Educate Yourself

Week in Review
For the week 5/29/2006 - 6/2/2006
Brian Trumbore
President/Editor, StocksandNews.com

Just last week I wrote "Iran wants to be loved, as incongruous as that might sound. It seeks respect, and so it desires talks with the United States which would simply tack on another year or two to its bomb-making operation as it dragged any diplomatic effort out until they are ready to shock the world."

And so this week the White House finally bit in announcing it was prepared to work with the EU-3 (Germany, France and Britain), along with the other two permanent members of the Security Council, Russia and China, towards some kind of agreement on Iran's nuclear weapons program.

One could build the case the U.S. should have tried this tact over a year ago, pre-Ahmadinejad, when it was clear the initial EU-3 effort had bogged down, but due to the deteriorating situation in Iraq and its lack of credibility in the world community, the White House felt it wasn't in a position to do so. Now it's desperate? and Iran knows this.

But you deal with the facts of the day as best you can and if there is anything positive to take away from the recent maneuverings on the diplomatic front it is that Russia and China agreed with the EU-3 and the U.S. to put an offer on the table, details to follow, that will promise Iran certain economic incentives (such as desperately needed new commercial aircraft, one can assume, plus a rumored light-water reactor, a safe nuclear option) if it will just give up that darn uranium enrichment program.

Well you know the response to this. President Mahmoud Ahmadinejad, who buried his father this week (a factor in attempting to measure his psyche), said Iran would not give up its rights to a nuclear program in exchange for talks.

But once a package is presented to Iran, Secretary of State Condoleezza Rice said it had just weeks in which to respond or the EU-3 and the U.S. would bring the issue back before the Security Council for stern action.

Of course there's the rub. Moscow and Beijing may have agreed with the others in coming up with an offer for Tehran, but when push comes to shove neither will approve sanctions being levied against it, which would then leave the other four to act alone.

"For months, Iran's excuse for pulling back from on-off talks, with Russia as well as the EU-3, has been that American 'hostility' rendered negotiation pointless. That convenient alibi is no longer available. Washington has not only agreed to talk, and explicitly acknowledged Iran's 'right' to civil nuclear energy. It has dangled plums, promising that if Iran proves that it has no intention of acquiring nuclear weapons, the U.S. will 'actively support' not only civilian nuclear cooperation, but 'progressively greater economic cooperation.' While noting that Iran must abandon support for international terrorism before a wider dialogue could develop, Condoleezza Rice has emphasized President Bush's desire for a 'beneficial relationship' with the Iranian people.

"The juiciest plum of all for Tehran is that, after a silence lasting 27 years, even limited direct talks would be a huge domestic boost for Ahmadinejad. He has been clumsily angling for this outcome, most recently in the rambling, ranting missive that he sent to the White House last month. America will be seen to have responded to this repressive rabble-rouser with concessions that it was unwilling to offer his mildly reformist predecessor, President Khatami?.

"(Regardless) there is still no guarantee against Iranian cheating, pretending to negotiate while covertly building more centrifuges, fending off for as long as it can the threat of UN sanctions that could, however restricted, hurt a regime strapped for cash despite vast oil wealth?.The U.S. has found the right initial pressure point - the Iranian people's dislike of isolation that most of them associate with an anti-Americanism they do not share, and with years of repression and deepening poverty. The U.S. has inched open an escape hatch; that act puts the regime under pressure to let Iranians emerge."

"The Bush administration's offer yesterday to join negotiations with Iran was well tailored?.

"The packaging means that Iran won't achieve the symbolic breakthrough of talks with the United States - something its regime and public deeply desire - unless it suspends its nuclear work?.

"(It) doesn't mean the Bush administration is anywhere near ending the threat from Iran. Most likely, the regime will try to dodge the choice it will be presented or reject it altogether. It will look for support to actors such as Mohamed ElBaradei, the director of the International Atomic Energy Agency, who has publicly undercut the decisions of his own board and the Security Council by proposing that Iran be allowed to continue uranium reprocessing."

Ah yes, Mohamed ElBaradei, the great grandson of Neville Chamberlain. The other day he told a forum in San Francisco that Iran does not pose an immediate nuclear threat and, basically, what's the rush?

"We still have lots of time to investigate. You look around in the Middle East right now and it's a total mess. You can not add oil to that fire." [Source: Reuters / Tehran Times]

Time to investigate? Just a little while ago ElBaradei admitted his own men at the IAEA have no clue what's going on with Iran's nuclear program because they can't get access to the most sensitive, or suspect, sites.

