Educate Yourself

Week in Review
For the week 1/9/2006 - 1/13/2006
Brian Trumbore
President/Editor, StocksandNews.com

It's always important to know the enemy. This is what the West is dealing with these days.

Iran's Grand Ayatollah Ali Khamenei, in his annual message to pilgrims making the Hajj:

"The Islamic world does not need the West's deficient prescription to achieve democracy and human rights?

"One should not doubt that the global arrogance considers the awareness of the Muslims, Islamic unity, and the progress of Islamic nations in all fields of politics and innovation and science the greatest obstacle in the way of their hegemony over the entire world, and thus stands against it."

"We should learn lessons from our previous experiences and should not allow the enemies to assume control over our destiny for another long period.

"In those bitter, dark days, the hegemonistic Western countries made use of all their cultural, economic, political, and military means to weaken Muslim countries and nations and then imposed poverty, ignorance, and division on them?.

"The great Satan, which is the real image of cruelty and brutality against the human race, has become the standard-bearer of human rights and invites the Middle Eastern nations to democracy?.

"The United States' favorite type of democracy is actually realized if an obedient puppet government assumes power in a country through a number of conspiracies, briberies, and deceptive propaganda and through an apparently popular but U.S.-led election. This new puppet government must definitely be the U.S. agent in that country and must realize its ominous objectives?.

"The pretense of fighting against terrorism and violence on the part of those who have promoted Zionist terrorism and committed the most horrific crimes in Iraq and Afghanistan seems very disgusting.

"The assertion of defending civil rights by those devils who have always encouraged the crimes committed by a bloodthirsty terrorist like Ariel Sharon against the Palestinian nation is a great deceit that deserves to be cursed?.

"The U.S. and British governments, which consider it permissible to torture or even kill suspects in the streets, and even allow themselves to eavesdrop on the telephone conversations of citizens with no court order, have no right to introduce themselves as the supporters of civil rights?.

"Supporting the oppressed Palestinian nation, backing the aware Iraqi nation, and upholding the stability and independence of Lebanon, Syria, and other regional countries are common duties?

"The current blind and brutal terrorism, which has been turned into an excellent pretext for the occupiers of Iraq to not only attack Islam and Muslims but also to continue the military occupation of that Islamic country, is condemned and rejected by the tenets of Islam."

"The Islamic Republic of Iran will not give up its undeniable rights to peaceful nuclear technology, which has been achieved by the talented youth of the country. The ones who are invoking sanctions, have sanctioned Iran whenever they could?but these sanctions have resulted in Iranian youth's self reliance, therefore such sanctions have no effect."

"Unfortunately, a group of bullies allows itself to deprive nations of their legal and natural rights. The Iranian nation is not frightened by the powers and their noise."

"If (the West) cause any disturbance, they will ultimately regret it. Even if (the Westerners) destroy our scientists, their successors would continue the job. It would not be easy for them to solve the (nuclear) case by imposing sanctions or anything like that."

I have long written it was too late when it comes to Iran's quest for the bomb. And now it's become a matter of national pride, uniting even otherwise foes such as Rafsanjani and Ahmadinejad.

70% of Iranian students support the nuclear program. 50% said Iran must not give into pressure from the U.S., Israel and the European Union even if it meant war. The non-radicals are increasingly falling in line, believing the U.S. seeks to punish the entire nation.

To this last point, it's why U.S. Secretary of State Condoleezza Rice has been so careful to draw a distinction between targeting Iran's leaders and at the same time attempting to assure scholars, musicians and athletes (like Iran's Olympic team) that they would not be penalized.

As Iran broke the seals the UN's International Atomic Energy Agency had placed on various facilities, British Prime Minister Tony Blair told parliament:

"I don't think there is any point in us hiding our deep dismay at what Iran has decided to do. When taken in conjunction with their other comments about the state of Israel they cause real and serious alarm right across the world."

So what now? The EU and United States seek to hold an emergency meeting of the IAEA, which then needs to vote to refer Iran to the Security Council. At this point, however, despite Russia's tough talk this week as they were snubbed by Iran, too, in Tehran's rejection of the Kremlin's uranium compromise (backed by the EU-3 and Washington), Russia would likely back off from taking tough action and China has already said it would not approve sanctions against Iran.

