Educate Yourself

Week in Review
For the week 1/23/2006 - 1/27/2006
Brian Trumbore
President/Editor, StocksandNews.com

Early in the week, Israeli Prime Minister Ehud Olmert was addressing an annual conference on security and he observed it would be a "historical mistake to let the Palestinians escape their commitment to dismantle the terror groups." [Daily Star]

Well, one could say that has become more difficult, wouldn't you agree? In an absolute stunner, and further proof that no matter where you are exit polls are often worthless, the terror group Hamas, sworn to Israel's destruction, captured 76 of 132 seats in the Palestinian parliament. The Fatah-based cabinet resigned and the fate of Palestinian President and Fatah leader Mahmoud Abbas is very much in doubt, even as the U.S. and Europe urge him to stay on. Fatah is now in turmoil, there are already clashes in the streets, and civil war is a very real danger.

Ret. Lt. Col. Ralph Peters summed up the situation in an opinion piece for the New York Post, in also attempting to make meaning of Hamas's victory in terms of the United States and the Bush administration's stated mission.

"First, the era of strongman rule is ending. Democracy 'is' on the march. Yet, from sheer inertia we often find ourselves on the side of the old, collapsing order - while our enemies grasp the potential of the ballot box better than we do.

"Second, we must be far more aggressive in spotting, publicizing and fighting corruption around the world - no matter the short- term costs. Corruption is the most insidious enemy of the rule- of-law democracy.

"Third, we have to avoid knee-jerk reactions. By reflexively condemning electoral outcomes we don't like, from Venezuela to the Middle East, we only make heroes of our opponents - while sounding like hypocrites ourselves.

"President Bush's comments yesterday struck about the right note, accepting the results and praising the positives, while staying noncommittal on future relations.

"Fourth, democracy requires patience. Whether in Iraq or Bolivia, we can't force voters to make the 'right' choices. Electorates need to make their own mistakes - and learn from them.

"Give Hamas time to discover how much harder it is to govern than to oppose a government. See if the movement evolves - or defaults to violence. In power, Hamas will have to deliver the goods. And better lives for Palestinians can't be achieved through terrorism.

"The ball's in Hamas's court. If we don't like their serve, we've got a powerful backhand."

Ah, yes?the topic of corruption. Long-time readers recognize my extensive use of this word, no doubt. What I would add to Mr. Peters's piece is that our own system is full of it, from Main Street to Wall Street to Capitol Hill. But at least it's not on the level of, say, Russia, where businesses are shaken down on an hourly basis. Nor is it anywhere near the level of what the Palestinians have faced, ever since the West decided to play ball with Yassir Arafat and plied him with $billions, most of which he squirreled away himself.

But it would seem it's taken this long for the Palestinian people to wake up. On Friday there were calls for Fatah officials to step down and stand trial for stealing funds intended to provide basic services.

Hamas, on the other hand, similar to Hizbullah in Lebanon, is viewed favorably among large segments of the population, as the vote obviously showed; a fact most of us find hard to believe but one nonetheless. The two exploit the corruption and the failure to care for the people, by the existing government, by aggressively building schools and hospitals, for example. Of course they then take advantage of this popularity to spread their own brand of hatred to a following whose minds are forcibly closed.

As for Israel, it's now faced with institutionalized threats from Hamas, Hizbullah, Syria and Iran. Most of the commentary outside the region is focused on the longer-term and hopes for positive change over time. But Israel's future is dependent on the short-term. It is a survivor and its skills on this front are the best. But today, the people and its leaders are being tested like never before.

It would appear Israel is going to receive little help when it comes to Iran and its nuclear weapons plans. On Feb. 2, the International Atomic Energy Agency meets to discuss the issue, including whether or not Iran's defiance of the IAEA and the U.N. should be referred to the Security Council for possible action, including sanctions. But the chances of the referral getting to New York are minimal.

Even President Bush has joined China in urging Iran to accept Russia's proposal to enrich uranium on Russian soil, thus allowing Tehran to continue with its "civilian nuclear program." I purport to have no answers in this incredibly difficult situation, but I do know this. To trust Russia to pull off its share of the responsibility in keeping Iran on the straight and narrow is a huge mistake. But the White House is desperate to reach a diplomatic solution to the impasse and it appears today this is where we're headed.

This week former Secretary of State Colin Powell was on a speaking tour in Britain and was interviewed by the Times of London. Despite the fact Iran has admitted to cheating for 20 years, Powell said it was "years away" from having the bomb; in other words, relax?calm down.

Newsweek's Fareed Zakaria, supposedly an expert on the Middle East, said Iran's program "is not sophisticated." How can one make that claim when A.Q. Khan was advising Iran?!

When it comes to the potential number of sites where Iran could be working on the bomb, I have seen the figures 25, 40 and 70 in three mainstream publications. I admit myself to perhaps having been over the top in saying "hundreds" a few weeks back, but more than 100 may not be far off in actuality, depending on how one defines the work taking place around the country.

