Week in Review 
For the week 6/19/2006 - 6/23/2006
Brian Trumbore
President/Editor, StocksandNews.com

Iraq

As even the Bush administration would admit, these next few months in Iraq are critical if it wants to convince the American people real progress is being made. The past week wasn't one to put in the '+' column. And for the life of me I don't understand if we are supposed to be looking to break the back of both al Qaeda in Iraq and the insurgency, why aren't we adding more troops? Remember, when you read of 130,000 U.S. forces here, less than a quarter of them are actually engaged in combat. And so again, I also ask, if the generals are so "brilliant," as Ret. Gen. Barry McCaffrey likes to continuously say, why are we still in the predicament we find ourselves in?

But in the coming days the Iraqi Government will announce its plan for amnesty for the insurgents as long as they renounce violence and lay down their arms, not that this will please everyone.

"The Government will promise a finite, UN-approved timeline for the withdrawal of all foreign troops from Iraq; a halt to U.S. operations against insurgent strongholds; an end to human rights violations, including those by coalition troops; and compensation for victims of attacks by terrorists or Iraqi and coalition forces.

"It will pledge to take action against Shia militias and death squads. It will also offer to review the process of 'de- Baathification' and financial compensation for the thousands of Sunnis who were purged from senior jobs in the Armed Forces and Civil Service after the fall of Saddam." [Ned Parker and Tom Baldwin / London Times]

The purpose is to divide the insurgents from those linked to al Qaeda. But the big issue facing not just the U.S. military, but the American people as well, is the granting of amnesty to insurgents who have killed U.S. soldiers. Let the debate begin; one that could easily impact a few races come November.

Other important developments:

At least 12 American soldiers lost their lives in theater this week, including the two whose bodies were mutilated by al Qaeda. [The actual circumstances of their deaths, though, remains unclear. They may have indeed been killed in combat along with the third soldier, despite what the Pentagon first said.]

A third defense lawyer for Saddam Hussein was killed by Shia as part of their effort to exact revenge.

One of the bodyguards for the Iraqi Trade Minister was accidentally killed by Australian forces in Baghdad and the minister immediately said he would penalize Australia in future trade negotiations.

Two cases of murder were brought against U.S. forces.

Scores were abducted by militias donning police uniforms.

Japan is pulling its 600 troops, with Italy's full complement out by year-end, though in both cases the deployments were largely symbolic and in the fourth year of operations it's not unexpected.

A U.S. embassy cable from Iraq painted a grim description of life there, especially for Iraqi employees inside the Green Zone who have to hide the fact they work for the coalition out of fear of retribution, i.e., death.

In one particularly heinous suicide attack, the "bomber exploded his vehicle as it was being towed near a police checkpoint, killing four civilians, said Capt. Rashid al-Samarie. He said the bomber claimed his car had broken down and hired a tractor to tow it while he rode inside." [AP]

James Glanz of the New York Times reported on a disaster of a different sort, an environmental one.

"In the heartland of Iraq's northern Sunni-led insurgency, (there is) a desperate move to dispose of millions of barrels of an oil refinery byproduct called 'black oil,' the government pumped it into open mountain valleys and leaky reservoirs next to the Tigris River and set it on fire.

"The resulting huge black bogs are threatening the river and the precious groundwater in the area?.

"An Iraqi environmental engineer who has visited the area described it as a kind of black swampland consisting of oil- saturated terrain and large standing pools of oil."

The problem is the heavy crude, which used to be exported to facilities that can refine it, threatens to shut down much of Iraq's own refineries unless the stuff can be properly disposed of.

Lastly, of the $13.5 billion promised by various countries at a donors conference for Iraq in Madrid back in October 2003, according to an editorial in the Daily Star of Lebanon, only $3 billion has actually been disbursed. "Saudi Arabia, Kuwait, Turkey, Jordan and the United Arab Emirates made generous pledges at the conference, but have not yet fully honored their commitments."

Fouad Ajami, Arab affairs expert, commented on this and related topics in an op-ed for the Wall Street Journal.

