want to take down airplanes. They are at it again and I now got to go through this longer security checkpoint process, why bother?

JENKINS: I think the only place we may see any hit if we do, and I think this is a long shot, is on very short flights. So if you are expecting a three hour security line and you are going to some place you could drive in four hours, that could effect your plans. But pretty much travelers took this into account after 9/11. The airlines readjusted the route structures. The average length is much longer now than 9/11. So for a long, long trip, you don't have a lot of substitute goods. So for the longer trip, people are going to continue to travel. This is what the airlines have adjusted in terms of their networks since 9/11.

SERWER: Hey Darryl, my understanding is that you would like to see a more consistent policy nationwide when it comes to airport security, is that the case and if so doesn't that actually sort of help the terrorists because it stays constant year after year?

JENKINS: Well, the thing constant is we knew from 1994 that terrorists were trying to use liquids in explosives. We should have been screening and having procedures in place for that for the last ten-plus years. It is silly that we haven't. So when I say I want a consistent policy, I want a high standard of security at airports.

And, for example, three months ago they took jackknifes off of their list. That should be on the list. We should have been doing things in terms of liquid explosives a long time ago. So I'd rather see a high level security at airports all the time. If we have terror alert, very specific information, then we increase it at that time. But having it high, medium and low is not the correct way to do it. It should always be high, and then make it higher.

VALLIERE: Darryl, just for viewers who are planning to fly in the next few week, I gather this prohibition on any kind of liquids, toothpaste, mouthwash, that will persist for quite some time I gather.

JENKINS: It should as well. If it's a threat today, it's a threat tomorrow and it is also a threat ten years from now. This is what I mean by having a consistent policy that stays in place.

HARRIS: Darryl Jenkins is an aviation consultant. Darryl thanks for your time. I appreciate it.

JENKINS: Thanks, enjoyed it.

HARRIS: Coming up after the break, measuring the news in dollars and cents. We'll look at the impact of this week's events on Wall Street.

And trouble in the pipelines. See what BP's problems in Alaska mean for the oil business. We will be right back.

(COMMERCIAL BREAK)

SERWER: The news of the terror arrest in London didn't have a lasting impact on the market. Stocks opened lower on Thursday but bounced back. Darby Dunn is filling in for Jennifer Westhoven this week. She joins us now for a look. Darby, what is your big take away after this week that was?

DARBY DUNN: It was an interesting week. I think a lot of people expected when the news of the terrorist plot broke that the market would react negatively and stocks would sink. But we saw the opposite happen. And I think this shows us the pattern that's been building in the five years since 9/11. And that is that the markets have become somewhat conditioned, quite conditioned to the terror threat.

I was looking at old statistics after the London subway bombings after the Madrid train bombings. The markets actually finished higher those days. After the Madrid bombings, the markets -- the S&P 500 in the days after that actually went up almost 1.5 percent. So, the terror threat has been priced into the market. I remember even being down on the stock exchange reporting a couple years ago when they had raised the terror threat level. And I talked to some of the traders down there before the bell opened. And I said what do you think a big sell-off today? And they were like you know what, this is a fact of life.

Also yesterday, or rather Thursday, what we had going on was oil. Which has been on a big run, as everybody knows, dropped $2 a barrel. This many believe was because airlines may reduce their demand for jet fuel as consumers reduce their desire to fly on airplanes. With the safety concerns and also all the hassles that are now involved with flying. You can't bring liquids on, longer lines, et cetera. So the drop in oil cheered investors especially those who are concerned about inflation.

VALLIERE: Hey Darby, if the markets can sort of handle terrorist events now, and the markets are doing a better job of anticipating the Fed, it seems that the key factor obviously is earnings. So I'm wondering going forward, third quarter, fourth quarter, if this economy is moderating a little bit below 3 percent GDP growth, does that present a red flag for the market in terms of weaker earnings?