The New York Times' David Brooks observed, this "tortured debate" over Iran will be going on for years to come, right "up to the moment the Iranian bombs are built and fully functioning."

In a question and answer session with the Tehran Times, Ali Larijani, the Secretary of Iran's Supreme National Security Council and a name everyone will be familiar with shortly, was asked about Russia's and China's support for Iran's position.

"We are focused on our own national capabilities. Go to the streets; ask people - university professors, laborers, government employees - their opinion about Iran's rights to nuclear technology. There is a national will over this.

"The West is making a mistake by putting itself against the national will. Europe could have lots of relations here. They currently, for example, have gas shortages in their cold weather and we could help them over this.

"Europe can also have investment in our oil sector?.(but) if they think any government in Iran could give up nuclear technology, they are mistaken."

Question: Are you taking measures against the possibility of U.S. or Israeli attacks?

Larijani: "Yes, we have taken measures. The Israelis have a little bit of wisdom not to make such a mistake. The U.S. also has a little bit of wisdom to realize this would change the regional situation in ways that will not benefit the U.S."

Lastly, Gerard Baker writes a column for the Times of London and this week he offered up the possibility that the West will at the end of the day need to go to war to stop Iran.

"If Iran goes nuclear, it will demonstrate conclusively that even the world's greatest superpower, unrivalled militarily, under a leadership of proven willingness to take bold military steps, could not stop a country as destabilizing as Iran from achieving its nuclear ambitions.

"No country in a region that is so riven by religious and ethnic hatreds will feel safe from the new regional superpower. No country in the region will be confident that the U.S. and its allies will be able or willing to protect them from a nuclear strike by Iran. Nor will any regional power fear that the U.S. and its allies will act to prevent them from emulating Iran. Say hello to a nuclear Syria, Egypt, Saudi Arabia.

"Iran, of course, secure now behind its nuclear wall, will surely step up its campaign of terror around the world. It will become even more of a magnet and haven for terrorists. The terror training grounds of Afghanistan were always vulnerable if the West had the resolve. Protected by a nuclear-missile-owning state, Iranian camps will become impregnable.

"And the kind of society we live in and cherish in the West, a long way from Tehran or Damascus, will change beyond recognition. We balk now at intrusive government measures to tap our phones or stop us saying incendiary things in mosques. Imagine how much more our freedoms will be curtailed if our governments fear we are just one telephone call or e-mail, one plane journey or truckload away from another Hiroshima.

"Something short of military action may yet prevail on Iran. Perhaps sanctions will turn their leadership from its doomsday ambitions. Perhaps Russia can somehow be persuaded to give them an incentive to think again. But we can't count on this optimistic scenario now. And so we must ready ourselves for what may be the unthinkable necessity.

"Because in the end, preparation for war, by which I mean not military feasibility planning, or political and diplomatic maneuvers but a psychological readiness, a personal willingness on all our parts to bear the terrible burdens that it will surely impose, may be our last real chance to ensure that we can avoid one."

One last item. The details for this terrific Russian plan that everyone is now trumpeting are not scheduled to be worked out until late February, and Iran's Larijani is expressing misgivings anyway. Once again, Iran is brilliantly stalling for time.

The election was on Dec. 15 and we still don't have a government here. In the interim, the "brain drain" continues as the vast majority of professionals, in the truest sense of the word, leave before they are kidnapped for ransom. And as every study has shown, most of which are from the U.S. government, the reconstruction effort has been a disaster, no matter what President Bush tells us in the "State of the Union" address on Tuesday. In just one example cited by Newsweek, the U.S. allocated $1.7 billion for oil projects and just $77 million worth has been completed. Chalk it up to the insurgency and security concerns we didn't anticipate.

It also wasn't particularly reassuring, though hardly a surprise, to find Shia cleric Moqtada al Sadr in Tehran this week where he pledged to come to Iran's aid if attacked. Don't underestimate the chaos the militias could create in Iraq were this to come to pass.

And then you have the issue of the Green Zone in downtown Baghdad. Greg Grant wrote the following in Defense News:

"As car bomb attacks and suicide bombers creep ever closer to the heavily fortified Green Zone?Iraqi insurgents are testing the security of the country's seat of power in preparation for a large- scale assault, U.S. military sources said.

"Unable to blast their way through the zone's heavily defended entrances, insurgents have enlisted Iraqi prostitutes and children to gather intelligence within, these same sources say."

Despite the fact security is tight, with multiple checkpoints, "U.S. sensitivity to Islamic customs also creates gaps in the defenses. Women and children, who don't receive the same scrutiny as military-aged males, are able to slip past checkpoints?.

"The insurgents are exploiting these gaps. In recent months, sources said, insurgents have begun to use women to transport munitions and other contraband, and to smuggle explosive vests to bombers in Baghdad safe houses?.

"The recruiting of prostitutes has been going on since at least last spring, the sources said. Wooed with money or threatened with death, the women are instructed to gather what information they can from their customers?.