"In the aftermath of his surprise trip to Iraq, President Bush has returned to an old theme: He has called on the Arabs, yet again, to come to the aid of Iraq. On the face of it, this is the most natural of requests, for the fire in Iraq, and a failure in Iraq, is sure to spill into neighboring Arab lands. But here we are face- to-face with the ways of the Arab world. No Arab cavalry shall ride to Iraq's rescue; no Arab development funds - in a region wallowing in oil wealth - shall be committed to Iraq. The foreign leaders who have visited Iraq were from Britain, Australia, Poland, South Korea, Bulgaria, Denmark, Ukraine and Spain. No Arab king or president has deemed it fit to turn up in a show of solidarity with Iraq's people. [A prime minister of Jordan came to repair the breach between the two countries, but prime ministers in Jordan come and go; political power is the king's prerogative.] The Arabs who cross into Iraq are jihadists, and 'mules' who bring money to keep the insurgency alive. In the main, Arabs are content to pronounce on Iraq's 'innate' violence, and on the errors of the American war. No greater sense of responsibility can be expected from the custodians of political power in the Arab lands.

"We should be under no illusions about Iraq's Arab neighbors: They are content to see America bleed, and they see this great struggle as a contest between American power and the region's laws of gravity. True cynics, pessimists through and through, they see the American mission in Iraq as one of extravagant optimism and hubris. The mere claim that the Shiite step- children and the Kurdish highlanders can find a way out of darkness galls them. The Arab ruling elites are invested in the insurgents and the jihadists in Iraq. The more these forces of mayhem engage American power, the more time they buy for the entrenched order. There is no 'Arab solution' for Iraq, as there was none for Lebanon in its long Syrian captivity. The Iraqis understood the great Arab silence which attended the death of Zarqawi. A clerical leader of Najaf, Sadr al-Din Qabanji, noted the sorrow with which the men of Hamas responded to the hunting down of Zarqawi. Addressing neighboring Arabs, Qabanji asked the question: 'Why do you accept the shedding of our blood?'?.

"(But despite all this), President Bush took with him to Baghdad the right message: a reaffirmation of the American commitment mixed with a reminder that Iraq's salvation lies in the hands of its new government. The Arabs nearby will say, as they have, that the American leader traveled into an occupied country, that he did not venture beyond the Green Zone, that the place he visited was more his domain than Nuri al-Maliki's. But President Bush called on an elected government, a rare plant in Arab soil. This new government should be strengthened by the promise of American resolve. But it should also take to heart that it is reckoning-time for Iraq's leaders, that it is their country, and their history, that lies in the balance."

Iran

The Iranian government said it would wait until August before it responded to the offer by the United States and the five other parties to shelve its uranium enrichment program in return for concessions. President Bush said that was too long and the U.S. is pressing for the issue to come before the UN Security Council by July 1.

But the big development of the week was Iranian President Ahmadinejad's statement after talks with Russia and China, as part of the Shanghai Cooperation Organization (SCO) meeting in Shanghai.

"The SCO could ward off the threats of domineering powers to use their force against and interfere in the affairs of other states."

In other words, back off U.S. And in keeping with this theme, a joint declaration from the summit read:

"Differences in cultural traditions, political and social systems, values and models of development formed in the course of history should not be taken as pretexts to interfere in other countries' internal affairs."

In case you desire to be optimistic about the fate of Iran's nuclear weapons effort, understand Iran is seeking a formal alliance with Russia and China, based on the surface on energy but lying beneath something far more sinister?a true security pact.

Any effort to exact sanctions against Iran in the Security Council is bound to fail, vetoed by Russia, China or both.

North Korea

Frankly, my analysis here has been spot on thus far. I came back from my trip to South Korea telling you the majority of folks there are hopelessly na?ve about their cousin to the north and Kim Jong il's threat to conduct a long-range ballistic missile test, after pledging to freeze such actions in 2002, only confirms this.

