Educate Yourself

Week in Review
For the week 6/26/2006 - 6/30/2006
Brian Trumbore
President/Editor, StocksandNews.com

Note: For those of you who print this out, it?s possibly the longest ever. In writing my history of the decade, I just felt there were some issues worth covering in more depth than usual this week.

As expected, Prime Minister Nouri al-Maliki unveiled his plan of reconciliation, including amnesty, but the language was vague as it failed to differentiate between resistance and terrorist groups. The wording reads in part: ?To adopt a credible national dialogue in dealing with all the different views and political positions that are opposing the views and positions of the Government and the political powers??

Last weekend on the Sunday talk shows, Democrats gleefully took the opportunity to say there is no way ?amnesty? for terrorists who kill Americans will be acceptable; a position that allows one to have been against the war from the start, but still act like a hardliner.

Later, Maliki said those who have launched attacks on the U.S. will in no way be eligible for a pardon, nor, he added, those who killed Iraqi soldiers or police officers. But I guess if you blew up a bunch of innocents in a mosque that?s OK.

Of course I?m being a bit facetious, but you see the bind Maliki is in. The fact is he is going to have to make some distasteful moves to achieve any kind of stability and Americans will tire of trying to micro-manage the process.

Overall, as noted in a Washington Post / ABC News poll, 51% of us oppose setting a deadline for withdrawal, while 47% are in favor of one. In a USA Today / Gallup survey, 57% say Congress should outline a withdrawal plan, while 50% support withdrawing within 12 months.

As for the actual situation on the ground, 46 Iraqis and at least one American soldier died in violence on Thursday alone, but the national news telecast I watched didn?t mention a word of it. Instead, it was all about flooding on the East Coast, not that this wasn?t worthy of the coverage. The truth is many of the networks are pulling back some of their resources, for various reasons (including, yes, vacations), so there?s no telling what American attitudes will be come the fall.

What is clear, though, is Maliki?s crackdown in Baghdad has been largely ineffective. [As I go to post, word is coming in that over 40 were killed in a Baghdad bombing Saturday morning.]

And since I have been one saying we should have had more, not less, troops in theater following the death of Zarqawi to press any advantage, let alone help with the critical Baghdad mission, Max Boot wrote an op-ed in the Los Angeles Times on Wednesday buttressing this position.

?For the last three years, the Bush administration has pursued a policy of wishful thinking in Iraq, operating under the hope that some dues ex machine ? either elections or the capture of insurgent leaders ? would salvage a deteriorating situation. Well, Iraq has now had three successful nationwide ballots. Saddam Hussein has been captured. Abu Musab Zarqawi has been killed. And still violence continues to intensify in Baghdad and the Sunni provinces to the west and north.

?The situation is particularly dire in Iraq?s capital. In May, according to the Los Angeles Times, 2,155 homicides occurred in Baghdad, 85% of the national total?.

?In a June 6 cable reprinted in the Washington Post, (U.S. Ambassador Zalmay Khalilzad) reported that local embassy employees were finding it difficult to function outside the Green Zone amid rampant crime, fundamentalism and sectarianism.

?Prime Minister Nouri Maliki has launched Operation Forward Together in an attempt to regain control of his own capital?.

?No extra American (or Iraqi) soldiers have been sent into Baghdad. Former viceroy L. Paul Bremer reported that Lt. Gen. Ricardo Sanchez told him in 2004 that with two extra divisions, ?I?d control Baghdad,? but those extra divisions ? 35,000 to 40,000 soldiers ? have never been forthcoming.

?Instead, news leaked out this weekend that a drawdown of U.S. forces may take place starting in the fall?.The message is that the Pentagon is more concerned with finding an exit strategy than a winning strategy: precisely the charge that Republicans level at Democrats?.

?By now it should be obvious that the ?light footprint? approach has not worked. It has increased, not decreased, resentment of the United States because Iraqis are aggrieved by the breakdown of law and order. Yet there appears to be no serious rethinking of this flawed strategy at either the Pentagon or the White House.

?The administration may think it doesn?t have any more troops to send. It?s true that the armed forces are overstretched and need to be enlarged, but there are still just 150,000 U.S. troops in Afghanistan and Iraq out of 2.6 million in the active-duty ranks, reserves and National Guard. More soldiers could be found to police Baghdad if this were deemed a top priority?.

?The fact that the administration continues to ?stay the course? with a losing strategy suggests the need for a change of strategists. The president needs a new secretary of Defense ? and possibly new generals ? who would be more focused on finding a way to win rather than to withdraw.?

Remember when I wrote a few weeks ago about the Tamil rebels, the world?s leading terrorists when it comes to methods, and their employment of a bicycle bomb? I saw this week, for the first time in my memory, where a suicide attacker in Iraq used a bicycle, killing 15. Which means since these ideas have been exported by the Tamil Tigers for a generation now, expect to hear of a bus hitting two claymore mines dangling from a tree branch in Baghdad or Mosul; because this also happened in Sri Lanka a few weeks ago.