DUNN: It's interesting you bring that up. I talked to a money manager last night saying the same thing. Earnings have been great but what is there to look at going forward as far as earnings? Especially when you think of the consumer who has basically been using their home as an ATM and taking out home equity loans et cetera. And that is seen as drying up as we go forward. So that is a big red flag. What is going to happen with earnings going forward? Where is the momentum to push earnings higher?

SERWER: Another big story this week, of course almost lost in all of this is the BP pipeline story in Alaska. And it shows just how tight supply and demand is. That has to be seen as a real problem spot for the economy though, too. Don't you think, Darby?

DUNN: Well, and that's what was driving up the price of oil for much of the beginning of the week. BP, that pipeline is supposed to account for something like 8 percent of U.S. production. It is also U.S. production, something that we control. So that is a big concern. And we are going to have to keep an eye on that going forward to see how that affects things. And how that affects the price of oil.

VALLIERE: Darby, we put a report out this week. We had a lot of fun with it. What if the Democrats take over Congress? We concluded it would be bad for big drug stocks. Maybe good for Freddie and Fannie. Maybe not too good for the bells. Are you starting to hear from your contacts on the street that the election is becoming a factor?

DUNN: I was hearing a lot of talk about that the election was becoming a factor. But then when we had the foiled terror plot on Thursday, this news break, this could change the whole equation. I hear people saying that perhaps it's not such a sure bet that the Democrats could take back control of Congress because now the whole specter of terrorism and domestic security, homeland security is back on the forefront of people's minds.

I even heard somebody saying what if that election in Connecticut for Joe Lieberman had been held after this news of the terror threat had come out? Perhaps Lieberman would have been re-reelected in that primary.

VALLIERE: I agree.

SERWER: All right Darby Dunn talking markets and politics. Thanks very much for your insight.

Coming up on IN THE MONEY, numbers, and we don't mean the kind you find on Wall Street. The reason Britain could change President Bush's approval rating. Find out how what's happening there might affect politics here.

Plus, oil change. Prices have been all over the place lately. See if the stuff going on this week could put some spin on where they go next. Stay tuned.

(COMMERCIAL BREAK)

WHITFIELD: Hello, I'm Fredricka Whitfield in Atlanta. Now in the news the leader of Hezbollah says his group will comply with the U.N. Middle East peace resolution. But he says Israel has to make the first move. Hassan Nasrallah appeared on Hezbollah's al Manar TV today. He said, and we quote, when the Israeli aggression stops then the resistance will stop. Unquote.

British police raided several Internet cafes in London today as they continued their investigation into an alleged plot to bomb Trans Atlantic Airliners. Twenty-three suspects remain in custody in Britain. Another person was released today or yesterday, rather. President Bush says the terror investigation in London is a stark reminder of the continuing dangers facing Americans. In his weekly radio address today, the president declared that Americans in his words must never make the mistake of thinking the danger of terrorism has passed.

Forty people were rescued from life rafts in the Gulf of Mexico following a fire aboard a research vessel. The Odyssey Voyager was off the coast of Grand Isle Louisiana when the fire broke out in the engine room. The Coast Guard said it flew two people to the hospital for treatment.

I'm Fredricka Whitfield at the CNN Center in Atlanta. We will have more coverage of the Middle East crises coming up during our 2:00 p.m. Eastern hour. We'll talk with senior advisers to the Lebanese prime minister. And a former Israeli ambassador to the United Nations.

Now back to more of IN THE MONEY.

HARRIS: Welcome back to IN THE MONEY. I'm Tony Harris sitting in this week for Jack Cafferty. In the wake of Thursday's foiled terrorist plot and with tension still running high across the Middle East analyst are starting to look at what the economic and political impact would be. Rejoining me now to break it down is Andy Serwer and political economist Greg Valliere from Stanford Washington Research Group. Thank you, both.

Greg, prior to Thursday with so much attention being paid to the conflict between Israel and Lebanon, had we become a bit complacent in this country in terms of worrying about an attack inside our own borders?