Kim is a certifiable nut case. But as I've also said countless times in the past, the real mystery is not how he gets his hair to do what it does, but rather just who are the generals that back him? With Kim's succession plans in doubt, is Kim acting because he feels he has to give an example of his manhood before he himself is taken out in a coup? I suspect this is the case, and if so, it's why this little game of chicken could still escalate out of control.

President Bush, though, praised China for its efforts to pressure Pyongyang not to go forward, and Russia's foreign ministry office called in the North Korean ambassador to upbraid him, but this is largely for show. China in particular loves to see the U.S. sweat. Of course it could put an end to these shenanigans in a heartbeat if it so desired, but think about all the intelligence both Russia and China are gathering as they watch U.S., Japanese and South Korean maneuvers; especially for China, which seeks maritime domination in the Pacific. It might as well string this along a while, right?

But what of the idea, as put forward by two former Clinton defense officials, Assistant Sec. of Defense Ashton Carter and Defense Secretary William Perry, that the United States should take out the Taepodong-3 while it's on the launch pad? Or, how about attempting to destroy it once launched with our nascent missile defense program?

I vote against blasting it while on the pad for the simple reason that it seems to me we better line up our ducks in a row, diplomatically, before attempting such a maneuver and there is little time for that.

But if launched, certainly we are in our rights to do what we can to knock it down. Should we fail, we learn a ton about the NMD program and where we need to spend more resources to perfect it. Should it on the other hand succeed, that would be a tremendous victory and act as a huge deterrent in the future.

If, on the other hand, Kim went ahead with a launch and it struck something of value, like Japan, Guam or the U.S. coast, well, friends, it's war.

It's been a common theme of this column, long before 9/11, that your editor sleeps with one eye open out of fear that a North Korean bottle rocket may one day be launched by the man with the bad hair. While there's a chance in this instance he may yet back down, the real concern lies in who stands behind him. One thing is for sure in this regard, our intelligence apparatus hasn't a clue.

Wall Street

There's little to say about the market in terms of developments over the past week, but it's the coming one that promises fireworks, as well as it being the end of the quarter, so I'll reserve a lot of commentary for next week's review, including taking a look at just how I'm doing with my 2006 predictions.

For now, equities continued to behave in a rather lethargic manner after the volatility of the week ending June 9 when the major averages suffered their 3% declines. Solid earnings from the likes of Federal Express and Morgan Stanley offered some support on Wednesday, but then Bed Bath & Beyond's less than stellar report on Thursday was somewhat instrumental in stocks giving up much of the gains.

There was little of consequence on the data front, with housing starts rising in May, but an index of homebuilder confidence was down to an 11-year low.

But it is all about the Federal Reserve and as another Fed governor expressed his concern that inflation measures were "bothersome," Ben Bernanke and his Wrecking Crew will be hiking another 25 basis points (1/4 percent) come Thursday. There are even a few voices speaking of a half point increase. Either way we've reached the tipping point, as future economic data will confirm, particularly by August. The Fed has been talking of an economy in transition, with emphasis on high oil prices and a weakening housing market. Further action on its part will only speed the process up.

Finally, I want to end this segment with another look at the "haves vs. the have nots."

I was in Crawfordsville, Indiana, this week, a pleasant town of about 15,000 some 45 miles west of Indianapolis. I was there doing a little research at the Lew Wallace Museum and Study, Wallace having written "Ben-Hur," and afterwards I mused about life while having a beer in the hotel bar.

This girl, who seemed to be in her late 20s, came in for a job interview with the bartender and the two went off to the side where I could still hear the conversation. The candidate seemed to have her act together, had a pleasant personality, but the five minute conversation resulted in her being rejected and she was crestfallen. She clearly needed the position and you couldn't help but feel sorry for her.

I don't intend to draw any great conclusions from this little tale that plays out about a million times a day in America, I imagine, and no doubt this woman will find a job, probably something better. But when some wonder why President Bush's approval rating on his handling of the economy is still so poor despite solid economic growth, you'd have to be a moron not to understand that for the average American it's not easy making ends meet these days.