?The U.S. and Britain have gone ballistic over Iran?s purchase of 800 high-caliber sniper rifles that can penetrate body armor or a Humvee from a mile away and even shoot down a helicopter. Iran says the rifles ? made by Steyr Mannlicher, an Austrian firm ? are for use against drug smugglers, but U.S. officials fear they?ll end up being fired at our troops in nearby Iraq.? [Or used to assassinate an Arab leader, I?d add.]

And why are the Austrians selling to Iran? ?Steyr Mannlicher offered this excuse: ?Half of Europe is supplying weapons to Iran.??

Lastly, Russian President Vladimir Putin told his special forces to go into Iraq and ?kill? those responsible for the execution of four Russian diplomats. What?s a little different here is that the lower house of Russia?s parliament blamed the ?occupying powers? for the deaths, i.e., the United States.

Sometimes I wonder why I bother even writing about the situation here, but we?re building an historical record and even though the more things change, the more they stay the same in the Middle East, and specifically the Israeli-Palestinian conflict, for obvious reasons it can?t be ignored.

Last week I wrote of how Israeli Prime Minister Ehud Olmert had a decent first meeting with Palestinian President Mahmoud Abbas as the two worked on an agenda for more formal talks down the road. Then 24 hours later, Hamas launched an attack on an Israeli army position along the Gaza border by using a tunnel, and in the process Hamas killed two soldiers and kidnapped another.

The kidnapping then led to the stalemate we find ourselves in as I go to post. Israel arrested 64 Hamas lawmakers, knocked out the main electrical plant for all of Gaza, thus sparking a huge humanitarian crisis, and even buzzed Syrian President Assad?s summer home for good measure.

At the same time, Hamas was also in the process of agreeing to a plan adopted by Palestinian prisoners held in Israeli jails that calls for a two-state solution; the creation of a Palestinian state in Gaza, the West Bank and East Jerusalem, while also recognizing Israel?s right to exist. Of course Hamas? charter calls for the destruction of Israel by force, so on one hand you could say this was a sign of progress. But then you wake up from your dream and think otherwise. For the record, on Friday Palestinian Prime Minister Haniya, a member of Hamas, said Israel was using the kidnapping as a ?premeditated? way of bringing down the Hamas government. Many of us wouldn?t cry were that to be the result.

I would just add that bombing the power plant was a big mistake by Israel. Targeted assassinations are one thing, and they?ve been largely accepted by the West going back to Ariel Sharon?s positive reception at the UN last fall.

But the Palestinians in Gaza now have no running water or electricity and the power plant could take months to repair. Maybe I?m wrong, but it strikes me as a public relations nightmare as the news coverage is likely to be dominated by both the Palestinian suffering and cries from the Arab world for revenge.

Supreme Leader Ayatollah Khamenei said ?We will not negotiate with anyone over our unalienable right to access and use nuclear technology.? Various Iranian officials, including President Ahmadinejad, reiterated that Iran will not respond to the six party offer on the table until August, while G-8 foreign ministers said Iran must respond by July 5, ahead of the St. Petersburg summit starting on July 15.

Graham Allison, a leading expert on nuclear weapons matters out of Harvard?s John F. Kennedy School of Government, had an op- ed in the Daily Star of Lebanon.

?(The) current approach to Iran is predicated on the largely unexamined assumption that its overt enrichment program at Isfahan and Natanz is the problem and that a deal to freeze or dismantle the centrifuge facility constitutes a solution. The strategy doesn?t address what U.S. Secretary of Defense Donald Rumsfeld calls ?known unknowns.? ? gaps in knowledge that have been recognized but not filled.

?Could the unanimity of American intelligence [that Iran will not have the bomb for at least five years] be ?d?j? vu all over again,? only the reverse of the Iraq WMD fiasco?....

?Consider that members of the U.S. Central Intelligence Agency have described the agency?s covert action abilities inside Iran from 2000 through 2004 as ?unchanged: they?re zero.? Might Western intelligence services have underestimated Iran?s nuclear program? The judgment that Tehran is five to 10 years away from a bomb focuses primarily on its overt enrichment program at Isfahan and Natanz. The dog that hasn?t barked is Iran?s covert programs for acquiring nuclear weapons.

?Four huge ?unknown unknowns? lie at the heart of judgments about the threat posed by Iran: First, is success in Iran?s overt effort a necessary condition for success in its covert programs? Bush and his European colleagues operate on the assumption that it is. Otherwise their operational objective ? a moratorium on research activities at Isfahan and Natanz ? would be beside the point. Second, have Iranian nuclear scientists and engineers already learned enough at Natanz about assembling and operating a cascade of centrifuges that they can now independently build and run such a cascade? Have they passed what has previously been called a ?point of no return?? Third, has Iran bought highly enriched uranium from former Soviet stockpiles, Pakistan or elsewhere? Are they clandestinely building nuclear bombs using Chinese warhead designs acquired from A.Q. Khan, the father of the Pakistani nuclear program? If so, engaging the U.S. in bargaining about enrichment activity at Natanz could be a way to distract attention and buy time. Fourth, has Iran purchased actual nuclear warheads from the former Soviet arsenal or from Pakistan to mate with its Shahab-3 missile??