But back to the beginning, yes, Iran has now garnered some of the respect it has long sought. The world's key players are all now focused on it though Tehran probably feels it can string things along for another year or so?bobbing and weaving while the nuke program continues.

One regional force, however, was largely silent this week, that being Israel. It can't afford to wait much longer before it feels the need to act unilaterally.

I supported the war here for pretty simple reasons. I believed Saddam Hussein was building weapons of mass destruction, that he was a threat to a vital region, and that the United States had to take the lead in changing a dynamic throughout the Middle East that would eventually threaten the entire free world unless it was stopped.

Instead, if the history was written today, based on current facts, the war would be deemed a colossal failure with blowback. The sectarian violence in Iraq has never been worse and the battle for the hearts and minds has been lost, as best exemplified by the following sensitive topic.

Last week, in writing this column, I was well aware of the unfolding investigation into the possible atrocities committed by U.S. Marines in the city of Haditha. But aside from the fact no charges have actually been filed, it was Memorial Day weekend and as a staunch supporter of the U.S. military I'll be damned if I was going to choose that time to pile on.

I was also deeply disturbed by the behavior of Congressman Jack Murtha (D-Pa.), but in response I want to start with a letter by Ilario Pantano to the Washington Post. Pantano served as a Marine in the Persian Gulf War and most recently as a platoon commander in Iraq.

"A year ago I was charged with two counts of premeditated murder and with other war crimes related to my service in Iraq. My wife and mother sat in a Camp Lejeune courtroom for five days while prosecutors painted me as a monster; then autopsy evidence blew their case out of the water, and the Marine Corps dropped all charges against me.

"So I know something about rushing to judgment, which is why I am so disturbed by the remarks of Rep. John P. Murtha regarding the Haditha incident. Mr. Murtha said, 'Our troops overreacted because of the pressure on them, and they killed innocent civilians in cold blood.'

"In the United States, we have a civil and military court system that relies on an investigatory and judicial process to make determinations based on evidence. The system is not served by such grand pronouncements of horror and guilt without the accuser even having read the investigative report.

"Mr. Murtha's position is particularly suspect when he is quoted by news services as saying that the strain of deployment 'has caused them [the Marines] to crack in situations like this.' Not only is he certain of the Marines' guilt but he claims to know the cause, which he conveniently attributes to a policy he opposes.

"Members of the U.S. military serving in Iraq need more than Mr. Murtha's pseudo-sympathy. They need leaders to stand with them even in the hardest of times. Let the courts decide if these Marines are guilty. They haven't even been charged with a crime yet, so it is premature to presume their guilt - unless that presumption is tied to a political motive."

I agree with Mr. Pantano, except he is ignoring an important point; that being it appears there has been a massive cover-up in the Marine Corps and if it wasn't for our free press (warts and all), this story may not have seen the light of day in the first place.

"You knew it had to happen. Haditha, an 'incident' involving American troops in Iraq, is now part of the erosion of support for the war in Iraq. The Iraq Syndrome has finally arrived?.

"Some elements of the newly ascendant Democratic left may welcome it, but no serious person in American politics should.

"The Vietnam Syndrome, a loss of confidence in the efficacy of American military engagement, was mainly a failure of U.S. elites. But it's different this time. This presidency has been steadfast in war. No matter. In a piece this week on the White House's efforts to rally the nation to the idea of defeating terrorism abroad to thwart another attack on the U.S., the AP's Nedra Pickler wrote: 'But that hasn't kept the violence and unrest out of the headlines every day.' This time the despondency looks to be penetrating the general population. And the issue isn't just body counts; it's more than that.

"The missions in Iraq and Afghanistan grew from the moral outrage of September 11. U.S. troops, the best this country has yet produced, went overseas to defend us against repeating that day. Now it isn't just that the war on terror has proven hard; the men and women fighting for us, the magnificent 99%, are being soiled in a repetitive, public way that is unbearable.

"The greatest danger at this moment is that the American public will decide it wants to pull back because it has concluded that when the U.S. goes in, it always gets hung out to dry.

"Two major military reports will come out soon on the Haditha incident, and no one will gainsay justice if that is required. But the atmosphere around this event is going to get uncontrollably manic, and that will feed the dark, inward-turning sentiments already poisoning the country's mood over issues like the immigration debate.