And sanctions could backfire, anyway; particularly with regards to the price of oil. The World Bank has estimated that if 2 million barrels of oil were cut from global supply (by Iran, Nigeria, Venezuela, terrorism or another natural disaster for that matter) crude would hit $90 and cut world growth in half. The White House and its allies understand this, thus this incredible box we're in.

This is going to be a lead topic for months and potentially years to come, but for now I want to reiterate one thing. These reports you're hearing that talk of Iran not being able to physically build a bomb for another five years or so are bunk. While I obviously don't pretend to know what the real truth is, I ask everyone to just look at the facts and draw their own conclusion.

It was two years ago that Iran admitted to the IAEA it had been cheating for 18 years?18 years. It's now been 20. And we all know Iran has potentially hundreds of facilities, scattered all over the country, the biggest underground, that have been working on this project.

We also know there are hundreds, if not thousands, of nuclear scientists a la A.Q. Khan, around the world, such as in the former Soviet Union, who could be bought off for their expertise.

And we also know the United States is in no position today to take Iran on militarily and that Israel, as much as they are likely to act unilaterally at some point, can't possibly know which key facilities to hit?especially taking into account the inevitable retaliation that sends the entire region into a tailspin.

You could see the frustration on President Bush's face on Friday as he met with an equally exasperated German Chancellor Angela Merkel. This is as complicated a situation as the civilized world has ever faced and there are no answers as of this moment.

"Investors have been lulled into a sense of complacency."
--Morgan Stanley chief strategist Stephen Roach

The major equity averages hit new multi-year highs yet again, but by week's end the brakes were applied, thanks not just to the disturbing news on the Iran front, but also the fact that the early look at earnings, both actual and projected for the fourth quarter, isn't exactly sterling. From Alcoa to Dupont to Tyco to downgrades on the likes of J.P. Morgan and Coca-Cola, all rather large players I think you'd agree, the news wasn't good and the market needs time to digest the potentially rapidly changing environment.

What if energy soars anew thanks to tension in Iran? What if earnings growth starts to decelerate far faster than projected? What if bird flu, still simmering, emerges as the long feared pandemic? Some say the H5N1 virus is indeed mutating. What if tension between the U.S. and China over how to deal with Iran led to China dumping some of their Treasuries to send a message? Plus countless other issues we discuss all the time in this space.

And what to make of the continued strength in commodities? Certainly some of it is simple supply and demand as the world economy continues to chug along, including further signs that Europe is finally getting its act together. But there is also a large amount of speculation in the commodities markets as excess capital sloshes to and fro, let alone the very legitimate concerns on the geopolitical front, of particular interest for oil and gold players.

But on a different topic, just a word on market history. What I'm about to say will seem heretical for someone who pens a column on the topic weekly as I do, but some traditional barometers such as the "January effect" can really be tossed out the window. No doubt, I'll continue to comment on them since everyone else does, but today's markets are built on a foundation that is light- years removed from the past, even of just 20 years ago where the interconnectedness of today simply wasn't a factor.

So, for example, why waste your time attempting to glean trends from the 1950s and 1960s when you have unique problems such as global terrorism, Iran, North Korea and China's growing economic power (and vaults of U.S. Treasuries) that past traders and investors didn't have to worry about? Sure, you had the Cold War, but wouldn't you rather have a Brezhnev-type figure in Tehran rather than a certifiable nut case?

Where market history really comes into play is in looking at individual behavior?and that's why examples such as the tech bubble of the late 1990s, and the roaring Twenties for that matter, will always offer important lessons for future generations of investors.

Then again, did you know that if the Super Bowl loser manages to score at least 20 points, the market always goes up that year? It's true. And this is proprietary information, developed by your editor, just for you.

--Stocks finished flat on the week, though technically all major indices registered gains, including the Dow Jones, up a whopping 1/5th of one point. The Dow thus finished below 11000, at last week's 10959, but it spent most of its time above the figure and, yes, of course Dow 11000 is important. Anyone who tells you otherwise is full of it. For starters, you can't get to 12000 without passing 11000.