Allison?s solution, believe it or not, given current frosty relations between the U.S. and Russia, is for Bush to ask Putin a favor: Russian and U.S. intelligence experts should be assigned to produce a joint assessment of Iran?s nuclear program. Iran, remember, has the most knowledge as it?s been working on the construction of Iran?s first civilian nuclear reactor at Bushehr, giving it a working relationship with Iran?s nuclear scientists. And Russia also ought to know about any attempts to secret out nuclear material and warheads from the former Soviet republics.

But, as Allison puts it, ?In negotiating with Iran, the U.S. and its allies should be wary of the conjurer?s trick: distracting the viewer with one hand while the other pulls a rabbit from a hat.?

However, I would say it?s already too late for this. Remember before the Iraq war when I said the United States needed to cut dirty deals with both France and Russia for the purposes of handling both Iraq and Iran? France and Russia had commercial interests in the region that the U.S. could guarantee, while overall stability was our primary concern. Wasn?t such a bad idea now, was it?

[And as an aside, another respected nuclear arms expert, former weapons inspector David Albright, said this week that Iran could have a nuclear weapon within three years.]

Lastly, Richard Perle, neo-con and former assistant secretary of defense, blasted the administration in an op-ed for the Washington Post.

?President Mahmoud Ahmadinejad of Iran knows what he wants: nuclear weapons and the means to deliver them; suppression of freedom at home and the spread of terrorism abroad; and the ?shattering and fall of the ideology and thoughts of the liberal democratic systems.?

?President Bush, too, knows what he wants: an irreversible end to Iran?s nuclear weapons program, the ?expansion of freedom in all the world? and victory in the war on terrorism.

?The State Department and its European counterparts know what they want: negotiations.

?For more than five years, the administration has dithered. Bush gave soaring speeches, the Iranians issued extravagant threats and, in 2003, the State Department handed the keys to the impasse to the British, French and Germans (the ?EU-3?), who offered diplomatic valet parking to an administration befuddled by contradiction and indecision. And now, on May 31, the administration offered to join talks with Iran on its nuclear program.

?How is it that Bush, who vowed that on his watch ?the worst weapons will not fall into the worst hands,? has chosen to beat such an ignominious retreat?

?Proximity is critical in politics and policy. And the geography of this administration has changed. Condoleezza Rice has moved from the White House to Foggy Bottom, a mere mile or so away. What matters is not that she is further removed from the Oval Office; Rice?s influence on the president is undiminished. It is, rather, that she is now in the midst of ? and increasingly represents ? a diplomatic establishment that is driven to accommodate its allies even when (or, it seems, especially when) such allies counsel the appeasement of our adversaries.

?The president knows that the Iranians are undermining us in Iraq. He knows that the mullahs are working to sink any prospect of peace between the Israelis and the Palestinians, backing Hamas and its goal of wiping Israel off the map. He knows that for years Iran has concealed and lied about its nuclear weapons program. He knows that Iran leads the world in support for terrorism. And he knows that freedom and liberty in Iran are brutally suppressed?.

?Twenty years ago, I watched U.S. diplomats conspire with their diffident European counterparts to discourage President Ronald Reagan from a political, economic and moral assault on the Soviet Union aimed at, well, regime change. Well-meaning diplomats pleaded for flexibility at the negotiating table, hoping to steer U.S. policy back toward d?tente. But Reagan knew a slippery slope when he saw one. At the defining moments, he refused the advice of the State Department and intelligence community and earned his place in history.

?It is not clear whether Bush recognizes the perils of the course he has been persuaded to take?.

?The failure of successive U.S. administrations, including this one, to give moral and political support to the regime?s opponents is a tragedy. Iran is a country of young people, most of whom wish to live in freedom and admire the liberal democracies that Ahmadinejad loathes and fears. The brave men and women among them need, want and deserve our support?.

?In his second inaugural address, Bush said, ?All who live in tyranny and hopelessness can know: The United States will not ignore your oppression, or excuse your oppressors. When you stand for liberty, we will stand for you.??.

?I know it is not too late for us, not too late to give substance to Bush?s words, not too late to redeem our honor.?

Well, if the goal was to stop Iran from obtaining the bomb, it is too late. And if regime change was ever a serious goal with this White House, you?d have a hard time proving it.

Stocks rallied strongly following the Federal Reserve?s 17th consecutive rate hike, another ?-point on the Fed Funds rate to 5.25%. So what did investors find so super about this? Beats the heck out of me.