"Good for Democrats? Don't count on it. After this, the public appetite for a Democratic president's 'humanitarian' military intervention in a Darfur or East Timor will be close to zero.

"One suspects that U.S. troops were party to some awful events in the Pacific and European theaters of World War II, all gone in the mists of history and the enemy's defeat. Not now. Gen. Chiarelli's magnificent '99.9%' notwithstanding, it's the phenomenon of the so-very-public 0.1% - at Abu Ghraib, on an Afghan street, at Haditha - that is breaking America's will this time."

On Memorial Day I had my parents over for a little cookout and expressed my dismay at the whole Haditha episode in also explaining why I chose not to comment on it that weekend. My heart goes out to the families of those serving our country, especially those over in Iraq and Afghanistan. As I said to my folks, it's going to be like Vietnam all over again; troops coming home, no one caring. President Bush never asked us to sacrifice so the vast majority of Americans haven't had any skin in the effort. We just go on with our lives, most pretty good right now, often with little care about the fate of our nation let alone the world.

The other day Iraqi Prime Minister al-Maliki made a statement that should have been a dagger into the heart of every American.

Violence against Iraqi civilians, by American and other coalition forces, had become a "daily phenomenon," he said, and the military does "not respect the Iraqi people. They crush them with their vehicles and kill them just on suspicion. This is completely unacceptable." This is also incredibly ungrateful. [Richard Oppel Jr. / New York Times]

Just last week, in criticizing President Bush's belated admission of mistakes, I pointed out a piece I wrote back on May 8, 2004; one in which I said "It's no secret that the United States will be under the microscope for years?the reality is we have to be virtually perfect in everything we do if we are to sustain the cooperation of our global partners in the war on terror and to keep from further inflaming tensions?.[In relation to Abu Ghraib at the time] I don't buy this crap in some circles that it's only a handful at fault, which in some way excuses the behavior. Today, one is too many."

Not a week goes by, friends, when I don't think about shelving the ending for this column? "Pray for the men and women?" and "God bless America."

I started this practice in the immediate aftermath of 9/11 and I often wonder how many readers have found it offensive, for one reason or another, once the initial pain and sorrow of the attacks on America wore off for most of us.

"Pray for the men and women of our armed forces" is a heartfelt wish that they not only be protected, but that they find the courage and strength to make the right decisions under unbelievable pressure.

"God bless America" is meant to be secular, believe it or not, in the sense it's intended to be an appeal to whomever and whatever you believe in to protect us as a nation and to grant our leaders the strength to do the right thing.

I've traveled the world and I've observed a lot. My experiences often cloud my judgment, but if I take a rather pessimistic view of the geopolitical scene most of the time it isn't without deep thought and personal knowledge.

On Memorial Day I watched CBS News's Bob Schieffer because I wanted to see how they handled the tragedy of the CBS crew and the critically injured reporter Kimberly Dozier. That same newscast, reporter Richard Roth had a story from Flanders Field, Belgium, where about 350 Americans from World War I are buried.

Each Memorial Day, local schoolchildren there are taught the National Anthem and honor America by singing it, a touching gesture on the part of Europeans at a cemetery for our dead. As Roth said, it further epitomizes "America's willingness to sacrifice."

And if you saw Ms. Dozier landing in Germany, with more machines strapped to her than I've ever seen on a single patient, you couldn't help but think of Bob Schieffer's comment from a few days earlier, marveling at the care she received on the battlefield.

We do so much that is good, which is what makes Abu Ghraib and Haditha all the more painful. Sadly, don't expect large segments of the world, or even our own people, to recognize this. We're expected to be perfect, and we aren't.

It's four long weeks until the Federal Reserve gathers to decide whether or not to hike interest rates a 17th consecutive time and until then it's like investors, represented in the following conversation by Tony Soprano, are all in the chair across from Dr. Melfi. [She's the shrink in the program, in case you don't watch it.]

"Do you think economic growth is decelerating at such a rate that the Fed can pause?"

"What about housing? It's clearly slowing down. Won't homeowners begin to pull in their horns on the spending front? Won't the Fed take this into consideration?"

"Well, yeah, it's like?geez?.don't you understand?! Readings on consumer confidence are falling and if I tried to sell my place in West Caldwell I'd be lining up with 70 other [expletive deleted.] That ain't good. And you got this, what do you call it, employment report for May where the government, those little [expletive deleted], says we added only 75,000 jobs in the month yet the unemployment rate actually went down to something like 4.6%! So you tell me, Ms. Know It All. What do you think the Fed is going to do end of the month?"