While we live in an era of amazing wealth, the Labor Department's own figures show that income disparity has never been greater, with wages for middle- and lower-income individuals, adjusted for inflation, actually declining over the past seven years, while those at the top have more than kept pace.

According to the Conference Board, only 17% of Americans expect their income to rise over the next six months. This loss of confidence is tough to overcome, and obviously from a political standpoint offers the Democrats a real opportunity to make hay come November, let alone 2008. [Of course they first have to get their own act together and come up with a plan.]

And while I myself have no solutions, I won't hesitate to comment on this rich vs. poor debate, especially when I see ridiculous defenses of programs like the "backdating" of stock options by the likes of the Wall Street Journal's Holman Jenkins Jr., who in an op-ed this week called backdating "sensible." Give me a freakin' break. In most cases it's outright fraud.

But such is the mindset these days. I see it all the time in the sometimes over the top wealth displayed in the community where I grew up and now have my office. Believe me, going out to places like Crawfordsville and getting a shot of old-fashioned hospitality, as well as reality, is something I look forward to from time to time.

I guess what really irks me this week, though, is the Journal's front page story on Friday, as reported by Ellen E. Schultz and Theo Francis.

Titled "As Workers' Pensions Wither, Those for Executives Flourish," it's the tale of how executives' pensions at many large U.S. corporations account for a grossly disproportionate share of the overall obligation. For example, at Exxon Mobil the top executives' pension liability is 12% of the total, same as at Pfizer.

Or, take General Motors and its much-publicized pension woes. As Schultz and Francis report:

"(There's) a twist to the automaker's pension situation: The pension plans for its rank-and-file U.S. workers are overstuffed with cash, containing about $9 billion more than is needed to meet their obligations for years to come.

"Another of GM's pension programs, however, saddles the company with a liability of $1.4 billion. These pensions are for its executives."

More:

"David Dorman was chief executive of AT&T Corp. from 2002 until its merger with SBC Communications in November. He left in January. His total of five years at AT&T earned him a yearly pension of $2.1 million. That will replace 60% of his annual salary and bonus in his final three years.

"By contrast, former AT&T accountant Ralph Colotti's $28,800 annual pension replaces 33% of his final pay. He was at the company for 33 years."

Of course a poster boy for the excess is Pfizer chairman and CEO Hank McKinnell, who will receive an annual pension of $6.5 million, which happens to replace 100% of his current salary and bonus.

Edward Whitacre, chairman and CEO of AT&T Inc., turns 65 in November, upon which he will be entitled to $5.4 million a year for life, plus an $18.8 million lump sum. "For this, AT&T's liability today is $84.4 million, according to an actuarial estimate done for the Journal."

And it goes on and on. This isn't stock and/or options we're talking about?just the pension.

It comes down to simple fairness, nothing more than that. You can't legislate it, but a society whose leadership looks the other way while average workers see their benefits slashed, year after year, is heading for hard times.

At the risk of offending more than I probably already have, I just have to quote a passage from this rare book I perused at the Lew Wallace museum. Titled "The Life and Words of Christ" by Cunningham Geikie, it's an 1877 work that Wallace relied on to a certain extent in his writing of "Ben-Hur." I stumbled on this and had to jot it down.

"In the train of scarcity of money comes the usurer, who alone is prosperous, speedily increasing his capital five or even ten times. This state of things is constantly assumed in the Gospels, and it grew worse and worse through the whole life of our Lord, culminating in a great financial crisis, throughout the empire, a few years after the Crucifixion."

Street Bytes

--Stocks were down slightly on the week, with the Dow Jones declining 0.2% to 10989, while Nasdaq lost another 0.4% to 2121. Nasdaq is now down 3.8% for the year.

But the big news was in the oil patch, as Anadarko Petroleum Corp. agreed to purchase Kerr-McGee and Western Gas Resources in separate all-cash deals totaling $21 billion and at hefty premiums on both. Kerr McGee's shares rose 36% in response and Western's up a whopping 45%. Which means one thing; incredibly, insiders must have kept this quiet.