?Recent indicators suggest that economic growth is moderating from its quite strong pace earlier this year, partly reflecting a gradual cooling of the housing market and the lagged effects of increases in interest rates and energy prices.

?Readings on core inflation have been elevated in recent months. Ongoing productivity gains have held down the rise in unit labor costs, and inflation expectations remain contained. However, the high levels of resource utilization and of the prices of energy and other commodities have the potential to sustain inflation pressures.

?Although the moderation in the growth of aggregate demand should help to limit inflation pressures over time, the Committee judges that some inflation risks remain.?

The FOMC then goes on to say it will weigh the data before making its next move.

Immediately after, the majority of market mavens said, ?Ah ha! The Fed is finished.? I?m sorry, but there is absolutely no way to deduce that.

Unless, of course, the economic data over the next five weeks, before the Aug. 8 Fed meeting, reveals the economy to be slowing even faster than some believe it is and our little inflation scare to be over. But while I?ve been looking forward to a big second half drop in economic activity (well, you know what I mean), it?s likely the inflation indicators will still reveal a worrisome picture. So the Fed will weigh both the plusses and minuses and come up with???something.

One thing is for sure, though, which the Fed can?t possibly ignore even though the equity market did this past week, and that?s the fact we are suddenly back up to $74 on oil and $2.20 on gasoline futures. [And you?ll recall from our little lesson a few weeks ago that $2.20 gasoline translates into about $3.00 on average at the pump?ergo, no relief in sight it would appear.]

The Fed under Ben Bernanke has continuously voiced concerns over energy prices so it?s hardly likely it will just look the other way if by August we?re still at the $70 and $3 levels.

And it?s highly likely that we?ll see $70 for the rest of the summer because of two factors?Iran and the weather.

As detailed above, the Iranian situation is likely to come to a head over the coming weeks, but it is a huge leap of faith to see it being something of a positive nature because that would mean Russia and China are going along with the EU-3 and the U.S. Ain?t gonna happen.

As for hurricane season, heck, we?re really not even in it, yet, but a little rainstorm in the Gulf recently caused a small oil spill and suddenly four refineries were barely operating because a ship channel was shut down for the cleanup and supplies couldn?t get through. And just when you were hearing stories that gasoline demand was stagnating due to $3 prices at the pump, demand began to rise anew as we all hit the road to do whatever it is we do come summer.

Sure, we still have ample reserves of just about everything energy related, but it?s a very thin line we?re walking and the slightest disruption of any kind results in much tighter supplies.

At the end of the day, then, it?s the fear of an ornery Iran (let alone the shock of an actual missile test down the road) and/or another Katrina that keeps oil around $70 and not $50.

Meanwhile?as to the rest of the economy, two measures of consumer confidence were actually pretty solid, but personal consumption continued to weaken while the national savings rate was negative for a 12th consecutive month. Manufacturing indicators were soft, reflecting slower economic activity, and the housing data was mixed.

Regarding the latter, new home sales were up in May, but the median price was down 4% from April, while existing home sales were down, but the median price, year over year, was up, as were inventories. Put it all together and to me it?s just further confirmation we?ve hit a wall. Now it?s all about how hard we crumple to the ground and whether most American households can withstand the shock?.meaning, the reality that the value of their #1 asset is actually declining, while at the same time the interest rate on their adjustable rate mortgage is rising.

Globally, the world?s central banker, the Bank for International Settlements, warned its clients that central banks must confront the re-emergence of inflation with a vengeance. Asset prices, it offered, were allowed to surge for too long.

No doubt the European Central Bank will continue to hike rates as business leaders across the continent are increasingly optimistic. [Why, I don?t know.] And the Bank of Japan is clearly another step closer to actually raising its key benchmark as consumer prices keep inching up with overall activity pretty solid there.

Then you have China, where its central bank is forecasting growth will come in at 10.3% for the first half, with just a slight drop off in the second. I?ve given up attempting to get this one right.

--The Dow Jones rose 1.5% to 11150, with the S&P 500 gaining 2.1% and Nasdaq 2.4%. In all three cases the bulk of the gain was on Thursday, the day of the Fed?s announcement.

The week started off with a slew of merger announcements, including Phelps Dodge?s $40 billion offer for both Inco and Falconbridge. Inco and Falconbridge had already agreed to a merger of their own in October. So, seeing as Phelps Dodge is the world?s #1 copper producer without the two, this would create quite a player?a monopoly. But other parties are threatening to muck up the works so we?ll see what transpires next.

Elsewhere, #1 steel producer Mittal is finally going through with its merger of #2, Arcelor, as shareholders approved a sweetened bid. So there?s a pattern here, it would seem. Resources and materials are king??.right before the global slowdown!