"Anthony, you impress me with your economic literacy. You've been reading the Wall Street Journal, haven't you?"

"Then you must have seen the report on the Federal Reserve's minutes from its May 10 meeting. Some of the FOMC members certainly seemed a bit hawkish to me. Looks like one or two even mentioned a 50-basis point (0.50%) hike in rates after the 16 moves of just a quarter point. To tell you the truth, Anthony, on this one I'm as confused as you are."

Tony did have a point on real estate, that's for sure. And if you own a second (or third) home you probably weren't thrilled with the May 29 cover of Barron's? "Trouble in Paradise: The Big Glut." But thanks to the bubble mentality, 65% of 2nd home buyers still consider it a better investment than stocks, according to a survey by the National Association of Realtors.

And despite my own ongoing doom and gloom talk, in Southern California, for example, the fact is the median home price has risen in just five years from $244,000 to a staggering $542,000. [Los Angeles Times] So what's a 10% correction in values among friends? At $486,000 that's still a helluva profit.

True, but you have to keep going back to the fact so many homeowners (and speculators) were recent buyers and with little, if any, money down. A 10% drop in price for them spells 'negative equity' and at that the banks can come a callin'.

Nonetheless, in another survey, this one from ING Direct, three quarters of homeowners say they don't expect to be hit by a downturn in the housing market over the next year. In fact, 80% believe the value of their homes will rise a further 4% over the next year, which is at least a more modest outlook. [New York Post]

Now to be fair, as an old family friend Steve G. reminded me the other day, all real estate is local and Steve has been investing successfully in properties in seemingly more stable Tennessee and Utah. But from a big picture standpoint, the larger population bases have generally been the hottest markets and a decent percentage of these folks, which then translates into a still respectable percentage of our overall base, is going to get edgy and spend less on consumer items.

And just to pile on, Scott P. in Melbourne, Fla., tells me insurance companies in his state are hiking homeowner rates anywhere from 25-75% (not that this should surprise anyone), and this hurts.

[Scott, an accountant, also brings up a great point. Property tax increases in Florida are capped at 3% annually, until the property turns over. "My guess is property taxes will only hasten the market collapse. No, I don't see a soft landing."]

And it's not like being a renter these days is much better, as the NAR forecasts increases of 5.3%, nationwide, in '06, easily outpacing average wage gains.

Lastly, home builders such as Pulte continue to warn on earnings. And always remember, these guys are land banks at the same time some real banks could be irresponsibly lending massive sums to the builders, just as the banks are irresponsibly allowing some individuals to add one layer of debt on top of another, thus killing their ability to service it come any kind of downturn. If home values fall, the land the builders have designated for residential development (and pay debt on) certainly isn't going to increase in value.

--The market finished mixed, with the Dow Jones off just 0.3% to 11247, while the S&P 500 gained 0.6% to 1288 and Nasdaq picked up 0.4% to 2219. Sales at many of the retailers were strong in May, with the notable exception of Wal-Mart, up only 2.3% and at the lower end of previous estimates. Importantly, Wal-Mart didn't sound too optimistic about June either. The typical WMT shopper is getting hit hard by $3 a gallon gasoline.

[Overall, May was a tough month for stocks. The S&P 500 dropped 3.1%, the worst month since 2004, and Nasdaq plummeted 6.2%.]

It was another rather volatile week, day-to-day, but in the end rates have been stuck in a narrow range; with the 10-year trading between 5.00 and 5.20 percent for weeks now. The 10-year did trade below 5.00 percent briefly on Friday on the heels of the poor employment report and the renewed feeling this would allow the Federal Reserve to 'pause' come end of the month.

To which I'd say, it's way too early for that kind of call. I wrote following the May 10 Fed meeting that they were making the right call in being rather obtuse on the future direction of rates, because they needed to weigh all the data and they are undoubtedly doing that. We have a ton of important inflation indicators before the governors' next confab, though I still say they will hike another 25 basis points; which in turn will officially tank the economy?that is if the last few didn't already.

On the personnel front, President Bush nominated Goldman Sachs CEO Henry (Hank) Paulson to fill John Snow(shoes). Paulson has extensive experience in China where his ability to cut deals with both sides of the table, a la Goldman's often conflicted style, could come in handy. Lloyd (Fillinthe)Blankfein replaced Paulson and will assume both the chairman and CEO positions because he is scared to death of all the vultures crouched on his credenza.