The deal is about consolidation in an industry where finding new resources is limited, let alone having to deal with some rather shady characters. As Oppenheimer's Fadel Gheit told the Journal, "There aren't too many places left. It's like beach-front property."

--U.S. Treasury Yields

6- mo. 5.26% 2-yr. 5.26% 10-yr. 5.22% 30-yr. 5.25%

Now that's a flat yield curve.

Rates continued their roller coaster ride of the past few weeks, though, after a long period of stability. The yield on the 10-year is suddenly at a 4-year high. As noted above, the bond market increasingly believes the Fed is going higher than another ?- point and there is even talk that we will see a 6% Fed Funds rate, up from its current 5%, when Bernanke deems his mission accomplished and inflation dead.

--For the fifth consecutive week, investors pulled money out of emerging market stock funds, some $2 billion worth, for a total over this period of $15.4 billion. Coupled with share price declines, through June 21 the funds' net assets are down 25 percent from the peak established on May 10. [Bloomberg News / Emerging Portfolio Fund Research]

Emerging market bonds are also taking it on the chin. Incredibly, Turkey issued a 30-year bond last January with a yield of just 6.87%. Turkey! Today the yield has risen to a more realistic 8.72%, nonetheless a huge increase in such a short period of time. [You can buy default insurance for 2.8%, in case you're interested.] I just bring this up because that has been the mindset for far too long. Risk? What risk? Only lately have investors paid the piper.

--In a complicated transaction, China's state-owned oil company Sinopec will acquire a 49% stake in a joint Russian-BP Petroleum venture whereby Russia's Rosneft will hold the other 51%, as Russia and China tighten their strategic energy partnership.

--"If serious hurricanes hit the U.S. this fall, as predicted, they could batter the stock market. That's because insurance company stocks are expected to supply an outsize portion of the earnings growth predicted for S&P 500 companies this year. The stocks of property-and-casualty and multi-line insurers make up just 3% of the index' value. But given insurers' low earnings a year ago, they may supply nearly one-fourth of the 15% earnings growth analysts expect for the index in the third quarter, according to Thomson Financial." [David Henry / Business Week]

--The SEC is investigating the practices of some hedge funds whereby selected clients receive preferential treatment, such as in being granted portfolio details or given more flexible redemption terms. And in another development I give little credence to as of the moment, the New York Times reported the SEC is looking into the operations of Pequot Capital Management, one of the largest hedge funds in existence, for possible insider trading. But if there is truly a case here, it may have more to do with the charges of a SEC whistleblower that someone at the agency blocked his own investigation when he sought to interview Morgan Stanley CEO John Mack, who had briefly been chairman of Pequot but, more germane to the investigation, is also a major fund-raiser for President Bush.

[On Friday, a federal appeals court ruled the SEC lacks the authority to regulate hedge funds, meaning that without Congressional action, the SEC can't force the funds to register. They are, however, still treated like any other investor in determining violations of securities laws.]

--U.S. and British investigators are looking into price fixing, including in levying fuel surcharges, between such biggies as British Airways, Virgin Atlantic, American Airlines and United.

--The co-CEO of Airbus parent EADS (European Aeronautic Defense & Space Co.) is being investigated for insider trading because he appeared to cash out some of his holdings prior to the announcement of Airbus' production delays. On top of last week's story that the A-380 superjumbo faces a myriad of production issues, I would just add that I thought this was one of the dumbest ideas in the history of aviation when it was first introduced?a double-decker plane. And clearly Airbus hadn't thought through a rather important issue?the inability of many current airports to support it. Buttressing this last point, the chairman of the House aviation subcommittee, John Mica, on Friday announced the estimated $1 billion cost to expand and improve runways would not be borne by the federal government.

--Meanwhile, Boeing said its Dreamliner / 787 jet remains on schedule. The production issue of bubbles in the fuselage has apparently been resolved, as predicted. [Yup, the carbon fiber story remains in tact.]