Lastly on Monday, Johnson & Johnson paid far too much to acquire the consumer products division of Pfizer, a whopping $16 billion for brands like Listerine, Rolaids, and Sudafed. What was J&J thinking? I know $16 billion isn?t a lot to Warren Buffett, but for a bunch of stuff where you can get generics for far less? I don?t think so. [Executives at Pfizer, on the other hand, are partying hard this holiday weekend.]

And then on Friday, the Dow Jones was helped by the announcement Renault and Nissan Motor were interested in acquiring a minority stake in General Motors, as GM investor Kirk Kerkorian said he believed this was in GM?s best interests. In a letter to the board, Kerkorian wrote an alliance could help GM ?realize substantial synergies and cost savings and thereby enhance shareholder value.?

As for the quarter just finished, this week?s rally helped limit the S&P?s loss to less than 2%, but Nasdaq?s decline was still a whopping 7%.

Year to date, though, the Dow Jones is up 4%, the S&P up 1.8% and Nasdaq is down 1.5%. My forecast for 2006 is for a 7% decline in the Dow, a 5% loss for the S&P, and a 3% one for Nasdaq. I guess most of you would prefer me to be wrong anyway.

?The U.S. housing market will continue to stagnate in the first two quarters, with some regions seeing slight declines in value, but then things really begin to get dicey in the second half. I would call for an outright crash, with values down 20% or more in many areas, were it not for the fact that long-term interest rates will remain at benign levels for much of the year.?

But other predictions have not panned out, like my expectation for a geopolitical crisis by April, and my continuing fixation with deflation, not inflation. Oh well, the economy hasn?t flipped yet, but it will!

Bonds rallied on the belief that the economy was slowing as well as the Fed?s seemingly dovish statement. Since I forecast a 10- year of 3.99%...ahem ahem?.cough cough?.by year end, oh, I don?t really know what to say. But if I had to revise it, I?d only raise the forecast to 4.50-4.75; once economic reality begins to hit everyone in the face over the coming months. Yes, by year end the Fed will also be backpedaling.

--The latest data from the Commerce Department shows that the U.S. has a net debt to the world of $2.69 trillion. Basically, Americans hold $10.01 trillion in overseas stocks, bonds, factories and other assets, while foreigners hold $12.70 trillion in American assets. The difference is the net debt.

?In a sense, the country is like a consumer with a platinum card. Big bills aren?t a problem as long as there is enough income to service them. For a consumer, that means a reliable and sufficient paycheck. For a country, that means economic growth that is fast enough to generate the returns those foreigners are looking for when they lend it money or build a plant that is effectively a claim on future U.S. production.

?The problems come if growth in the U.S. slows relative to other countries, and foreigners look elsewhere for returns.?

And in that case it could spell rising interest rates to support a plunging dollar; a concern of some for what seems decades.

--As oil and gasoline futures rallied this week, the House passed a bill that would end a ban on domestic offshore drilling outside of the western and central Gulf of Mexico. The Senate has yet to vote on a more limited package. Regardless, even if Congress did decide to lift the ban, just as in the case of the Arctic National Wildlife Refuge you wouldn?t see any production for at least five years. We?ve jerked around for decades and yet everyone wonders why we still have supply issues.

Supply remains tight in Norway, too, the third-largest oil exporter which is seeing continuing declines in its output. The government?s oil ministry announced it will do all it can to increase production over the coming decade, but one problem it faces is a tight rig market as demand for mobile platforms, the kind needed in the North Sea, for example, outweighs supply.

So as alluded to above in my opening ?Wall Street? remarks, it?s still all about supply and demand and the inability of government to come up with alternatives, at least until now.

Japan, for one, announced it will require all vehicles to run on an ethanol-bio blend by 2030, while Brazil?s president talked up a new hybrid fuel, ?H-Bio,? that has been developed by state- owned Petrobras. H-Bio mixes ?refinery petroleum with oil from soy, sunflower seeds, cotton and castor beans.? [Santiago Times]

President Luiz da Silva said farmers who plant soy and other oil seeds ?now will sow petroleum.?

The new H-Bio fuel is different from bio-diesel, which is also produced with vegetable oils but is blended into regular diesel by fuel distributors, not at the refinery level. Petrobras said it would produce the new fuel by 2007.

I just read about this on Friday and it was kind of funny since I had earlier received a thoughtful note from Dave D. on this very topic, turning our backyards into soybean farms, for example. Dave, Brazil has long been ahead of us in this regard and they are taking another big step.

One thing to remember, though, is that Brazil?s now-famous ethanol industry is heavily subsidized and for America to make a similar commitment to bio-fuels will require subsidies far greater than we already give to the ethanol industry, as well as substantially higher prices at the pump, at least initially.

--Prior to Friday?s development, General Motors announced some 35,000 took advantage of its buyout offer and the automaker expects to recognize some $5 billion in cost savings. But sales are still iffy and incentives are once again being rolled out with a vengeance.