--Overseas?the economic picture is still quite rosy. The level of German consumer confidence rose to new heights as it prepares for an onslaught of soccer fans and the World Cup. Lots of beer to be drunk, for starters. And Euro-Zone manufacturing increased at a solid clip in the latest report. Meanwhile, India registered a sterling 9.3% annualized rise in first quarter GDP, while Canada's was up 3.8% and Brazil's 3.4%

--Emerging markets have witnessed three straight years of record inflows but that looks to be changing as investors reassess their risk tolerance. Unfortunately, these same developing nations need ongoing capital for important projects and if that's not forthcoming, the debt obligations on those already started may be tough to service. Speaking of risk, though, I was shocked to read in a Journal piece that the bonds of Hungary, Bulgaria and Morocco were recently trading at just a percentage point above U.S. Treasuries. Nothing against those nations, mind you, but they would appear to warrant a little more return. Then again, the way Washington is racking up debt, maybe Budapest is a better bet after all.

--OPEC gathered in Caracas, Venezuela, giving President Hugo Chavez a very public forum. In a typically rambling two-hour diatribe, Chavez said among other things:

"There is enough oil on the market. We even believe there is an excess of oil on the market. $50 is a fair price, but as a minimum. That's how we see it?Let's give it a $50 floor and search for equilibrium." The "ceiling would be infinity."

Chavez also called President Bush a "threat to the world" and said OPEC's role was to fight "imperialism" and "colonialism."

"We gave away oil for a century to quench the thirst of developed countries. There was never a drop of oil for the people."

Now you have to picture that except for fellow cartel member Iran, the other nine OPEC nations were cringing as Chavez spoke, especially when he declared "political solidarity" with Ilich Ramirez Sanchez.

And who is Ilich Ramirez Sanchez? Why he's the terrorist that goes by the name of "Carlos the Jackal," and all the Jackal did back in 1975 was kill three people at OPEC headquarters in Vienna.

On a more rational note, Chavez called for 'observer' status for Bolivia, while urging that Ecuador rejoin OPEC; it having once been a member from 1973-1992. [Nigeria is pushing for Angola and Sudan. Helluva lineup, isn't it?]

Finally, OPEC opted to hold the line on current production; $70 oil being quite healthy for their coffers as long as the global economy doesn't tank?.and with it prices. [Sources: AP / Financial Times]

--More talk of energy security in Europe ahead of the G-8 summit in St. Petersburg (July 15-17). Gazprom's deputy chief executive rejected the European Union's latest call for Russia's state-controlled gas monopoly to open up its pipeline network to access by independent producers.

--Japan's automakers continue to score big in the U.S. as both Toyota and Honda recorded sales gains of 15% in May, while General Motors' were off 12% (car sales down a whopping 16%), DaimlerChrysler's off 11% and Ford down about 2%. Of course Toyota and Honda have been taking advantage of high gas prices as Detroit tries to catch up with the times.

--The Journal's Edward Chancellor commented on the potential for scandals on Wall Street post-Enron and Fannie Mae. One example:

"Start with the proprietary trading activities of investment banks. This business has been immensely lucrative of late, but the source of profits is murky. There is even the suspicion some traders may have benefited by piggy-backing client orders, what's known on Wall Street as 'sniffing the tape.' The close relationship between prime brokers and favored hedge funds is another possible source of future scandal. Are some hedge funds receiving unduly preferential treatment at the expense of other clients?"

--Speaking of hedge funds, the European Central Bank warned they have created a "major risk" to global financial stability. "The ECB ranked an 'idiosyncratic collapse of a key hedge fund or a cluster of smaller funds' in the same category as a possible bird flu pandemic." [Ralph Atkins / Financial Times]

"In early 2004, Fannie Mae's then-CEO Franklin Raines came to USA Today to talk to editors and reporters. He was furious over an editorial that had run a few days earlier criticizing his company for, among other things, its 'questionable accounting practices.'

"With barely a 'good morning,' Raines launched into a criticism of the editorial and a defense of his company. He began his remarks by declaring that facts are important.

"We could not agree more. And two and a half years later, the facts don't look very good for Raines and Fannie Mae?.