"The sources said the women pass the photos and information to insurgent sympathizers working as Iraqi police, who are able to move through military checkpoints without being searched. Once outside the Zone, these policemen pass the materials to insurgent cells."

Not that any of this should be a great surprise, but in terms of the American public's support of the war effort, one catastrophic attack in the Green Zone could represent the final tipping point in maintaining our forces there at significant levels.

But back to the formation of the government and the current horsetrading for influence, the Eurasia Group's Ian Bremmer had the following thoughts in the Daily Star (via the Financial Times). Will the Shia, Sunnis and Kurds unite behind a functioning central authority? Short-term, yes. But a year from now Iraq will be a much less stable place, according to Bremmer. While all three won't move immediately to undermine federal authority:

"(The) central government in Baghdad won't have the legal or economic means to challenge their local power. In essence, while all of Iraq's factions have a strong interest in promoting a central government that appears fully functional, that government's powers will in fact be limited.

"But, in the longer term, those limits on federal power will push Iraq toward a sectarian scramble for power and revenue. Article 11 of the Constitution declares that: 'All that is not written in the exclusive powers of the federal authorities is in the authority of the regions.' That formulation all but pits the central government and regions against one another in a battle for political supremacy.

"Similarly, under current law, soldiers answer not to Baghdad but to regional powerbrokers, while the Constitution guarantees local governments the right to pocket the revenue from new oil fields within their jurisdiction. In fact, although the central government has the authority to collect the revenues generated by existing fields, there is no law to prevent local officials from modernizing old sites and claiming that they are new?.

"More worryingly, when Shiites, Sunnis, or Kurds decide that their elected officials are not delivering the promised perks and protections, they are likely to look beyond politics to advance their individual interests. Some Shiites may turn to militia leaders, Sunnis to insurgents, and Kurds to leaders demanding independence.

"At that point, the future of an independent Iraq itself will be called into question. Any separatist moves by Kurdish leaders would bring Turkey into Iraqi politics. At the same time, the protection that American forces offer Iraqi officials will diminish as troops are gradually withdrawn, and Iran will race to fill the security vacuum."

Lastly, I caught Bob Schieffer's closing commentary last week on "Face the Nation." It's an opinion I share?and not just with regards to Iraq.

"Let's get one thing out of the way first: Paul Bremer is a patriot who took a thankless and dangerous job. For one year he was the top American official in Iraq and it was his responsibility to get the country to the point that the Iraqis could at least hold an election.

"Now he has written a book, which is something every person who holds such a position owes to history, and this book is his version of history, which is what it should be.

"But here's my problem. NOW he tells us that early on he realized there were not enough troops on the ground in Iraq to carry out the mission and that he tried to convince the Secretary of Defense of that.

"I have no quarrel with this. In fact, I agree with him. My problem is he never said such a thing publicly at the time. To the contrary, when he appeared on this broadcast and in other forums he always took the government line that troop levels were adequate. He said that as Americans were dying.

"More and more, that's the drill. Officials say one thing at the time, but we must wait for the book to find out what they REALLY thought.

"Loyalty is to be admired, but towing the company line when we believe it to be wrong is no virtue. In a world where spin rules, we may have forgotten that."

Just another quiet week for the world's markets?NOT! No doubt, we seem to love when terrorists win elections and when mullahs hoodwink the rest of us into thinking they only intend to have a nuclear program for civilian purposes. After a sloppy time of it two weeks ago, largely because of Iran and earnings disappointments, stocks were re-energized as the preponderance of companies reporting this week were relatively upbeat and the Street ignored the geopolitical angles.

Among the better reports were ones from Caterpillar, United Technologies, SAP, Taiwan Semiconductor, Sony, Microsoft, Procter & Gamble, Broadcom, and Honeywell; a nice, representative sampling. On the negative side you had Johnson & Johnson, Texas Instruments, Dupont and General Motors.

But in almost every case, no matter how optimistic you want to be, few companies were actually touting top line revenue growth exceeding forecasts. In fact some were merely in line with expectations yet were rewarded nonetheless, seemingly because they did not "miss" and nothing else. Certainly the guidance for the current and future quarters was for the most part also nothing to write home about.

And no doubt the initial report on fourth quarter GDP, up a measly 1.1% (when 2.8% was forecast) was a shocker and provided those of us in the slowdown camp some ammunition. But the numbers are going to be all over the place this year, unlike China's "managed" figures that resemble an Olympic competition?9.8, 9.9, 9.9, 9.8?

There are some estimates, for example, of growth in the 5% range in this current quarter and my game is to look beyond that kind of timeframe. So I'll give the bulls this one, if necessary. But look out afterwards for the still ever-present hot spots that threaten to send everyone cowering; including the re-emergence of bird flu when our avian friends migrate back to share their infections with a new group of unsuspecting victims.

One item in the GDP report that was of particular interest has to do with business spending, up just 3.5%; though most "experts" believe it has rebounded strongly in January.

And then you have real estate, where the data on new and existing home sales was mixed (the former up, the latter down), but at the same time the median price of a new home fell to $221,800 from $226,800 in November. In other words, the trend is still down in this critical sector and its impact will be felt in consumer spending on an increasing basis.