--More on real estate, this time the San Diego market, from our onsite expert, Josh P.

"I was reading the real estate section in the local paper and a builder had an ad where you can 'trade in' your current home for credit on a new one. I wonder how they calculate the value? The new builders are getting more and more aggressive and we are starting to see 'discounts' showing up as builders try to blow out product."

And Josh noted the following from the Union Tribune.

"San Diego County's home prices took their biggest tumble for any spring on record last month?

"The median price of all homes sold in May was $490,000, down $15,000 from April, although it was still slightly higher than a year ago. Sales slowed for the 23rd straight month on a year- over-year basis."

San Diego has always been the canary in the mine when it comes to the real estate sector.

Overall, the southern California market witnessed its slowest sales for any May in seven years.

--The World Health Organization confirmed that Indonesia did indeed have the first human-to-human transmission of bird flu within that cluster of six that died a number of weeks ago.

--Moody's and S&P cut GM's debt rating even further into junk status because of a new loan facility. But Ford is in even worse shape.

However, shares in GM have been improving, as Ford's decline, because GM's buyout offer is proving to be more successful than first thought. Nearly 25% of its work force represented by the United Auto Workers union has accepted the $35,000 to $140,000 lump sum payments offered by GM. But to receive full healthcare benefits as well, you needed to have been at the automaker for 27 years.

--Brand name prescription drugs rose a staggering 3.9% in the first quarter. That's not annualized, just the straight increase. It's time to rein in all those commercials with fake actors and rely on your doctor to recommend what's best for you, period.

--When I was a kid growing up in the 1960s and early 70s, doctors were perceived to be the highest paid individuals in our society. Big athletes like Mickey Mantle or Willie Mays made $100,000, but you'd often hear whispers that doctor so and so down the street was earning far more. Doctors had the finest homes in town, it seemed, unless you were chairman of a major company, and that was at it should be. Everyone knew that doctors went through intensive schooling, at great expense, and few begrudged their riches.

I only bring this up because I was taken by a study that showed the average doctor's pay, after expenses like malpractice insurance but before taxes, was $146,000 in 2003 (the latest available data point), and actually declined 7% from 1995-2003, adjusted for inflation. Of course our highest paid athletes now earn over $10 million and while that's what the market bears, perhaps the most egregious salaries are paid to NBA ballplayers, many of whom earn $6 million for riding the bench. [Then again, I'm tainted by my proximity to the disaster that is the New York Knicks, which had the league's highest payroll last season and won about three games. To compound matters, they just fired the coach, Larry Brown, who is still owed $40 million on his contract?.but I digress.]

Anyway, there's something screwed up, big time, about our priorities?and at a time when many parts of the nation are in desperate need of primary care physicians, and nurses, these trends don't bode well for our nation.

--Barron's Mark Veverka reports that the issue of click fraud "has only gotten worse, and threatens the credibility of paid- search advertising (which) currently generates an estimated $5 billion a year in revenue for the sector. The search-engine companies have tried to downplay the size and seriousness of the problem by insisting that it affects only a fraction of its advertisers. And there's the rub: Nobody seems to have a handle on how pervasive the fraud is."

But advertisers are beginning to catch on and when they revolt, as Veverka concludes (and I concur), "investors could get socked." [But Google's back over $400! Whoopty-do!]

--As if it wasn't already a disaster, Internet telephony operator Vonage has been sued by Verizon for patent infringement. Just a few weeks ago Vonage's IPO came to market at $17. It closed Friday at $8.75.

--Nokia and Siemens AG are combining their telecom-equipment units in a joint venture valued at $30 billion.

--So, did you ever wonder what weight-loss queen Jenny Craig Inc. was worth? Nestle SA, the world's biggest food producer, just shelled out $600 million for it. Jenny had sales of $400 million over the past 12 months.

--I just saw a blurb in the July 3 edition of Business Week. If you have a federal student loan, on July 1 your interest rate is going up 2% (if I'm reading this right). But the president just signed a bill allowing students and parents to consolidate their loans with any lender to lock in one fixed rate. So kids, bug your parents to let you piggyback off that third mortgage of theirs.