"(As we've since learned) the company overstated its earnings by $10.6 billion over six years, according to last week's report. When people questioned the company's extraordinarily complex accounting, they were treated to angry rejoinders reminiscent of those delivered by Enron executives at their arrogant heights. When lawmakers or government officials argued that the company needed tighter oversight or fewer privileges, they were outgunned by Fannie's lobbying machine."

If Jeffrey Skilling and Kenneth Lay are headed to prison, the evidence is overwhelming that Raines and some of his own cohorts should be joining them in scrubbing toilets.

--The June 12 issue of Business Week says the SEC is "looking into deals in which Goldman Sachs, among others, allegedly helped Fannie rearrange earnings to maintain the appearance of steady profit growth, according to people familiar with the inquiries." Perhaps Mr. Paulson could face a question or two on such an issue in his confirmation hearings.

--Despite all the hand-wringing with issues like Dubai Ports World and CNOOC, the Commerce Department reported foreign direct investment in the U.S. totaled $86.82 billion in 2005 vs. $86.21 billion in 2004. Britain remains the largest source at $30.3 billion, up from $23.3 billion. Direct investment from China was just $73 million, though, down from $93 million in '04. [Wall Street Journal]

--In the biggest example of just how powerful and influential private-equity firms have become, management at Kinder Morgan, a large oil-and-gas pipeline operator, is leading a buyout in the neighborhood of $13.5 billion. The private investor club includes players such as AIG and Goldman Sachs, the latter acting as both principal and adviser?which Goldman is prone to do.

--Barron's Michael Santoli on the still growing scandal involving the backdating of stock options.

"As with so many of these corporate morality plays, the focus is on the alleged explicit violation of law or ethics. But it says a great deal more about the attitude of so many options-addicted executives who feel there are no kinds of lottery tickets except the winning ones, to which they feel entitled just as they deserve a company computer and a restroom key - for simply showing up to work."

--Former CSFB investment banker Frank Quattrone scored another victory as the National Association of Securities Dealers withdrew all charges against him relating to the hot IPOs scandal of the Bubble Era. In March, the SEC overturned the NASD's lifetime ban on Quattrone, while that same month an Appeals Court threw out his conviction on obstruction-of-justice and witness-tampering, citing erroneous jury instructions. Prosecutors will probably opt out of retrying Quattrone in exchange for some minor deal?like a private lesson on how to scam hot IPO shares for their own accounts.

--Or?how to avoid dogs like Vonage, which less than two weeks ago was priced at $17 and finished Friday around $12. Vonage compounded problems by first stating it may allow customers of the Internet-telephony service to back out of their trades, the company having taken the unique step of allowing them to participate directly. Some customers threatened to withhold payment because of the abysmal after-market performance.

For its part, though, Vonage realized its initial offer to let a select few back out was not only stupid, it was illegal (to treat some shareholders differently than others)?so as of this writing the official response is "never mind."

--One IPO that did work was the Bank of China offering which raised as much as $11 billion (depending on the whims of the underwriters). Shares rose about 15% the first day of trading on the Hong Kong Stock Exchange, which in and of itself was another coup, such deals normally being done on the more major world exchanges like New York or London.

--The Wall Street Journal is reporting that money manager Mario Gabelli is in talks to settle his civil-fraud suit with the Justice Department. You'll recall Gabelli is accused of manipulating the government's auction system for cellphone spectrum.

Gabelli had steadfastly denied any wrongdoing, but he could be settling for $100 million or more. Ergo, he was nailed and you won't see anyone rushing to defend his character. He has a well- deserved reputation of being a primo dirtball.

--And then there is the case of Home Depot CEO Bob Nardelli and his humongous pay package estimated to be over $240 million in the five years he has been at the helm. Talk about arrogance, details emerged of HD's annual shareholder meeting after I went to post last week and they are quite startling.

Normally, all the directors attend the annual gathering but in Home Depot's case, some of them were absent. And despite protests on the compensation issue, Nardelli himself refused to address it as the entire session lasted but 30 minutes. The company then issued a statement.

"While we understand that the approach we took to the annual meeting was a departure from past practice, it should in no way be construed as either a lack of respect for our shareholders or a lessening of our commitment to high standards of corporate governance and transparency. If the board of directors' absence or the structure of our annual meeting offended any shareholder, that was certainly not out intent." [Wall Street Journal]

"In all my years as a business reporter, I have never seen (a meeting where the board members didn't show)?.

"The first item on the agenda, Nardelli says, is the election of directors. He invites comments from shareholders. 'Questions are limited to one minute and one person,' he adds. Sure enough, when the first person gets up to speak, the timer starts counting down.