This coming week is a big one; OPEC meets, President Bush's "State of the Union", the aforementioned IAEA hearing on Iran, and Alan Greenspan's swan song at the Federal Reserve. It's possible some of this will be well-received; then again, it may not.

In terms of OPEC, it appears the cartel will not cut production as member-state Iran desires; even though spring (when any cuts would go into effect) normally sees lower demand for the product. Of bigger importance the past week was the Saudis' trip to China, where Crown Prince Abdullah was working on not just oil contracts with his hosts, but also acquiring missiles; the latter according to defense strategist Richard Russell. China, in turn, continues to try and lock up long-term energy relationships with every nation on earth that takes yuan. Soon, its representatives will be in your neighborhood, asking if they can scoop up the oil from under your car.

As for the president, he faces a public that refuses to give him credit for the economy's successes. The high-profile job losses at G.M. and Ford, pension issues, and still rising health care costs are but a few items that impact both the pocketbook and the psyche.

Then there's Alan Greenspan. A long-time friend from the brokerage industry, Mark R., called to say "I hope you're going to write about his legacy." Understand Mark and I have probably discussed Mr. Bubble, oh, about once a week since the chairman took the helm at the Fed in Aug. 1987.

I have this giant folder in my office with Greenspan "stuff" and I don't even feel like delving into it?.though I'm also not about to throw it out. Academicians and economists far smarter than me will be writing books on Greenspan's stewardship for decades to come, but I guess I have to throw in some brief comments for my archives.

The past 18-plus years have largely been good ones for the United States of America. Just two relatively minor recessions and the longest expansion in U.S. history. Growth has not only been strong but inflation has been low, and as my friend Harry Koza wrote in his column for Globe Investor Gold [Note: Harry writes from a Canadian perspective]:

"When Mr. Greenspan became Fed head?Hard as it is to imagine today, Germany and Japan were the pre-eminent global economic powers, with the conventional wisdom being that America's day was over and it was only a matter of time before Japan owned the whole country anyway.

"But Mr. Greenspan saw that a major shift in productivity sparked by computers and technology was already under way. He was right. Productivity growth from 1996 to 2003 was double the historic average."

Alan Greenspan was also a crisis manager. From Black Monday, two months after he took office, to the Mexican and Asian currency crises, to Russia and Long-Term Capital Management, he flooded the system with liquidity and / or used the powers of persuasion to get key players to work together before the system totally imploded.

But as the Economist noted, "Investors' exaggerated faith in his ability to protect them has undoubtedly encouraged them to take ever bigger risks and pushed share and house prices higher." [Irwin Stelzer / The Weekly Standard]

Therein lies the crux of the matter. In addition to the tech bubble, well-chronicled in these pages, today's housing bubble is also a creature of Greenspan's making, but it's going to be years before we know the full extent of his legacy on this front.

To put it another way, as Nell Henderson of the Washington Post did, Greenspan's legacy will be judged "by the economy he bequeaths." And here it's all about debt. Lots and lots of it. In fact our reliance on debt, both at the federal and personal level (and everything in between), is unsustainable?a fact any sane person acknowledges. Greenspan, ever a political animal, nonetheless never sat President Bush down to tell him, "Hey, would you freakin' take out that veto pen ?you know, the one over there?and start cutting back on this pork barrel spending?!" That, too, is going to be part of his legacy. [Actually, both of theirs.]

Oh, to be sure Greenspan's covered his butt with all kinds of speeches preaching fiscal discipline, but while he was effective in supporting tax cuts (which I supported as well), he refused to help with the heavy lifting on the other side of the ledger.

Finally, there is a significant percentage of Americans who either have not benefited one iota from this economy or are about to get slammed because of their ill-conceived financial plans and no- interest mortgages. This isn't about class warfare and Democratic vs. Republican constituencies, as much as some will make it out to be. It's about our culture of risk-taking, as the Economist opined, and through his interest rate policies and the refusal to raise margin requirements or crack down on the mortgage sector, Alan Greenspan is deserving of his share of the blame when this economy flips. But don't worry; if you disagree just wait 24 hours, as I'm fond of saying. I'll be sure to present all sides of the debate over the coming months and years.

--The market reversed virtually all of its losses from the previous week with the Dow Jones gaining 2.3% to 10907, the S&P 500 picking up 1.8% (1283) and Nasdaq advancing 2.5% to 2304. Earnings were the driver. And you had some other news that helped market sentiment such as the IPO for Chipotle Mexican Grill, which doubled, as well as the world's largest steelmaker, Mittal, making a play for #2, Arcelor.

And no doubt this rally is global and much of the growth is China-centric. In fact, China is now estimated to be the world's 4th-largest economy, behind the U.S., Japan and Germany, having passed the UK, France and Italy while no one was looking.