Meanwhile, Ford had its debt rating cut yet again into the super duper junk category as it conceded 2006 will prove more difficult than initially thought. Ford?s high-margin SUVs just aren?t as popular as they used to be in this era of $3.00 per gallon gasoline.

Ford also announced it was abandoning its pledge to produce 250,000 hybrid vehicles after just nine months. Chairman Bill Ford told employees in an e-mail that the target was ?too narrow to achieve our larger goals of substantially improving fuel economy and CO2 performance.?

I can?t say I disagree with the move, since hybrids are not where the industry will end up when all is said and done, it?s more about ?plant-derived ethanol,? as in the Brazil example, and other innovations. Nonetheless Ford stumbled yet again in having to backtrack so quickly.

--Last year, British Petroleum came under intense scrutiny for its negligence in the area of safety following a fire at its huge Texas City refinery that killed 15. Other BP operations around the country were cited at that time as well.

But now BP is under investigation by the Commodities Futures Trading Commission (CFTC) which filed a suit alleging BP cornered the market in propane back in early 2004 for the purposes of manipulating the price.

--But BP isn?t the only British outfit to be under the microscope. As reported last week, British Airways is under investigation for price-fixing. It turns out Virgin Atlantic turned BA in, but more importantly for consumers the outcome could be more competition in the Heathrow-to-America routes, thus lowering prices.

--The White House is finally prepared to approve Russia?s bid for membership to the World Trade Organization and an agreement could be signed either before or at the G-8 summit in St. Petersburg. Both Presidents Bush and Putin could trumpet it as a sign of cooperation between the two.

However, Congress would still have to approve of the deal and there are obvious political considerations; such as the Kremlin?s crackdown on the press, freedom of religion, and the democracy movement.

--Peru?s Congress ratified a free trade pact with the United States, important because it had to be approved before the new Congress and government of President-elect Alan Garcia is sworn in July 28. While Garcia is for it, there is a large anti-free trade opposition that will accompany him

--Real Estate, part XL?Noelle Knox had a piece in USA Today on the plight of homeowners in San Diego County that dovetails with work by reader Josh P. and the general topic of how many in America are being priced out in a further example of the ?haves? and the ?have nots.?

?Julaine Anton, an 80-year-old widow, was forced out of her downtown apartment because the owner converted it to a condo. Now, she?s facing that same threat in her new apartment. She needs her savings to live on, not to buy real estate. ?My medical insurance, after Medicare, has gone up so much since I retired,? Anton says. The $1,250 monthly rent for her two-bedroom apartment takes up all but $150 of her Social Security check.

?One big risk is that the affordability crisis could accelerate the growing chasm between rich and poor, making that gap harder to cross. For most Americans, their home is their biggest asset, and one of the surest ways to build wealth. Middle-class renters in many areas could be forced to leave or see their financial prospects eroded by a lifetime of renting.

? ?I don?t? think we?re going to have a middle class? in California, says Edward Leamer, director of the economic forecast at UCLA?s Anderson School of Management.

?Cities nationwide are losing their middle-class neighborhoods, according to a study released last week by the Brookings Institution. Middle-income neighborhoods as a proportion of all metro neighborhoods fell to 41% from 58% between 1970 and 2000.?

--The New England Journal of Medicine issued a correction of its controversial Vioxx study, only now it says the drug poses a heart risk earlier than the originally stated 18 months of usage.

--Boston Scientific?s Guidant unit issued yet another recall of pacemakers and defibrillators.

--Apple Computer acknowledged ?irregularities? in its awarding of stock options for the period 1997 to 2001, including some that were granted to co-founder Steve Jobs. Apple claims, however, that in his case they were canceled before they could be cashed in. The company didn?t say whether backdating was involved or the impact, if any, on reported earnings. But now the SEC is hot on the trail.

--Microsoft announced it was postponing release of its next- generation Office business software product, this on top of previously announced delays in its new Windows version, Vista. This is really growing old.

--The federal government is expanding its probe of Home Depot and its waste disposal practices; an investigation that first started in California. [New York Post]

--Investment News reports that PIMCO?s bond king Bill Gross will renew his contract come next spring; important for investors since Mr. Gross is now 62. PIMCO?s recent performance, though, has been lagging. As for his current outlook, following the 17th rate hike by the Fed, Gross is focusing on continuing weakness in the housing market and is positioning the core portfolio in shorter-term U.S. paper.

--Retailer J. Crew had a successful IPO this week, pricing its shares above the expected $15-$17 range, at $20, and seeing a first-day increase to $25.

--Maybe I should have known this?but I didn?t. And if I didn?t, I figure one or two of you weren?t aware of it either.

?(The) salmon-farming industry has grown from 55,000 tons produced in 1985 to more than 1.5 million tons in 2003?.But while this increase in production has made it easy for consumers to put cheap salmon on their plates, large salmon farms create serious environmental problems.