Overall, rates were little changed but that masked a late rally on both tame inflation data and a flight to quality as Iran heated up. Now there are those who will say the fact the producer price index for Dec. rose 0.9% is hardly a cause for celebration, but ex-food and energy the PPI rose just 0.1% and 1.7% for all of 2005. I feel obligated to repeat myself from time to time. Yes, I believe the inflation data that the government feeds us is often ridiculously out of whack with reality. On the other hand, it is what it is, and it's what the Fed uses to help in its decision making process; not the pain you and I feel on items such as property taxes, health care and education.

And I won't be changing my own tune that when this economy eventually flips, inflation will be a moot argument; rather we'll be suddenly discussing the opposite.

Finally, the White House is now projecting a budget deficit of $400 billion for fiscal 2006. Hopefully, the world will continue to help us in financing it. Otherwise, we're in deep trouble.

--But the global growth outlook these days is rosy. A government commission in China is reducing its forecast of growth there to 8.5-9.0% for this year, but that's still rather healthy, to say the least, while the rest of Asia, ex-Japan, is slated to grow about 7.5%, with Japan itself looking for 2%, still a significant improvement.

As for Europe, it finally seems to be in a two steps forward, one back mode. Euro manufacturing is generally on the upswing, German employment is up, and retail sales on the continent are running at their strongest pace in two years. There's little not to like as world stock markets rally in kind. Nothing, that is, except everything else that matters.

--General Motors is slashing prices on 57 of 76 models as part of their recovery plan. We wish them luck?they'll need it.

--Heart device maker Guidant accepted Johnson & Johnson's sweetened takeover offer over Boston Scientific's.

--Apple Computer sold a staggering 14 million iPods in the 4th quarter, far exceeding expectations. Separately, the company announced it was going to begin using Intel microprocessors in its computers, making rival Microsoft's Windows program more accessible for those Apple users so inclined. But regarding the iPod, I found it ironic that on the same day CEO Steve Jobs announced the super sales, the Wall Street Journal had a story that many experts fear iPod users will go deaf. If you're a parent you may want to put a little fear in your child and plant the seed early to at least get them to turn the volume down?or take a break from time to time.

--A Deutsche Bank derivatives trader in London covered up a $50 million loss in collateralized debt obligations (CDOs); toxic waste to some. There is $10s of billions of the stuff out there, just waiting for a financial accident.

--Oppenheimer & Co. (a broker/dealer not affiliated with Oppenheimer Funds) was charged by the NASD with "knowingly producing inaccurate data" with regards to "breakpoint" practices on mutual fund trades.

When the mutual fund scandal first hit a number of years ago I had three main conclusions, having been heavily involved in the industry before starting StocksandNews.

Market timing is not illegal as long as you follow the limitations as spelled out in the prospectus. There is absolutely nothing wrong with the practice and, assuming the fund is of decent size and the portfolio manager knows about it, the cost to other shareholders is literally pennies. [On the other hand, if $1 million is moving in and out of a $10-$20 million fund, you have a problem.]

But to me the worst offense has always been not giving clients the appropriate breakpoint on A shares when they hit certain levels; say at $50,000 or $100,000. Broker/dealers like to say it's tough to track, administratively, but that's no excuse. It's thievery, pure and simple. So be careful out there!

--The SEC has formalized its investigation into IBM's accounting, and public reporting, of its stock-option expenses going back to April of last year when the company issued conflicting statements that totally confused the Street. Some analysts believe IBM jerked them around to damp down expectations in order to cushion the blow when the actual earnings for the quarter missed by 6 cents.

--According to the Wall Street Journal, AIG is expected to pay more than $1 billion to settle various state and federal investigations into its accounting scandal. A settlement would put the whole mess behind the insurance giant, but it would not include a deal with disgraced former CEO Hank Greenberg.

--I was watching a CNBC interview with Michael Eisner on the former Disney chairman's new program on the network and I could only reach the following conclusion. This is one of the least likeable people on the planet.

--Christopher Byron, New York Post columnist, on some of the recent price targets being laid out there by analysts on Google.

"Will somebody please help me on this: Did the whole of Wall Street manage to drop sideways through a trap door in the time and space continuum six years ago?

"Apparently so, because I'm either now writing to you from inside John Malkovich's eyeball, or the last half-decade of stock market history never happened."