The government has also clearly mastered the numbers game, as alluded to above. GDP growth in 2003 was 10.0%, it was 10.1% in 2004, and for '05 it's coming in at 9.9%. As one analyst put it, the 9.9 print is too "convenient." Anything higher would scare a lot of investors into believing the economy is running too hot.

I, on the other hand, still believe a situation is developing here where there is excess capacity, the banking sector will be hit hard by bad loans, and China will be increasingly forced to dump more and more products on the world market, thus exporting deflation. I know, I know?.this is a ways off?but I'll be proved right if it takes me another ten years, by god!

After trading in a narrow range for some time, rates rose sharply on the feeling the Fed may not be finished after Tuesday's rate hike, that inflation is a growing problem, and the fact a $22 billion auction of the 2-year didn't go off nearly as well as planned. So the 10-year is back over the 4.50% level. None of this is good for the housing sector.

--Consumers are catching a break in one area. While crude oil remains stubbornly in the $60s, natural gas has collapsed from a high of $15.37 just six weeks ago to the $8 level. It's all about the mild winter (the warmest on record for Duluth, MN, for example?thanks, Trader George) and a resulting gas glut.

--What a horrible week for the U.S. auto industry and even a contrarian has to wonder if this is really the bottom. Ford, as expected, announced sweeping layoffs as part of a massive reorganization, but the news was even worse than anticipated; up to 34,000 or 28% of its workers in North America. Then DaimlerChrysler announced it was laying off 6,000 over the next three years and the final blow was General Motors' $4.8 billion loss for the fourth quarter. That's with a 'b'. If only Carl Sagan were still around.

--Disney acquired Pixar for $7.4 billion and Steve Jobs is now Disney's largest shareholder. Otherwise, these media deals bore me to tears because of the amount of coverage they receive from the, err, media.

--Last week I wrote that Google, like its Web brethren, had kowtowed to China in terms of how business is conducted in that country. If you thought I was perhaps jumping the gun a bit, you're partly right. But a few days later it all came together, didn't it?

Heretofore, Google's search engine in China was subject to blocks and the speed was severely impacted, so now it has launched a new version that China will be able to censor; including such terms as Falun Gong, Tibet, Taiwan independence and "democracy." Google is claiming it sought to make its platform accessible to the masses. In a statement a company spokesman said:

"In deciding how best to approach the Chinese - or any - market, we must balance our commitments to satisfy the interests of users, expand access to information, and respond to local conditions."

"While removing search results is inconsistent with Google's mission, providing no information [or a heavily degraded user experience that amounts to no information] is more inconsistent with our mission." [South China Morning Post]

Of course no one should be surprised. U.S. companies have been selling out to the Chinese for decades now, just as their European, Latin American, etc. brethren have. From the Web to financial institutions to defense contractors.

I have long felt we needed to be aggressively engaged with China, including support for their admission to the World Trade Organization. But at the same time I've had the na?ve belief that Washington needs to continually hold China's feet to the fire on the issue of human rights. We have seen little of that from the Bush White House, and of course we should expect zero from Corporate America.

But on a separate matter, and as a follow-up to some of my other comments last week on paid search, I was reading a piece in Business Week on how excited Vanguard, the mutual fund giant, was with its experience on Google.

"It turns out that with AdWords, Vanguard in November spent less than 50 cents per click, one-tenth that of some rivals, and 14% of Net surfers exposed to the ad clicked through to its Web site. That performance beats the response rate from a typical direct-mail effort, for example, of about 2%. And it's why Vanguard upped its Net ad spending by 33% since 2003."

Vanguard, like all the others, will wise up. For starters, you have a hard time convincing me of that 14% number. My own experience with paid search (outside of the crooked example I used last week) is that the click-through rate is well below 1% (and I was on the home page of the sites involved).

--I have a good friend who works for German business software giant SAP and in reporting its great earnings for the 4th quarter, the company estimated license sales growth of 17% in 2006; a rather aggressive target in an arena where confidence and the environment can change in a heartbeat. But it's a good marker to lay down for the sales force, eh?

--Goldman Sachs (7.5%), Allianz (2.5%) and American Express (0.5%) have bought a collective 10% stake in China's largest financial institution, the Industrial and Commercial Bank of China.

As for Amex itself, I see where its new Ameriprise financial advisor division got off to a shaky start as a laptop with unencrypted account information, including Social Security numbers, was stolen from an employee's car. The employee was fired. If this had happened in China, however, he would have been executed.

--KPMG conducted a survey which found that 9 of 10 company directors viewed acquisitions as successes, but only 3 of 10 actually created shareholder value. "With asset prices rising, purchasers today have to reap 43% of their targeted synergies just to break even on deals." [Patrick Hosking / London Times]

--Johnson & Johnson passed on raising its bid for heart-device maker Guidant with Boston Scientific emerging victorious?or so the latter's directors would have you believe. Meanwhile, the FDA criticized B.S. for "ongoing systemic violations" of its quality control standards.

--In Japan, authorities raided the offices of Yamaha Motor Co. over its export of small helicopters to China that the government believes have military applications. [See Google et al above.] Yamaha denies this.