?Waste from millions of captive salmon at fish farms empties directly into the ocean, polluting the water with untreated sewage, toxic chemicals, uneaten fish feed and other wastes. In Canada alone, salmon farms discharge more than 10,000 tons of uneaten food annually. Escaped salmon ? about three million globally per year, according to recent studies ? interbreed with and often compete for food with already endangered populations of wild salmon. But perhaps most troubling is the impact that current salmon-farming practices have on efforts to stabilize depleted and endangered fish stocks around the globe.

?Carnivorous by nature, farmed salmon need to eat wild fish and shellfish such as sardines, mackerel, shrimp and krill. For every pound of farmed salmon produced, the industry requires several pounds of wild fish, normally in the form of a specially ground fishmeal. In other words, the more farmed salmon produced, the more sardines and other fish removed from the sea and from dinner plates. Farmed salmon, thereby, not only directly compete with other marine life for our diminishing valuable marine resources, but also with people around the world as well?.

?The challenges facing our oceans from overfishing and unsustainable aquaculture practices are nothing to laugh at. Over the past several years, fishing fleets have annually removed more than 180 billion pounds of fish worldwide, and scores of once plentiful fish populations around the globe are being caught and processed faster than they can reproduce.?

There are ways to farm salmon safely, using soy-based feeds, for example, but we need to get crackin?.

--Adidas AG reports that sales of its Teamgeist soccer ball, used at the World Cup and retailing for $113 to $138, will exceed 15 million when the initial forecast was for 10 million. Only 6 million were sold during the 2002 World Cup.

--Moscow is now the world?s most expensive city, according to the latest survey, with Seoul at #2 (recall my $16 pint of Guinness there this spring) and Tokyo #3.

--Andrea Schwartz, the Brazilian ?bombshell? (New York Post, not me) who was running an upscale brothel, disclosed the name of a second figure this week. Last time we learned of ?sugar- daddy? #1, Time Warner CFO Wayne Pace. Now she says there is a second gentleman, a 68-year-old money manager at Barrett Associates, Robert Voccola.

?Outside his home (in Montclair, N.J.), the accused john looked sheepish and was ushered inside by his angry wife, Judith, before he could comment.?

Yup, you can bet there will be fireworks in that household this holiday weekend, and not of the romantic variety.

--Goat meat products are up 57% in the last five years. But goat producers are still trying to figure out how to initiate a viable national ad campaign. ?Trash-fed goat?for a healthier you.?

--Landon Thomas Jr. of the New York Times had a terrific piece the other day on the case of former New York Stock Exchange Chairman Dick Grasso and his ongoing tussle with New York State Attorney General Eliot Spitzer over Grasso?s ?unreasonable? compensation, considering the fact the NYSE is a not-for-profit body.

Mr. Thomas explored thousands of pages of depositions. Recall that by 2003, Grasso had accumulated $140 million in his pension plan (helped by annual compensation that totaled $11.3 million to $30.5 million from 1999-2002) and the controversy that resulted in his ouster was a result of his seeking to take a lump sum payment before he retired.

Grasso claimed the compensation committee approved of his plan, while some members said they weren?t aware of the decision until it was too late.

But I want to just note a few of the more personal issues that back up my long-held claim that Mr. Grasso was one of the great dirtballs of the Bubble Era, as I so stated in this space immediately after 9/11.

?While many board members have said they were unaware of his accumulated savings, depositions show that Mr. Grasso kept a close eye on the amount. Soo Jee Lee, his executive assistant, said in a deposition that Mr. Grasso received regular updates about his mounting benefits from the exchange?s human resources department. In fact, when it came to his personal finances, few items escaped Mr. Grasso?s attention.

?According to his deposition, he cashed out at least a week of unused vacation time each year and once expensed a $759 pair of eyeglasses that he said he bought to limit glare during on-camera interviews. Flowers for his secretaries, favorite restaurant hostesses and even for Mr. Langone [best buddy and NYSE board member, Ken] and his wife were billed to the Big Board.?

--My portfolio: According to my back of the beer coaster calculations, and using a conservative money market rate of 3.5% for the year thus far (the benchmark Merrill Lynch account, as noted in Barron?s, is currently at 4.36%), my recommendation of 80% cash and 20% equities, the latter represented by the S&P 500, is up 1.6% vs. 1.8% for the S&P, though the S&P figure doesn?t include dividends. But I?d be ahead were it not for Thursday?s rally. Which actually brings up a good point for those who invest in stocks. If you market time, you often miss the best days and three or four can account for the lion?s share of the gains in any one year. [Personally, though, I am not against timing if you have a feel for the markets.]

As for my individual stock selections, I continue to hold my carbon fiber play and in the first six months it has gone from $9 to $39, down to $21, and back up to $29. Ergo, it?s still premium lager for the kid.

