It seems pretty clear the Saudishave decided that oil should be priced at $60 and so it is. At thatprice the Saudis still earn tens or hundreds of billions, butRussia and Iran get crushed, and US producers slow down nowproduction wells. The Saudis win on every side. How long thiscontinues is hard to know since demand will remain muted for a longtime given the world economy, and a lack of clarity as to what isreally the cost per barrel in Bakken and other fields. In timethere may be production cutbacks which wil raise oil prices, butthe Saudis can just offset that by producing more. If I am rightthat the Saudis are manipulating this for geopolitical purposesagainst Iran, which I believe is their main goal given that Obamais refusing to understand the reality of the Iran intent to developa nuke, then low oil around $60 will be here for months or maybelonger. This may become that black swan event none of us sawcoming.

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This is good news mainly for realestate owners as their operating costs decline materially. However,like anything else, there is another side. Houston will now haveimmediate issues as there will be a lot less office and otherdemand for quite awhile. Somesmall oil companies will fold so some tenants will go away justwhen new ones are not appearing. Jobs and spending in oil producingareas will decline quickly. All those new hotels in N Dakota maynot fill up. Pipelines will not get built sofast.

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Much more important are thegeopolitical results. Russia is now much more dangerous. TheRussian economy is crashing and the ruble has crashed. Putin needsto do something to divert attention and history tells us that inthese type of crisis the dictator often will resort to create aexternal threat to rally nationalism. It is possible he may step upactions in Ukraine and Eastern Europe. Iran will become much moredesperate as money runs out. If the Republicans set new sanctionsearly next year, which they may, then Iran is really under pressureif Obama would stop his desperate effort to get a nuclear pact.Iran was desperate when Obama saved them with the nuclear talks andlifting of some sanctions, but this time the Republicans mayprevent that. Iran will likely continue to push for the nuclearweapon and at some point soon, Israel may finally act withoutObama.

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Venezuela will collapse soon andthere will be massive unrest and likely a government overthrow.This is the end of the left wing movement in Latin America. Itlikely also means Cuba suffers badly since Venezuela supplies itcheap oil and Russia cannot come and rescue them when it is gettingcrushed.

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Overall, low oil prices may be theblack swan I have predicted, and things in the world will get a lotmore messy and dangerous in 2015. With Obama refusing to increasedefense spending and refusing to really take the battle to ISIS andother terrorists, things could get more dangerous in the US as aterror attack will be attempted. It is impossible to predict whatmay happen, but there are some things likely. Interest rates will remain low longer as capitalpours into the US as a safe haven. Just look at where the ten yearis today vs where all of us thought it would be by now. Good forreal estate. If there is a successful terror attack it depends onwhat it is as to the impact. It is not likely another 9-11 but itcould be a mass hack attack and disrupt power grids or otherinfrastructure. It could be a Sony type attack on a bank or majorcorporation. They are trying all day everyday. Iran has made itclear it is trying hard already, as are the Chinese andRussians.

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I continue to suggest caution and maybe it is time to liquidatesome assets and get more liquid. Hard to know, but the risks of lowoil prices are well greater than the benefits.

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Joel Ross

Joel Ross began his career in Wall St as an investment banker in 1965, handling corporate advisory matters for a variety of clients. During the seventies he was CEO of North American operations for a UK based conglomerate, and sat on the parent company board. In 1981, he began his own firm handling leveraged buyouts, investment banking and real estate financing. In 1984 Ross began providing investment banking services and arranging financing for real estate transactions with his own firm, Ross Properties, Inc. In 1993 Ross and a partner, Lexington Mortgage, created the first Wall St hotel CMBS program in conjunction with Nomura. They went on to develop a similar CMBS program for another major Wall St investment bank and for five leading hotel companies. Lexington, in partnership with Mr. Ross established a hotel mortgage bank table funded by an investment bank, and making all CMBS hotel loans on their behalf. In 1999 he formed Citadel Realty Advisors as a successor to Ross Properties Corp., focusing on real estate investment banking in the US, UK and Paris. He has closed over $3.0 billion of financings for office, hotel, retail, land and multifamily projects. Ross is also a founder of Market Street Investors, a brownfield land development company, and has been involved in the acquisition of notes on defaulted loans and various REO assets in conjunction with several major investors. Ross was an adjunct professor in the graduate program at the NYU Hotel School. He is a member of Urban Land Institute and was a member of the leadership of his ULI council. In 1999, he conceived and co-authored with PricewaterhouseCoopers, the Hotel Mortgage Performance Report, a major study of hotel mortgage default rates.