But then, as expected, Japanese officials took Livedoor CEO Takafumi Horie into custody on fraud charges. The Internet titan and three other company executives face a laundry list of allegations including misrepresenting the cost of some of its acquisitions in order to gussie up the balance sheet and earnings. The scandal, though, also touches Japanese politics as many elected officials not only sought Horie's endorsement but campaigned for him when he ran a losing candidacy for parliament. [Shares in Livedoor, incidentally, are off 80% from their highs.] Yet after scaring the Tokyo market big time when Livedoor's problems first came to light, by week's end the Nikkei index was at a new multi-year high.

--The U.S. Supreme Court refused to hear an appeal from Research In Motion, makers of the Blackberry, in its patent infringement suit that could still lead to users being blocked.

--The FTC fined data broker ChoicePoint $15 million for its data security breach last year that has led to at least 800 cases of identity theft thus far.

--Boy, I can be an idiot. The last time I purchased a Dell computer I told you it was my last because of immediate product issues, but the other day I went ahead and bought another. Doh! After booting it up, I had problems with my settings, I talked to Dell, and the two of us couldn't come up with a solution. So I'm getting a new one. The hardware is defective.

But while I had this gentleman on the phone (a good kid, and American?the only reason to recommend Dell on the support side versus others you all deal with), I told him directions on installing the PC weren't included with mine and how miffed I was at that. He proceeded to tell me that the information is now on the Web.

"Well how would you access the information if you couldn't put the computer together in the first place?"

--CBS and Time Warner's Warner Brothers Entertainment unit are shutting down the UPN and WB networks to form a single one. At 47 years of age, I'm out of their demographic and can't remember the last time I watched anything on either.

--Back to General Motors, 149-year-old investor Kirk Kerkorian, who sold a large portion of his stake in the automaker last December for tax purposes, bought back in and now owns about 10% of the shares through his investment vehicle. Legend has it Kerkorian was a drummer boy at Antietam, though I haven't been able to confirm this.

[Of course I admire Mr. Kerkorian for his energy but when I get to be his age, the last thing I'll want to do is get all aggravated over a car company that's losing market share by the week.]

--When questioned on the state of the U.S. auto industry by the Wall Street Journal, President Bush said G.M. and Ford need to develop a "relevant" product and not wait for Washington to bail them out of their pension difficulties. Right on, Mr. President.

--Shares in Pfizer rose on word its Exubera therapy has been approved by the FDA; Exubera being the first inhaled form of insulin for diabetics.

--No wonder Caterpillar is kicking butt. Forget China, just look at all the digging taking place up in Alberta's oil sands. You see those giant earthmovers and trucks hauling the stuff around? Ka- ching?ka-ching.

--Uh oh?new computer virus thanks to our friends at Microsoft. Here's what to look for as "blackworm" winds its way through the global network.

"Though the virus has appeared in various forms, some of its common subject headers are: hot movie, Miss Lebanon 2006 and dsc00465.jpeg. It also promises sexually explicit photographs with a Kama Sutra theme. Users can detect if their computers are infected if an unknown ZIP file suddenly appears on their desktop, or if they are unable to update their antivirus software, since the virus disables it."

--From an op-ed in the Journal, Vanguard Group founder Jack Bogle on the World Economic Forum at Davos, which he is not attending.

"(The) Forum exults that among its select horde of 2,340 participants are a record 735 chief executives, chairmen and CFOs, 'the highest figure of corporate leaders ever.' With all due respect, I won't miss glad-handing most of them. They get paid as if they're solely responsible for their firms' success, and even if they fail, they get handsome rewards. In 2004, their compensation rose another 39% to 475 times that of the average worker - the guys and gals who get out of bed every morning and do their jobs, with never a ride on the corporate jet whose cost is paid 60% by shareholders and 40% by taxpayers. Truth be told, most CEOs I've met are greatly overrated. But I don't complain; I may have been the most overrated of all."

Personally, I just look at the pictures from Davos and think, 'these are the last people on the planet I'd want to have a beer with.'

--After a series of escapades that gave Wall Street another black eye, the NASD will not set new limits on gifts and entertainment when it comes to the brokerage industry wining and dining clients and prospects. Instead, the NASD wants firms to set their own rules, such as no lap dances after 11:00 p.m., or a maximum $50 tip?you know, things like that.

--After previously warning its earnings report would not be great, Lucent formally acknowledged revenues were down significantly for the past quarter. The other day I suggested the company sell the giant copper roof at its Murray Hill, N.J., headquarters; copper continually hitting all-time highs these days. But my friend Jimbo had another revenue raiser; sheep farming on its massive lawn, which would in turn also reduce landscaping costs. Both Jim and I are available should CEO Patricia Russo desire other ideas that can help spur a comeback.

--My portfolio: I'm drinking premium beer these days, thanks in no small part to my new best friend Jim Cramer after he recommended my carbon fiber stock. I did, however, sell a large 'call' position in it because of the time element, but I continue to hold a sizable amount of the common.