You can shop around by checking out consolidationcomparison.com. [Danna Cook / BW]

--Deflation Watch: Gasoline at two service stations in Crawfordsville, Indiana, $2.49 regular. Hey, that's price collusion!

--For those of you who watch CNBC or have seen Fidelity's commercial with rocker Rick Derringer, you may be interested to know he was the lead singer of The McCoys of "Hang on Sloopy" (Billboard #1, 9/65) and "Fever" (#7, 11/65) fame. But I was surprised to find that the song in the commercial, "Rock And Roll, Hoochie Koo," only peaked at #23 in the spring of '74. We now continue with our regularly scheduled commentary?..

--The New York Post had a salacious cover story concerning Time Warner's CFO, Wayne Pace, and his alleged relationship with a rather outrageous Brazilian, Andrea Schwartz, who claims Mr. Pace was her "sugar daddy." Time Warner launched an internal investigation.

But if you want to be a sugar daddy, or if you're looking for one, Ms. Schwartz said the place to go is the Four Seasons bar in New York.

--My portfolio: I haven't made any changes recently and I will stick with my 80 / 20, cash / equities split to beat the market (as represented by the S&P 500). But I'll have more details next week as the quarter ends.

Foreign Affairs

Afghanistan: The Taliban massacred a family of 30 this week, while four U.S. soldiers were killed here, bringing the total since 9/11 to 310 (along with about 90 other coalition forces). Osama bin Laden's right hand man, al-Zawahiri, urged the Taliban to take back their country and defeat the foreign occupiers. Afghan President Hamid Karzai, though, is increasingly frustrated at the way the coalition is waging the war. Karzai has long said the only way towards stability in Afghanistan is by coming down hard on Pakistan. Should Karzai be assassinated one day, Pakistan's hands could be all over it.

Israel: Prime Minister Ehud Olmert met with Palestinian President Mahmoud Abbas, their first meeting since Olmert became prime minister. By all accounts it was a good start and the two laid out plans for a future, more substantive meeting in the coming weeks. Olmert apologized for the civilian deaths over the past week, but not the Gaza beach attack. Separately, King Hussein of Jordan and Egyptian President Hosni Mubarak pressed the Palestinians to stop their infighting.

Russia: Washington Post columnist Jackson Diehl writes of how President Vladimir Putin has weathered the storm of criticism, including Vice President Cheney's May speech where he spelled out "the case against Putin: his embrace of dictators in Belarus and Uzbekistan, his use of energy supplies as a tool of political blackmail, his elimination of independent voices in Russia."

Putin will be firmly in control of things when he hosts the G-8 meeting in St. Petersburg in just three weeks time.

Jackson Diehl:

"Cheney's speech, meanwhile, produced a backlash not just from Moscow but also in Western Europe, where the vice president was roundly criticized as too provocative. As for Russian neo- imperialism: Administration officials say they are still seeking to put Georgia and Moldova on the agenda of a pre-summit foreign ministers' meeting next week, but they don't expect to succeed. 'We're dead in the water,' says Bruce Jackson, a conservative close to many in the administration who heads the Project on Transitional Democracies. 'Russia is playing a more aggressive, thought-out game, and they are outplaying us.'

[I would have put it slightly differently. They're playing us for chumps.]

Diehl:

"Putin's strongest move was his agreement to participate in a pending Western bid to freeze Iran's nuclear program. In exchange for its support Russia won the postponement of a UN Security Council resolution that would have ordered an end to the program; it also delayed a looming rift between Russia and the West over sanctions against Tehran. As long as Moscow is nominally on board with its most important foreign policy initiative, the Bush administration is constrained from pressing the issues raised by Cheney - though officials insist that they haven't been dropped."