--When discussing corporate retirement obligations, health care costs often take a back seat to pensions. But Howard Silverblatt of S&P has done some analysis and 337 of 500 companies in the S&P 500 offer some kind of medical benefits for retirees. Only 282 of these provide sufficient information for estimates about the retiree-health plans and Silverblatt says they are severely underfunded, like by $292 billion to meet current obligations.

Health care costs aren't binding, legally, like in the case of pensions, unless they're part of a contract, which is the case at Ford and GM.

So the issue is what is a company's legal obligation to fulfill its promises? "If a company tells its employers, 'You have to cover 99 percent of your premium,' is that a breach?" Silverblatt asks.

No agency will step in and pay the costs, like the Pension Benefit Guarantee Corp. does on traditional pensions. Further reason for retirees to fret.

--Steven H. Woolf, a professor of medicine, had the following thoughts in an op-ed for the Washington Post on the wave of new treatments and drugs being approved by the FDA. The issue here is delivery.

"(The) promise of a cure requires an additional step: Patients must receive the treatments promptly and properly. This step requires a well-functioning system to deliver care, which our country lacks. We spend far more money on inventing new treatments than on research into how to deliver them. Last year, Congress gave $29 billion to the National Institutes of Health, most of it to devise better care, while the Agency for Healthcare Research and Quality received only $320 million. Starkly put, for every dollar Congress allocates to develop breakthrough treatments, it allocates one penny to ensure that Americans actually receive them.

"This imbalance in investment may cost more lives than it saves. A recent analysis by our research team at Virginia Commonwealth University demonstrated that developing new treatments often does less good than ensuring the delivery of older drugs to all those in need.

"For example, we estimated that reminding physicians to offer cholesterol treatments to patients seen in the doctor's office would be seven times more effective in preventing heart attack deaths than replacing older cholesterol-lowering drugs with more potent medicines, such as those touted on TV. Even something as simple as more reliably prescribing aspirin, which we have known for a decade can prevent strokes, would prevent more strokes than prescribing the slightly more potent new clot- busting medicines that drug companies have spent billions of dollars to develop."

--Female employees at Dresdner Kleinwort Wasserstein filed a $1.4 billion discrimination lawsuit. It's essentially about lack of promotions, but additionally, one managing director allegedly brought prostitutes into the office at lunch time. If true, it's probably the worst thing I've ever heard, even for Wall Street's low standards.

--The other day I went out to buy a Sirius Satellite radio as a gift and let's just say it wasn't easy, sports fans. The model I wanted was sold out at the two Radio Shack stores I went to and, frustrated, opted for a lesser one. But of course alarm bells were going off in my increasingly overloaded brain (it's short- circuiting more and more recently). Howard Stern's impact is real and the subscriber numbers are obviously bearing that out.

--I was listening in on a conference call for my carbon fiber holding and some of you may recall I had visited one of their two facilities in Abilene, Texas, last spring. The other is in Hungary.

So it seems the company is having big problems finding qualified workers in Abilene, but has an abundance of candidates in Hungary. These are basic manufacturing positions (along with some management types), which speaks well of Hungary and opportunities in Eastern Europe, overall, but bodes ill for the U.S., though I admit I may be making too much of it since Abilene isn't exactly the easiest place to meet your employment needs.

Anyway, I purchased more of the stock this week?before the rally, if you're one who's figured out what company it is.

--My friend Harry Koza up in Canada writes a column for Globe Investor Gold and in a recent missive he was talking about the old trading rule of selling a stock after it's dropped 15 percent, a very difficult discipline to adhere to as Harry and I can attest.

But I loved this saying of a friend of his, "If we didn't break rules, we'd be no better than ants."

--Lucent issued a revenue warning, not a good thing for an already sick company. So Trader George asked me about the lawn and I was embarrassed I hadn't reported on this recently.

But TG, being on the commodities end of things and a long-time resident of the general area I live in (remember I'm a few blocks from Lucent's headquarters), and I had a brilliant idea.

Lucent has a giant copper roof and with copper at all-time highs, they could sell it for $millions. I'd then replace it with a FEMA tarp, which would be appropriate given the company's struggles.