VALLIERE: Absolutely. I think that since nothing inside our own borders or cured since 9/11, people did start to relax. And I think not to be too cynical, but I'm in a cynical business, I think that the impact of this on politics could be significant. I think that this is Christmas in August for Karl Rove. Who can now try to demonize the Democrats as being insufficiently inattentive to some of these issues?

SERWER: Let me ask you about this, Greg. Wouldn't this also suggest perhaps that we are in the wrong direction in terms of the war in Iraq? After all, none of these terrorists were Iraqis; they were Brit's and Pakistanis. So can't the Democrats use that and say hey, we are focusing on the wrong thing here?

VALLIERE: They haven't been able to yet. I think that for the average voter, they sort of lump all these terrorists into one. I don't think you can make a case that Saddam Hussein was directly tied to al Qaeda. But an awful lot of voters don't make that distinction.

HARRIS: Well, you know what, Greg. Let me pick on that point a little bit. You were just talking about with Darby. The Dem's don't say we don't believe we are fighting radical Islam here. They say the strategy in particular going into Iraq was the wrong approach. And yet, they still take a pounding on this. VALLIERE: I know and there's a new book out called "Fiasco" which paints a devastating portrait of Rumsfeld and the Pentagon. But at the same time, I do think there is a feeling that the Democrats are not sufficiently tough. They lack testosterone on this. It's a perception that they do have to worry about. And now, you have some of Lieberman's quotes making it look like 1968. I'm old enough to remember the enormous fissure within the Democratic Party between on the one hand Hubert Humphrey and the other hand McCarthy, McGovern, Bobby Kennedy. The Democrats maybe headed to that sort of a train wreck internally.

SERWER: And of course they didn't win that election, did they?

VALLIERE: Someone named Richard Nixon won that election.

SERWER: I'm old enough to remember that too. How did the Republicans play this though? They can't step on the gas too much. I mean the fall's going to be very interesting. Because not only the election, but also the fifth anniversary of 9/11. The president has been criticized for using that too much. So where do they go with this?

VALLIERE: That's a very good question. The Republicans are almost as dysfunctional as the Democrats. They disagree on everything. Immigration, taxes, spending, the north eastern Republicans like Christopher Shays in Connecticut have to move away from the president on Iraq if they want to get reelected. So it's a very, very tricky dance that both parties have to do right now. I do since thought an anti incumbent mood that makes November very difficult to predict. The Senate, I think will stay Republican. The house is really in play right now.

HARRIS: I got to ask you, Greg. To get back to the point of all this discussion which is the foiled plot. The event didn't happen. And it's the view of Darryl Jenkins who was on the program a little earlier today that this will not have a big impact on the summer travel season. Do you buy that?

VALLIERE: I think so. Again, we can't get too complacent. But I think you could make a case though that really intense surveillance. Eavesdropping, wiretapping, a lot of the things that Bush has been criticized for may have played a very positive role in the U.K. I think there's enough fodder for both sides of the debate. I think the week was won by the Karl Rove camp that will reiterate over and over again; we are still in a war.

SERWER: Hey Greg, as far as the economy goes, who's going to win on that issue? Who can best play that the Democrats or the Republicans?

VALLIERE: That's another very, very tough call. I think that all of us who follow Wall Street and are involved in the markets now, this is a good economy. Rates are steady. Inflation isn't that bad, the deficit's coming down. But for the average American, there's the issue of income disparity. There is an issue of stagnant real wages. So I think the economy actually is a slight negative for the Republicans. HARRIS: And then we look at the events on Thursday. And we look at what happened to the market. The market ends up. How do you explain that?

VALLIERE: Well what a skitso (ph) week. The market sells off after the Fed pauses on its rate hike, and the market rallies after we have this terrorist threat. Very humbling for everybody who follows the markets. My sense is we talked about this earlier in the show that earnings aren't going to get any better. And if the economy does moderate which looks likely, earnings may start to moderate as well. It's awfully hard to see in that environment, even though PEs look pretty good, it's awfully hard to see this market rallying much any time soon.