" 'I have a question about board independence and conflicts,' says the first questioner - and then proceeds to rattle off a few of the conflicts that afflict the Home Depot board. 'What steps will the board take to address these conflicts?' he asks.

" 'This is not the forum in which to address these comments,' Nardelli replies."

The rest of the brief session isn't any better. And Nardelli, despite telling the shareholders in attendance that the directors had been selected for a one-year term, never divulges the vote. Home Depot finally did report it this past Thursday. [Ken S., thanks for your note on this topic.]

--Edward Jones' chief strategist Alan Skrainka on the notion that shore communities in Florida and California will be protected, price wise, because of limited supply along the coasts. "Japanese real estate and land prices went down for 15 years and Japan is an island." [Barron's]

--I forgot to note the 380th anniversary last month of a historic real estate purchase; that of the island of Manhattan by Peter Minuit, director of the colony New Netherland, from the Indians for 60 Dutch guilders - about $24 - worth of trinkets; including an Empire State Building snow-globe and a Derek Jeter bobblehead doll. Last year the average price per square foot of Manhattan real estate was over $1,000. [Smithsonian]

--The Wall Street Journal had an interesting story on airlines and the fees paid to the Federal Aviation Administration, some $10 billion a year. Commercial airlines, 2/3s of all flights, pay 90% of the fees while business jets, 18% of flights, pay just 5%. It would seem the commercial airlines have a justifiable complaint since the needs of the business jets are basically the same as commercial. But the biz jet crowd would tell you they fly mostly off-peak and at smaller airports.

Jim May, a top lobbyist for the main airline trade group, says "We've in effect been subsidizing Lee Raymond of Exxon Mobil and all these corporate guys flying around. I have a hard time thinking of Lee Raymond as a 'little guy' who needs and deserves subsidies from the airlines."

More specifically, as the Journal's Laura Meckler writes, here's how the charges break down.

"Today, airlines pay into the FAA trust fund a 7.5% ticket tax, a fee of $3.20 per passenger for each flight segment flown, a fee of $14.10 per passenger for each international departure or arrival, and a fuel tax of 4.3 cents per gallon. All those taxes and fees are passed on to passengers or absorbed by the airlines. Business jets pay only a 21.8 cent fuel tax.

"This means, for example, that a typical roundtrip commercial flight between Philadelphia and Buffalo would contribute about $900 altogether in FAA taxes and fees, according to an ATA calculation the business-jet group doesn't dispute. A typical business craft flying the same route would pay just $22."

--Treasury Secretary nominee Hank Paulson was directly responsible for forcing out then-Goldman Sachs managing partner, and now New Jersey governor, Jon Corzine.

"According to one report, Paulson's coup - which was aided mightily by John Thain, now CEO of the NYSE but then Goldman's chief financial officer - devastated Corzine to the point that he couldn't even bear to enter Goldman's 85 Broad St. headquarters.

"Instead, he parked his limo outside and conducted his last few weeks of Goldman business from the car."

--Uh oh?if you're a customer of Hotels.com, you could be the latest victim of identity theft. A laptop was stolen containing names and credit card numbers of over 240,000 users. An Ernst & Young employee (E&Y being Hotels.com's auditor) had the computer stolen from the trunk of his car.

What is it with all these operations, including the government's, loading up this stuff on laptops in the first place? Hey, Scott P. You're right. The Ugandan chimps really are smarter.

--Finally, we note the retirement of Juan Valdez, since 1969 the spokesman for Colombian coffee, at the age of 71. I always thought beneath that calm exterior there was a serious partier.

Israel: Islamic Jihad announced they would accept Palestinian President Mahmoud Abbas's offer of a referendum on a proposal for a two-state solution, while Prime Minister Haniyeh changed his mind and said he would study the plan. But the foreign minister called it "impractical," adding the Palestinian Authority doesn't have the money for a referendum. To be continued.

Afghanistan: The situation here continues to deteriorate as this week a truck in an American convoy evidently lost its brakes, plowed into Afghan vehicles, and set off the worst rioting in Kabul in years. There are conflicting reports on the cause of several Afghan deaths, but what was most chilling were hundreds chanting "Death to America" and "Death to Karzai."