--The Maryland Senate overrode a veto by Governor Robert Ehrlich that requires companies with more than 10,000 employees in the state to pay a set amount for health care benefits. The legislation, titled Fair Share Health Care Fund Act, targets Wal-Mart, which employs 17,000 in the land of the Terrapins. Wal-Mart already provides health care coverage for most of its workers and now Maryland could lose a distribution center employing 800 that the company was looking to open.

--Wall Street is passing out record bonuses this year of $21.5 billion. Many outside the industry will complain, but this is the nature of the beast. And it's also why the likes of Eliot Spitzer have done investors a tremendous service in at least attempting to hold the Street's feet to the fire. As for New York state and New York City, you won't hear them complaining. The bonuses translate into $1.5 billion in increased revenue for the former and an extra $500 million for the latter.

--Finally, we note the passing of the great marketer Sidney Frank, aged 86. Mr. Frank created Grey Goose vodka and figured out a way to promote a once-staid liqueur, Jagermeister. And the billionaire made the bulk of his fortune after turning 70. Baby, you've gotta love it.

Frank was also extremely generous with various causes, as well as total strangers from time to time.

Al Qaeda: Early in the week, Peter Brookes mused in an op-ed for the New York Post about Osama.

"Osama bin Laden hasn't made a single peep publicly in over a year - his longest absence since 9/11. The ghoul's eerie silence is both disturbing - and odd - for the leader of a global terrorist organization hellbent on changing world order.

"So what is Public Enemy No. 1 up to? Osama's glaring absence from the world stage means one of three things: a) We've been closing in on him and he's gone deeper underground; b) He's lulling us into complacency while planning another big terrorist strike, or c) He's dead."

But as I go to post, there is growing hope al Qaeda's #2, Ayman al-Zawahiri, was killed by a Predator aircraft that targeted him in a Pakistani village on Friday. This would indeed be a huge victory. We should know shortly.

Iraq: Back on October 15 when voters approved the Iraqi constitution, the Sunnis were promised they would be able to offer amendments following the Dec. 15 vote and the seating of a permanent parliament. The move was made by the ruling Shia and Kurds in an attempt to gain their cooperation and participation.

So it was distressing to see Shia leader Abdul Aziz al-Hakim say this week that there will be no broad changes to the document. Hakim merely wants to strengthen the autonomy of the oil-rich Shia south and the equally resource-wealthy Kurds in the north. That of course leaves the Sunnis with some dirt and sand, instead of a strong central government that shares the riches.

None of this is actually new, but amidst the negotiations we've been told are taking place between all parties, Hakim goes out and further roils the waters.

Meanwhile, the U.S. military is pinning its hopes on a possible split in the insurgency as clashes have flared between al Qaeda Iraq and various native movements. This is promising.

As for President Bush's level of support, the 'Military Times' does an annual survey that reflected falling numbers for him with only 54% of active duty soldiers viewing the president's performance in Iraq favorably. When you consider who's being polled, this isn't good.

And it didn't help that in a separate U.S. Army publication, 'Military Review,' a British Brigadier who has been leading forces in Iraq has a story accusing the U.S. of "institutional racism?and cultural insensitivity." U.S. authorities strongly dispute this but the timing was terrible.

Russia: Frankly, I was startled that an op-ed in the Wall Street Journal by Russian defense minister, and deputy prime minister, Sergei Ivanov, didn't receive more press. One can't help but read it and be deeply disturbed. Excerpts:

"National security is a crucial task for Russia, a country so greatly endowed with territory and natural resources. Our military strategy is, therefore, focused on creating the ability to respond to the external, internal and cross-border challenges of the 21st century.

[That's the opening paragraph. I'm immediately thinking this is going to get ugly...and it does.]

"We have seen a steady trend pointing at a broader scope of use of military force recently, not least because more challenges to national security have emerged. Chief among them is interference in Russia's internal affairs by foreign states - either directly or through structures that they support - and the attempts of some countries, coalitions and extremist terrorist organizations to develop or gain access to weapons of mass destruction. We must also be prepared for the possibility of a violent assault on the constitutional order of some post-Soviet states and the border instability that might ensue from that. Arms and drugs trafficking and other kinds of cross-border criminal activity must be closely watched.