"When dairy farmer Gary Boyke looks out at the manure his herd produces, he sees the prospects of profits rather than waste, odors and water pollution.

"Boyke is one of a growing number of farmers turning animal waste into energy, and he's spreading the word to others?.

"Boyke?.said he gets two to three times the energy he needs with an anaerobic digester, which uses bacteria on manure to produce a gas containing methane to power generators."

Don't look for the president to discuss this as part of his new energy plan during the "State of the Union" on Tuesday; 'anaerobic digester' being perhaps difficult to pronounce.

Russia: If you were previously wondering why I've been spending so much time on this country the past few weeks in particular, it all should be coming into focus today because it's increasingly clear the West is dealing with a criminal regime.

How else can you explain last weekend's sabotage on Georgia's key gas pipeline and electricity transmission line in a near simultaneous attack, with both under Russian control near the border between the two? The Kremlin blamed it on Chechens. There isn't anyone in the rational world who is falling for this.

By week's end, Georgian President Mikhail Saakashvili faced a true crisis as his nation's gas reserves were depleted and the people plunged into darkness, with no heat in the dead of an abnormally cold winter. Of course Georgians partially blame their government for not protecting them and the nation's energy assets and the U.S. needs to be concerned because it could easily lose a key ally in the political turmoil Moscow's intentional act has created.

At the same time, Russian President Putin is using a spy flap with Britain (the kind that occurs all the time) as a cover for cracking down on non-government organizations, NGOs, such as the Helsinki Group which monitors human rights abuses. All you need to know here is that with Putin's direct involvement dissent is being crushed at all levels.

But on the issue of Iran, U.S. News & World Report's Mort Zuckerman had the following take on Moscow's help with the nuclear facility at Bushehr. It's a lesson the EU-3 and the U.S. don't seem to want to learn from.

"The Russians had to know that the work at Bushehr was not for peaceful purposes, as the Iranians claimed, yet it has gone on assisting Iran in its grotesque deceptions and patently false protestations. When I challenged Putin on his support for the Bushehr program, he responded, 'Why shouldn't we sell it to the Iranians if the Germans, the British, and the French would be the alternative suppliers if we didn't do it?'

"But they wouldn't - and didn't. The Europeans have sincerely, if naively, tried to stop the process of uranium enrichment because they know that when Iran learns to make enough uranium hexafluoride, it will finally be at the 'point of no return,' meaning it could prevent the possibility of outside intervention.

"Equally revealing - and deeply disturbing - is the fact that Russia, under Putin, has encouraged Iran to tough it out with the International Atomic Energy Agency. The agency has only persuasive power, but Russia has refused to condemn Iran's nuclear work and resists American and European efforts to force the issue at the U.N. Security Council, which could impose economic sanctions?.

"Some argue that bringing pressure on Iran weakens the moderates there. What moderates? And just who's prepared to gamble on that kind of wishful thinking? Military action, such as bombing the Iranian plants with cruise missiles and strike aircraft, would be justified in the circumstances. But that is hugely difficult politically, and covert action is very difficult operationally.

"Still, the risks may have to be taken because the alternative is so awful. There may now be a window of opportunity for effective preventive action, but this window is more likely to be measured in months than years.

"We must urgently find a way to persuade Moscow to reinforce the civilized world rather than subvert it."

Mr. Zuckerman isn't holding his breath, nor should you. In the meantime we have this farce; Russia as head of the G-8 for 2006.

Syria / Lebanon: President Assad continues to snub his nose at the U.N., rejecting its calls for him to be interviewed in the assassination of Lebanon's Rafik Hariri while citing national security. And in Lebanon, Druse leader Walid Jumblatt seems hell-bent on being martyred by year end. Jumblatt, whose father was himself assassinated, labeled a recent speech by President Assad "a clown show."

As for Hizbullah, its leader, Secretary General Nasrallah, delivered his own speech defending his organization's resistance movement.

"Those who dream of eliminating Hizbullah from the political scene are falling under a deep illusion," adding Hizbullah is not a "gangster or a corrupt component of our society. To those who follow the dictates of the foreign powers (ed. he's pointing to the likes of the U.S. and France), we say it is about time to name their actions clearly and expose their real stances regarding the country's sovereignty and independence."

Assad said deteriorating relations between Syria and Lebanon are part of a "global plot" against the Arab world and that "Syria will always remain Lebanon's big sister." [Daily Star]

Canada: Stephen Harper and his Conservative Party captured just 36% of the popular vote but it was enough to win the election and 124 of 308 seats in parliament. Unfortunately, Harper now has to form coalitions if he is to achieve even a part of his legislative agenda. I'm far from an expert here, but it seems pretty clear there will be no massive shift to the right, despite Harper's hard lines on issues such as gay rights and abortion simply due to the realities of the numbers. However, he should be able to make strides in rebuilding Canada's military.

But the following comments from Canadian Mark Steyn, in an op-ed for the Wall Street Journal, opened my eyes to some events I haven't been keeping up on.