Russia: President Vladimir Putin fired the country's hard-line chief prosecutor, Vladimir Ustinov, a fellow who had been investigating government corruption but more importantly became swept up in the battle to succeed Putin in 2008. It seems Ustinov favored Igor Sechin, chairman of state-owned Rosneft oil company, who is matched in a power struggle against Sergei Ivanov, Russia's defense minister / deputy prime minister and a favorite of Putin's.

Taiwan: Say it ain't so, Chen! Here I spend all these years defending President Chen Shui-bian and now it appears his days are numbered as a series of scandals is on the verge of taking him down. First there are the insider trading allegations involving his son-in-law, then the First Lady was accused of accepting rather large department store credits, then his finance minister is said to be corrupt?and on and on?

So this week Chen sought to buy time in turning over some of his powers to the premier, as the opposition Nationalist Party sits back, licking its chops. No real need for it to do anything as it watches Chen's administration implode on its own.

And what does this mean in terms of relations with the mainland? China may not have to fire a single missile or launch a commando attack. In time they could just cut a deal with a compliant Nationalist Party and poof! Taiwan becomes another Hong Kong in political terms. Taiwan's business leaders would of course play a key role in such a silent coup, accepting a few billion yuan for their troubles.

China: And in line with the above, the U.S. may not have to worry about a scenario spelled out in its latest war game exercise held in Hawaii. From Vago Muradian of Defense News:

"The Pentagon war game - among a growing number involving China and complex scenarios - was played as a theoretical planning exercise to test a vast array of military capabilities and operational concepts, participants said. But its global scope reflects growing U.S. concerns about its web of geopolitical relations.

"In the game, sources said, Iranian strikes on Gulf tankers drew all available U.S. forces to the fight - until China attacked Taiwan, forcing the Pentagon to split its strength. Then Venezuela dispatched submarines into the lightly guarded Gulf of Mexico and Caribbean Sea, where they joined a Chinese sub in terrorizing U.S. and Mexican oil platforms and international shipping. Washington asked Britain for help and London dispatched nuclear attack submarines that sank all of the Venezuelan and Chinese subs.

"Russia remained on the sidelines as the United States struggled with its first high-intensity, two-theater war in a half century. India became involved only after the tide turned in the U.S. favor."

And a note on China's pollution problem. From Jane MaCartney of the London Times:

"The fabled Yangtze River, the third-longest in the world, is already dying from pollution and could be dead within five years?.

"China's 1.3 billion people are short of supplies because of prolonged drought in many regions - and much of what remains has been contaminated by industrialization.

"About 40 percent of all wastewater produced in China - some 25 billion tons per annum - flows into the river, but more than 80 percent of it is untreated beforehand."

And for those of you traveling to China and absentmindedly drinking the tap water in your luxury hotel, consider this.

"The (Yangtze), the longest in the world after the Nile and the Amazon, runs from Qinghai and Tibet in the remote far west, through 186 booming cities, before emptying into the sea at Shanghai. For the futuristic city's 20 million residents, the death of the river could be critical. Lu Jianjian, a professor at Shanghai's East China Normal University, said: 'As the river is the only source of drinking water in Shanghai, it has been a great challenge for Shanghai to get clean water.'"

North Korea: Former South Korean President Kim Dae-Jung wants to take the train to Pyongyang for his second meeting with counterpart Kim Jong-il, but Lil' Kim wants KDJ to fly instead.

Now I've seen this rail line and the South is building a big resort at a new station on their side of the DMZ (I took pictures even though I was told not to?heh heh) in an attempt to foster tourism, part of South Korea's na?ve approach to their commie cousins. But Kim Jong-il obviously doesn't want Kim Dae-Jung to see something. [Or perhaps he is concerned with securing the rail line from an act by one of his own generals, eh?]

Colombia?update: President Alvaro Uribe, one of America's true allies, handily won reelection with 62% of the vote. But last week I wrote of a 'friendly fire' tragedy whereby Colombian soldiers accidentally killed ten undercover police officers involved in a drug sting.

Then on Thursday, eight soldiers were arrested in connection with the case. It was no accident. Instead, the soldiers were tied to drug gangs operating in the area under surveillance and murdered the undercover officers in cold blood.

I was watching the local news following the arrests and those killed had been working closely with the DEA in New York. U.S. officials were heartbroken, having become friends with their brave Colombian colleagues.

The only saving grace in this matter is that Uribe remains in control, but you can't help but wonder sometimes for how long.

Gold closed at $642
Oil, $72.33?Iran and more unrest in Nigeria keep propping it up.

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