"None of these threats shows any sign of abating. Everyone knows that when it comes to war and conflict-prevention, Russia always goes first for political, diplomatic, economic and other nonmilitary means. But maintaining a robust military capacity is clearly in our national interests.

"The primary task for the armed forces is to prevent conventional and nuclear aggression against Russia. Hence our firm commitment to the principle of pre-emption. We define pre- emption not only as a capability to deliver strikes on terrorist groups but as other measures designed to prevent a threat from emerging long before there is a need to confront it?.

"Russia is not itching for a future war. War is never by choice. Right now, there is no conflict or dispute outside the country that could be seen as a direct military threat. However, to ignore the future is irresponsible. We need to look several moves ahead - on all levels, from future military planning to a strategic vision of the future of armed conflict?.Our top concern is the internal situation in some members of the Commonwealth of Independent States, the club of former Soviet republics, and the regions around them."

[No, this isn't about Chechnya, friends. Ivanov is directing his comments directly at the likes of Poland, as well as nations such as Georgia, Moldova and Ukraine that have turned west.]

Ivanov also goes into some detail on Russia's weapons advancements and what's on the drawing board. Then he concludes:

"We are not saber-rattlers. Russia's political and military leaders perceive the use of force as a last resort, to be used only when and if all other channels are hopelessly congested. Cooperation with international institutions helps promote a foreign policy agenda, though unfortunately it does not provide absolute security guarantees. For those, a state needs a highly effective military capability. Russia deserves a fighting force of the 21st century, a force that will look into the future but will at the same time continue its glorious military tradition."

President Vladimir Putin recently selected Ivanov to be a co- deputy prime minister and a possible (though not probable) successor should Putin opt to step down when his term expires in 2008. Ivanov is said to be a humorless and nasty person, by all accounts. [Similar to some descriptions of Putin, actually.]

With everything else going on in the world, the above is more than a bit troubling. As are Russia's ongoing maneuvers in the energy field, even if Russia and Ukraine have reached a temporary agreement on the natural gas front. The fact that it is supposedly just for six months led to a vote in Ukraine's parliament to oust the government, though parliamentary elections are slated for March anyway. Former Prime Minister Timoshenko, who feels she was booted out unfairly, is causing President Yushchenko big problems and admittedly Yushchenko has been a disappointment.

Meanwhile, Gazprom shut off gas to Moldova on Jan. 1 and as of this writing hasn't resumed supplies, while Gazprom (read the Kremlin) and Bulgaria are also in the midst of intense negotiations since Gazprom wants to hike the price of gas here from $87 to $257. [Gazprom in turn does pay a transit fee to Bulgaria for gas moving on to Greece and Turkey.]

Here are two commentaries related to the above. First, Georgian President Mikheil Saakashvili in an op-ed for the Washington Post.

"Russia uses not only its energy supplies but also the vast energy transportation network that former Soviet states inherited - and depend on - to exercise energy control. For example, when Russia demanded steep price increases in natural gas from my country, we approached Kazakhstan and reached a preliminary agreement to purchase gas from it at a genuine market rate. But Russia's Gazprom refused to allow shipment through Russian territory, thereby scuttling the deal. It gets worse. The E.U. should take note that in December 1999 Georgian natural gas from Russia - our sole supplier - was cut off for no reason in the dead of winter and was restored only through U.S. intervention?

"For Georgians, our path is clear. We are moving aggressively to diversify our energy sources and transportation networks?. We are willing to work closely both with our European partners and with Russia to make the whole system transparent, predictable and immune to - or insulated from - political shocks."

"Putin kept a straight face when he announced that his willingness to restore gas supplies (in Ukraine) proved that Russia was a reliable supplier. Never mind that it was on his orders that Gazprom cut off supplies to Ukraine, and by extension to Germany, France and other countries, despite contracts that run until 2009.

"Remember: this dispute was not only about prices. Belarus, the former Soviet republic that elected to stay within Russia's sphere of influence, has not faced the heavy price increases that Gazprom has imposed on the more western-oriented Ukraine, Georgia and Moldova.

"Putin's message is clear: Russia's energy resources, now completely under state control, provide it with a new weapon, petropower - and he will use it to restore Russia's influence to the level it enjoyed when it was a superpower?.