HARRIS: Any take always for average investors?

VALLIERE: I think for average investors it's the same story that really emerged after the late '90s, and that is you got to diversify. Have stocks that have good yields and good dividends. A little on the fixed income market and a little in cash, you can't put all of your eggs in one basket.

HARRIS: OK, Greg. Greg's with us the rest of the program. A lot more to come here on IN THE MONEY. Up next, how to turn a driver into a gambler. The price of oil is all over the place lately. We'll look at the odds for where the numbers are headed next.

And shouting from the sidelines. What master Allen Wastler is going to give us a blogger's eye view of this week's terrorism arrest. We will be right back.

(COMMERCIAL BREAK)

HARRIS: Well oil was up, then down and then up again this week. Andy is here to break it all down for us. It was a bit of a roller coaster. That's the definition of it isn't it, Andy?

SERWER: Indeed it was Tony. Indeed it was a rocky week for oil. Crude prices had spiked to near record highs. Earlier in the week on BPs decision to reduce production in its Prudhoe Bay oil field in Alaska. Prices started moving lower on Wednesday and accelerated on Thursday following the London terror arrests only to rebound on Friday. Peter Beutel is president of Cameron Hanover Energy Risk Management Firm and he joins us now to talk about what's going on and what we can expect in the weeks ahead.

Peter, thanks for coming on the program. I think the first question is just how bad, how significant is BP's problem? And how long will it take to fix?

PETER BEUTEL, PRESIDENT, CAMERON HANOVER: Well, it's going to take a long time to fix. The significance of it is less the number of barrels than the fact that these were politically safe, hurricane safe barrels that we did not expect to lose. In other words, we are all looking standing on one foot. Looking off into the distance, waiting for another hurricane event like the ones we had last year in the U.S. Gulf. And then we had that leg pulled out from under us as we lost Alaskan production. Something we didn't expect.

VALLIERE: For the average driver, does this mean we are going to see price at least $3 a gallon or maybe a bit higher for the next few weeks if not months?

BEUTEL: Well, I've actually got some very good news. This week we threw everything at this market but the kitchen sink. Any reason that it could have gone higher was out there. Thursday prices dropped substantially. And it now looks like we could see as many 20 cents a gallon return to consumers by early next week at the pump.

VALLIERE: Great.

SERWER: Well Peter you are saying that we threw everything but the kitchen sink. But I mean if you think about it, there are a lot of scenarios that haven't happened yet that could be even a lot worse. Leaving beside the weather, let's take Venezuela. What if the Nigerians really shut down production, the rebels there? What if in Saudi Arabia insurgents really blow something up big time there. Or Iran. None of those real seismic events have happened though.

BEUTEL: Well you are absolutely right. What I like to say to people is I think we may have seen highs or near highs unless we get one of the 800-pound gorillas in the room and those are hurricanes. The big gorilla that could be out there is Iran right now. Obviously any of the things that you mentioned could happen. But they seem less likely than something with Iran right now.

VALLIERE: Peter, there's an old joke that begins, I'm from Washington, I'm here to help you. But in all seriousness, is there anything Washington could do to help in terms of drilling more? Is there any part of the equation that could be improved by Washington?

BEUTEL: Yes, they could stop being red and blue and start seeing clear for a change. Five years ago these guys could have reached across the aisle and said we'll give you the Anwar for the cafe standards. In other words, the Democrats wanted higher mileage standards. Republicans wanted more drilling. If they'd agreed five years ago to exchange the two of those we'd be a lot better off now.

VALLIERE: Real quick follow up. What will it take; will it take $5 a gallon gasoline to get Washington to do something?

BEUTEL: I honestly don't know. Quite frankly I thought $2.50 or $3 would have got them to do something. Coming up elections it will be hard to tell when they are going to get serious about this issue.