"Like much of the European Union, we're so heavily invested in the idea that we've found a kinder gentler way we can scarce bear to contemplate the reality. At the Washington state / British Columbia border this week, two guys on the lam were hightailing it through Blaine heading for the 49th parallel with the cops in hot pursuit. Alerted to what was coming their way, Canada's (unarmed) border guards walked off the job. [ed. they fled.] For a country whose national anthem lyrics are mostly endless reprises of the line 'we stand on guard for thee,' we could at least stand on guard. A few years back, I was chatting with a border guard at the Derby Line, Vt./Rock Island, Quebec crossing. A beat-up sedan came hurtling northward and we jumped out of the way. She sounded a klaxon. By then the driver was halfway up the Trans-Quebecoise autoroute and, if he ever heard her stern warning, he declined to brake and reverse back to the post to show his papers. 'Oh, well,' she said to me, 'it's probably nothing."

I had to make note of this passage because you'll recall last year I recommended a video from the Nuclear Threat Initiative, founded by Sam Nunn and Richard Lugar. It was the tale of how easily the U.S. could be infiltrated with terrorists bearing nuclear weapons. One of the examples they used was exactly as Steyn witnessed on the Vermont / Quebec line. It's why so many of us sleep with one eye open and refuse to put anywhere near 100% of our money in equities at any given time. Living in the New York area, for example, I'm not the only one wondering what may be sitting in a Brooklyn warehouse, planted before 9/11. Or what is being assembled, piecemeal.

"Canadians have been reluctant in the last four years to accept that we no longer live in an 'it's probably nothing' world. Many Continentals feel the same way. Unlike his hollow predecessor, Stephen Harper is a thoughtful man who understands the gulf between self-mythologizing and the harder realities. You can't change a free country unless you persuade free people to change their minds, and he will at least start that tough job. He doesn't have to be George Bush's best friend, and he may even be more effective at opposing him on trade and agriculture disputes. But he could try being Tony Blair's and John Howard's best friend and reconnecting us with other traditional pals from whom Canada's become increasingly estranged. He could honor our small but brave contribution to Afghanistan by flying out and meeting them on the ground. But, even if he does nothing else, he'll bring to an end a decade of self-defeating sneering. The ayatollahs at least flatter America as a seducer - the Great Satan - which is a more accurate and sophisticated construct than deriding her as the Great Moron. The difference between sniping at the Taliban and sniping at Washington is that in the latter case we're firing blanks."

And from my own standpoint, I urge President Bush to immediately end the lumber dispute as an act of goodwill to Canada's new leader.

Bolivia: Evo Morales was sworn in as president, proclaiming "the 500-year indigenous and popular campaign of resistance has not been in vain. We're taking over now."

"(96 hours into his presidency) anyone still wondering what Evo has in mind for his country qualifies for permanent disability? on grounds of terminal naivete.

"In just a few short days, the great Aymara hope has built a cabinet of radical and Marxist militants, purged the Bolivian military and signed a pile of 'agreements' with his Venezuelan mentor Hugo Chavez. There are reports that Cuban security agents are already working for the new president much as they do for Chavez?.

"On Tuesday, Evo fired 28 Bolivian generals - essentially the entire high command - on charges of treason for allowing the U.S. to destroy some two dozen Chinese missiles held by the Bolivian military. He didn't mention that the missiles were obsolete and that both parties acted within OAS (Organization of American States) conventions. He then reportedly passed over the next generation of officers to replace the generals with a young group of soldiers. There can be little doubt that these new generals understand well that the president deserves credit for their accelerated career success."

I was glancing at my world map the other day, musing about my trip a little over a year ago to Chile and Paraguay, and I couldn't help but attempt to analyze Latin America from a Big Picture standpoint. The Bush administration's inattention here has been a colossal failure and one shouldn't be surprised to see much of the continent in tatters within the next five years, far worse than today. It all starts with Chavez, of course.

Kosovo: President Ibrahim Rugova, father of modern Kosovo, died, just as talks were getting underway on what to do with the province currently falling under Serbia-Montenegro's control. Kosovo's majority ethnic-Albanians desire full independence. This could get sticky.

Kuwait: Update: Last week I wrote of the new emir who was in poor health and wondered how Kuwait would deal with this. Well we got a quick answer; his cabinet removed him, with the emir's approval.

Zimbabwe: The government said that the last journalists who have the guts to criticize Robert Mugabe's dictatorship will be rounded up.

China: And this week we conclude with a report from the South China Morning Post on recent war games. In a rare admission, the People's Liberation Army Daily has criticized the armed forces taking part in the exercises "for their lack of efficiency and failure to master the skills needed to wage information warfare."

Evidently, the troops representing the PLA were defeated by the Blue Army - believed to be simulating U.S. battle techniques.

"In the first stage, the Red Army was ordered to repel the attacking Blue Army. Despite its firepower being strengthened by the availability of six hi-tech aircraft, the Red Army troops were defeated because the army commander forgot to call in air support."

Something tells me this particular fellow isn't enjoying the Lunar New Year?.just a guess on my part.

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