"Cutting gas supplies to Europe had no direct effect on America. But it served as a warning that what is left of the nation's energy security strategy is in tatters. The Bush administration had hoped that Iraq would return to world markets as a large, American- friendly oil producer. The Pentagon had predicted that Iraq would ratchet up its production to more than twice the pre-war level of 2 million barrels a day. In the event, output has stalled at a little more than 1 million barrels?.

"The second strand of Bush's policy was to persuade Congress to open up parts of Alaska for drilling. Congress refused.

"Finally, the White House sought to reduce its exposure to OPEC by increasing purchases from Russia. That, too, has come a cropper: Putin has invited OPEC representatives to a meeting to coordinate their policies with his."

Plus you have Venezuela, one of America's top oil suppliers. More on President Hugo Chavez and his maneuvering below.

Lastly, Putin's good buddy, Belarus President Lukashenko, moved up elections in his country by six months in order to prevent the opposition from gaining momentum. Of course it was illegal, but in Belarus totally predictable. After all, if you just make fun of Lukashenko you can receive a two-year prison term.

Israel: Not much to say here this week as Prime Minister Ariel Sharon's recovery is measured by brain wave activity for the most part. We are less than two weeks away from the Palestinian parliamentary elections and Israel is going to allow Arab residents in Jerusalem to vote. With the Palestinian Authority of President Mahmoud Abbas both financially and politically bankrupt, Hamas is prepared to fill the void.

Lebanon: The following account on Lebanon's cabinet crisis is important in that Druze leader Walid Jumblatt launched a blistering attack on Hizbullah, questioning its determination to keep its arms forever.

"To those who hold the rifle today we say, 'thank you, the South is free.' (But) to whom is your allegiance now, Lebanon or other countries?"

"We don't' want to be in the middle of an axis that starts in the Mediterranean and ends in Tehran," referring to Shia-Hizbullah's relations with Syria and Iran.

Jumblatt blasted Shia ministers who walked out of a cabinet meeting in early December and haven't returned since.

"We tell them you left the meeting maybe to escape, because the Syrian regime does not want an international tribunal," he said. "We knew when we asked for an international tribunal the ruler of Damascus will not accept it. If they want the truth, why are they dodging the call for an international tribunal?"

"There are 'security islands' that harbor a load of wired cars? and as we all know, the state cannot investigate or interrogate people in some of the areas inside these security islands."

Hizbullah MP Hassan Fadlallah decried Jumblatt's statements. It is necessary to refrain "from insulting institutions that enjoy respect and admiration within a vast majority of the Lebanese. No matter how stiff and tense the political situation gets, we will maintain our national identity. No matter what happens, the weapon of the resistance has one direction, and that is the Israeli enemy."

This week Taiwanese prosecutors indicted two former officials of United Microelectronics Corp, one of Taiwan's most prominent companies and a competitor of Taiwan Semiconductor. And wouldn't you know it, guess what the reason was? One of my favorite topics. Allegedly the executives helped set up another semiconductor company in China.

"The probe has mushroomed into a bitter public feud between UMC and regulators, highlighting broader tensions between Taiwanese executives eager to do business in China and officials who are concerned the island is becoming overly dependent on its political adversary."

While prosecutors say they found no evidence UMC provided funds to the mainland company, He Jian, they found "substantial evidence" UMC provided the technical know-how.

This is a perfect illustration of my long-held concern and it obviously extends to technology transfers (stolen or otherwise) from U.S. companies to China as well, including during the administration of President Bush's predecessor.

Speaking of which, Defense News opined in an editorial about the tremendous strides China's military has made.

"After 25 years of concerted effort to improve its defense industrial base, China is turning out products of a sophistication and quality that have surprised American analysts.

"A new report by the RAND think tank?concludes that the conventional wisdom that country's defense industry is rife with weaknesses and inefficiency is outmoded?.

"There are several reasons for China's gains, especially in aviation, shipbuilding, missiles and information technology. Its rapidly growing economy underwrites substantial defense investment. Low labor costs make for a manufacturing haven and magnet for sophisticated technologies. Chinese academics and workers are schooled at the finest universities around the world. And the country has had limited but consistent access to defense technologies from Russia, Israel and other countries."