SERWER: Peter, you seem to be suggesting that you don't think the price of oil is going to go up that much more. Is that right? And boy, there are a lot of people disagree with you out there right now. More and more people talking about $100 barrels of oil and such.

BEUTEL: Well, we are getting to a stage now where I think maybe we are nearer to a top than we are to some of these events that may take us to $100. We've taken so much money out of consumers' pockets. During the month of July, we were taking about $385 million a day out of consumer's pockets more than we were three years ago for gasoline. Heating oil and diesel the number comes close to $600 million a day during all of July.

You can't take that kind of money out of people's pockets and not expect it to have a problem somewhere. Earlier in this show somebody referred to people using their homes as ATMs. If it weren't for home refinancing, savings and plastic, there's no way we wouldn't have had a recession already because of these high-energy prices. I still think we have an energy recession coming. Probably sooner than later. And I think that will help us spell the peak in oil prices.

VALLIERE: But with these very high prices and co-polluting, why don't we take a more serious look at nuclear?

BEUTEL: Well that's the whole not in my backyard thing. Everybody's frightened by nuclear. And they have a pretty good record over the last 25 years anyway of not having any problems. Another thing that people seem to have lost track of is, even though we had Katrina and Rita, we didn't spill a single drop of oil. We had some rigs floating in the Louisiana bayous, but we didn't spill any oil. So I think we may have reached a stage where technology can give us some of these things without actually polluting.

SERWER: Hey Peter, switching back to BP, do you think that this company was negligent. That they dropped the ball? It's so ironic that they are perceived as the green oil company and they have these kinds of problems. But it sound like they just didn't pay attention.

BEUTEL: Well, you know, we are looking at hurricanes and we are looking at political risk. And then all of a sudden we are losing oil to erosion? I don't know. I've got to think somebody's had had a role in that one. This is -- you are talking about what, 400,000 barrels a daytimes $75. There are some shareholders that are going to be mighty irate at this. I've got to think that somebody dropped the ball.

VALLIERE: You know with all the news this week, maybe crowded off the front pages was a new forecast from NOAA saying we may not have as many hurricanes as earlier feared. What if we don't have a big hurricane, what does that mean for the price of oil, $5?

BEUTEL: You are saying what if we do or do not?

VALLIERE: What if we don't?

BEUTEL: If we don't, then I think we are going to see prices continue to move lower. Continue from yesterday. I think that really, the hurricane that does or doesn't happen is going to be the main event here over this next six or seven weeks. If we do not get one, then I think there will be a lot of pressure on this market to sell. The thing that was so interesting this week is that we had Prudhoe Bay and then we had had bullish statistics. Let me tell you what they were.

Highest gasoline demand yet this year. Distillate stocks, which have been running at surplus against a year ago suddenly, went into a deficit. Refinery runs all year long had been running below a year ago partially because of the hurricanes last year. So we have all this bullish fundamental information and prices just were unable to move higher. And then we just had a dumping of contracts on Thursday. It's telling me that maybe this market is tired of moving higher and that maybe $75 if discounted a lot of bullish factors.

SERWER: All right, we are going to have to leave it there. Peter, thank you as usual for your insights. Peter Beutel is the president of an energy risk management firm Cameron Hanover. Thank you for coming on the program.

Coming up next on IN THE MONEY, throw objectivity out the window if you want an unfiltered take on this week's terrorism arrest, check the blogs. CNNMONEY.com Allen Wastler is going to do the legwork for us just ahead.

And while you are on the Web, drop us a line. We are at INTHEMONEY@CNN.com.

(COMMERCIAL BREAK)

SERWER: The bloggosphere is always an interesting place to go for a wacky and sometimes wise commentary on major stories. CNNMONEY.com managing editor Allen Wastler joins us now with a closer look on what the bloggers are saying about this new terror threat.

Allen lay it on us.