Ukraine: Finally, three months after the election, Ukraine has a government; a new coalition that has as its prime minister an old face, former prime minister Yulia Tymoshenko, the rather unstable personality who nonetheless forced President Viktor Yushchenko's hand. But while this resurrects the old Orange Revolution forces of 2004, there are no winners, except for Tymoshenko. For starters, it looks likely the nation will hold a referendum on Yushchenko's pet project, NATO membership. Many of you might be surprised to know the majority of Ukrainians don't want to be part of the club.

But the biggest immediate concern has to do with Tymoshenko's remark that Ukraine's gas deal with Russia's Gazprom must be revisited, which the Kremlin immediately blasted, saying Ukraine, because of its transit location, simply wants to steal the gas that then moves on to much of Western Europe.

The real bottom line, though, is that Ukraine remains stuck in the mud. I met a Ukrainian woman at an investment conference this week and we talked of my trip to Kiev back in March. She is discouraged over the corruption that plagues her country. It will take a real heavyweight to rid the place of most of the stench and there are clearly none to be found in today's Ukraine. For his part, Yushchenko has been a huge disappointment.

India: Distressingly, it appears that Congress will delay action on the U.S.-India nuclear agreement until after the November elections, at which point India itself could shelve it. Vice President Cheney correctly called it "one of the most important strategic foreign policy initiatives of our government," but some in the House and Senate are concerned it will lead to nuclear arms proliferation in the region. Idiots.

India is willing to play by the rules and allow inspectors in from the International Atomic Energy Agency, while maintaining secrecy at some of its weapons facilities.

But how often do we have to say this. If this historic agreement breaks down, India will just get its advanced civilian nuclear technology from someone else and, in the case of weapons proliferation in places like Pakistan and Iran, they're obviously already moving ahead, with both having received aid from either Pakistan's own A.Q. Khan or from China.

The world should want India to have a vibrant nuclear power program rather than a reliance on fossil fuels with the damage this does to the environment, plus we need India as a wedge against the Islamists in the region.

Taiwan: President Chen Shui-bian, in a televised address to the nation, gave his own rendition of then Senator Richard Nixon's "Checkers Speech" in offering to resign if his wife had indeed accepted gift vouchers in return for lobbying favors.

Mexico: Three police officers were beheaded in the resort town of Rosarito Beach. Witnesses said they were kidnapped by a gang of 100 dressed as Mexican federal agents. 100! And these aren't the first ones to be beheaded in Mexico. It's depressing as hell, and it's right there on our border. And can you imagine being a police officer and trying to do the right thing? Why bother?

Separately, Mexico's presidential election, slated for July 2, is too close to call.

---

Pray for the men and women of our armed forces.

God bless America.

---

Gold closed at $586
Oil, $70.84?it just doesn't want to go down.

Returns for the week 6/19-6/23

Dow Jones -0.2% [10989]
S&P 500 -0.6% [1244]
S&P MidCap +0.1%
Russell 2000 -0.4%
Nasdaq -0.4% [2121]

Returns for the period 1/1/06-6/23/06

Dow Jones +2.5%
S&P 500 -0.3%
S&P MidCap +0.4%
Russell 2000 +2.5%
Nasdaq -3.8%

Bulls 35.6 [Yes, both the same?bull percentage continues to decline to lowest levels since Oct. 2002, a key market bottom.]
Bears 35.6 [Source: Chartcraft / Investors Intelligence]

Have a great week. I appreciate your support.

Brian Trumbore

BUYandHOLD does not offer or provide any investment advice or opinion regarding the nature, potential, value, suitability or profitability of any particular security, portfolio of securities, transaction or investment strategy. Any investment decisions you make will be based solely on your evaluation of your financial circumstances, investment objectives, risk tolerance, and liquidity needs. The securities mentioned above are being used for illustrative purposes only and should not be regarded as an offer to sell or as a solicitation of an offer to buy. The securities markets are subject to the risks of fluctuating prices and the uncertainty of rates of return and yields inherent in investing. Past performance is no guarantee of future results. The opinions expressed above are not necessarily those of BUYandHOLD, Freedom Investments, its officers, directors or any of its affiliates.