This debate has much to do with our own defense industry, both from a commercial as well as strategic standpoint. Defense News:

"While once the U.S. market bulged with competition in nearly every market, the future will look starkly different. A decade ago, there were eight U.S. firms that built combat aircraft, but now there are just two, and within a decade only Lockheed Martin will remain."

These days, Britain is an example of a country that recognizes it needs more competition and is taking the steps to address this. Washington needs to get its act together.

Then there's the pollution issue in China. Communist leaders are slowly beginning to realize they have a huge international problem unless they take care of it quickly. China's neighbors, for example, are growing increasingly testy. And did you know that half the world's population lives in river basins which have their source in China? [Reuters / Leo Horn of Britain's Department for International Development] Although most of the major rivers such as the Mekong have escaped the worst of the pollution thus far, the author of a book titled "China's Water Crisis," Ma Jun, says "the sheer scale of our economic expansion means that in remote areas, activities will increase and problems will only get worse."

Lastly, on a lighter note, though not really to some, you have this flap between China and Taiwan over pandas.

Officials in Taipei accused Beijing of "disrespect" and "pro- unification political warfare" after Beijing announced it was giving Taiwan a pair of pandas.

So why is this an issue? Because China no longer gives pandas to foreign countries, ergo, this move bolsters China's claim that Taiwan is sovereign territory.

Joseph Wu, chairman of the Mainland Affairs Council, Taiwan's cabinet-level China policy body, attacked the propaganda move.

"They unilaterally announce the pandas will be sent over here in June, without having discussed the matter with Taiwan's government?.That is very disrespectful."

Well, over the course of history wars have been started over women, why not one over some cute and cuddly bears?

Venezuela: Related to my above discussion on U.S. energy security, Mary Anastasia O'Grady commented on the growing Tehran-Caracas axis, another worrisome development. But for now, let's just focus on how Venezuelan President Hugo Chavez has mishandled his vast oil riches. Ms. O'Grady writes:

"That Chavez is making a hash of the Venezuelan economy while he courts international notoriety is no secret. There are shortages of foodstuffs that are abundant even in other poor countries?.

"(And last week) a bridge collapse on the main artery linking Caracas to the country's largest airport, seaport and an enormous bedroom community is seen as a microcosm of the country's failing infrastructure. Aside from the damage to commerce, it has caused great difficulties for the estimated 100,000 commuters who live on the coast, Robert Bottome, editor of the newsletter Veneconomy, told me from Caracas on Wednesday. The collapse diverted all this traffic to an old two-lane road with hairpin turns and more than 300 curves. It is now handling car traffic during the day and commercial traffic at night, with predictable backups."

[Just had to throw that one in for all you facing horrific commutes of your own.]

Separately, Spain and the U.S. are now at loggerheads over the Spanish government's sale of 12 military aircraft to Chavez.

Chile: The nation's runoff for president is Sunday, with center- left Michelle Bachellet attempting to become the country's first woman president.

Bolivia: President-elect Evo Morales continues to startle some of us, much like Hugo Chavez. Morales, who has been globetrotting since his election, was in China looking to sell the communists some of Bolivia's natural gas. And so Morales felt obligated to say he was a "great admirer of Mao and his proletarian revolution." Little Evo doesn't have a real good grasp on history, unless he wants to turn his own country into a patch of dirt with Bolivians snitching on each other.

Haiti: What a mess. The Brazilian general who was commanding UN peacekeeping forces here committed suicide after failing to restore order following the rebellion of two years ago. During Christmas week alone, there were 12 kidnappings a day and 10 UN soldiers have now been killed in the line of duty.

Sri Lanka: Yet another troubling story because of what it says about today's threats. A Tamil rebel suicide bomber rammed an Army gunship with a speedboat packed with explosives, killing at least 13 sailors. I'm assuming all of our own naval forces remain on full alert for such an occurrence, a la the USS Cole. Or cruise ships.

Canada: Hey, there's an election here in less than two weeks. Sorry for not doing any homework on it.

North Korea: And last but far from least, Kim Jong il is on his mystery train, supposedly somewhere in China and possibly heading to Russia. He doesn't get out much, but if you should happen to bump into him, ask him how many nukes he's up to. I'd just be curious.

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