ALLEN WASTLER, CNNMONEY.COM: This is the blogshere you just got to love it. People shoot from the hip and go at it. Politics we were talking about earlier in the show, it just boils right in this. It's like distilled for you. And of course the right wing is making the most noise. Check out one of the guess bloggers. Check out this comment. "If you want to believe that George W. Bush and the Patriot Act are the greatest threats to our way of life, you won't have much trouble finding a professor on a nearby college campus to buttress your theory. But its past time we face the facts and realize this is our new normal." That was the position taken by a lot of the right wing siders.

Hey, people want to hurt us. There are terrorists out there, and this is a manifestation of that effect. Now of course, you got the other side, OK. Now the other side was basically, well, the threats out there. But you haven't really been acting that entire well about it. Check this out from America blog. "Bush was briefed about the attack days ago while he was on vacation. And guess what, he stayed on vacation. Sound familiar?" Of course, referencing previous Katrina oops. So you know, they are coming from that point of view and trying to hammer it.

And of course they always accuse the other side. And you can change right and left wing interchangeably here. Because they always accuse the other side of oh, you are playing politics. Now this time it's the left again also from American blogs. That referencing remembers Dick Cheney commented on the Lieberman/Lamont election before the London plot was revealed to the public. And said that basically Lamont's win would give aid to the al Qaeda types. Here's a comment from American blog. "Knowing that this story was about to break, Cheney invoked al Qaeda in purely political terms. Once again, Cheney is using terrorism for political purposes." But, I put it to you, OK. If the administration had messed up and not caught something, would the left wing be putting it to political purposes?

HARRIS: Very good.

WASTLER: You know? It can go either way. And that's what you are seeing on the Internet here. It's sort of distilling this argument.

HARRIS: Allen, I have to ask you, one of the treats sometimes about going to the blogosphere is that you hear all manner of conspiracy theory.

WASTLER: Of course there are always the Republicans. Maybe they released this the going into November elections. I sort of dismissed the conspiracy theory. Just because the conspiracy theory comes out so often, it's kind of like status quo now.

HARRIS: Right.

VALLIERE: If things are so poisonous right now to come full circle. We talked earlier about 1968. This may be the most poisonous political environment since the late '60s. So I've given up. I just look at the economic fundamentals. Don't you guys think that one of the big stories this summer is that interest rates had peaked. Whether you look at housing rate is sensitive, my sense is the worst is over on interest rates.

WASTLER: You get that sense, but I think the Feds will go back to hiking. We haven't seen the interest rate game play out yet. If you look at some of the latest figures, the "Wall Street Journal" surveys this week showing that costs are going up out of the commerce department. You have some of these things I think the Feds are taking a little pause right now, but I think they will have to jump back in maybe one or two more hikes.

VALLIERE: I think Ben Bernanke are pretty dubbes (ph), I think they are going to dominate.

WASTLER: We got a bet, Greg.

SERWER: Of course you can always find a blog who would link Ben Bernanke into some sort of plot tied into something going on in the Middle East that would make Syriana look perfectly sane.

WASTLER: Elvis is always at the center.

SERWER: All right. We are going to have to leave it at that. Thanks to Web master Allen Wastler. We will be right back with more IN THE MONEY.

(COMMERCIAL BREAK)

SERWER: And now it's time for our e-mail question of the week. How do you plan to deal with even longer lines and stricter security measures at the airport? You can send your response to INTHEMONEY@CNN.com.

Tony.

HARRIS: Go early and pack some patience. If you would like more on this show check out our show page at CNN.com/inthemoney. Thanks for joining us for this edition of IN THE MONEY. Thanks to political economist Greg Valliere and our IN THE MONEY, Allen Waster and Andy Serwer, Jack Cafferty will be back next week. Enjoy the rest of your weekend.

(COMMERCIAL BREAK)

TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 800-CNN-NEWS OR USE OUR SECURE ONLINE ORDER FORM LOCATED AT www.fdch.com