--Last, but not least, we have the case of Warren Buffett and his $37 billion donation to various charities, including $31 billion to the Bill and Melinda Gates Foundation, thus doubling their own assets to $60 billion. To put this in perspective, the next largest is the Ford Foundation with about $11 billion. Heck, the United Nations spends only $12 billion on its programs, while President Bush recently submitted a request for $23.7 billion in U.S. foreign aid, a budget request that will be scaled back to the $22 billion mark or thereabouts.

In their joint news conference, the jocular Buffett conceded it?s not easy coming up with the right projects when spending your charitable dollars, but ?you can bat 1.000 and do nothing important,? ergo, you can?t be afraid to try new things and fail from time to time.

The humorless Gates said ?We want to show you can do good and still have fun,? though he seldom looks like he is.

I?ve been trying to figure out why these two get along as well as they do. Maybe it?s more about Melinda Gates, who strikes me as a closet partier.

Anyway, is this the start of a new era of philanthropy and the wealthy seeking to aid projects that truly benefit humanity instead of the more common vanity fare?

Driving around in the New York area, you often hear radio spots such as: ?The Komansky children?s center of the Cornell Weill Medical Center?; David Komansky having been the former chairman of Merrill Lynch and Sandy Weill the former Citigroup kingpin.

Yeah, yeah?I know it?s all about the children, but this is a typical vanity effort. Or putting your name on a recital hall, as Weill has also done. Or having a business school named after yourself. Most are worthy in their own regard, but at the end of the day how many lives have they touched?

For this reason I greatly admire what Buffett is doing. But if my tone is a little bitter, understand that here in my New Jersey neighborhood a leading medical center is under investigation for Medicare fraud to the tune of over $500 million.

Afghanistan: The Washington Post reported President Hamid Karzai is rapidly losing the support of the people. The government is perceived to be corrupt and the security situation is worsening.

North Korea: Let?s face it?we don?t have a clue what?s going on here; least of all President Bush and Japanese Prime Minister Junichiro Koizumi. In their joint talks this week in Washington, prior to Koizumi?s trip to visit the shrine of his idol, Elvis, Koizumi threatened to stop ferry service and other trade with North Korea if Pyongyang launches whatever is sitting on the pad.

?Should they ever launch the missile, that will cause various pressures ? we would apply various pressures.?

But as I keep mentioning, it?s all about the generals standing behind Kim Jong il. Who are they and what the heck are they up to?

China: President Hu Jintao tightened his grip on power by promoting ten senior officers to the full rank of general in the People?s Liberation Army. Seven of the ten come from political departments that oversee party ideology and discipline, thus enhancing cohesion in the ranks. Some China experts see the move as a key one ahead of the 17th Party Congress next year.

[Meanwhile, Taiwan?s President Chen Shui-bian survived a recall vote, even as corruption charges continue to swirl around his cabinet and family.]

?Credit Bashar Assad with seeing, early on, the advantages of being Iran?s water boy in the Middle East. Syria has slipped under the American radar as the Bush administration prepares to haggle with Iran over its nuclear program?.

?The Syrian president likes that just fine. He has recently been mobilizing his comrades in Lebanon, even as the parliamentary majority stumbles under the combined weight of Saad Hariri?s political limitations and the destructive small-mindedness of the Aounists, motivated principally by loathing for the Future Movement. Meanwhile, Hizbullah, sitting at the nexus of the Syrian-Iranian relationship, refuses to disarm, maintains a dangerous alliance with Palestinian groups, keeps Lebanon?s other communities in line by way of street intimidation, consolidates its state within the state, and tries to convert Lebanon into a bastion of ?resistance,? mainly in the service of the party?s sponsors in Tehran?.

But Young adds, ?this is hardly an injunction to drive American tanks into Damascus? ?

?What the Arab states still refuse to address is that Syria?s inherent instability increases their own. Iranian influence in Damascus is a byproduct of the Assads? decline, and nothing suggests this decline won?t get worse and prove calamitous when the ruling family can no longer hold on to power. It?s better to start preparing now for a makeover, so that any movement toward a new Syria can be a stable one. For once, Washington may be able to find that its Arab friends are useful.?

?Recent skirmishes along Lebanon?s borders are symptoms of a cold-war-by-proxy that pits Iran and Syria against U.S.-led Western powers,? writes Riad Kahwaiji.

?On the rugged hills along Lebanon?s frontier with Syria, armored Lebanese battalions have set up scattered bases in the wake of reports that Iranian arms have been smuggled across the border to Hizbullah?.

?To the south, where Lebanon meets Israel, the border is patrolled by lightly armed Lebanese troops aided by UN peacekeepers. But moving freely along the border as well are Iranian-armed fighters with Lebanon?s Islamic Resistance Movement (Hizbullah)?.

?Analysts said Iran and Syria have different approaches to dealing with Lebanon. Tehran wants to keep things calm so Hizbullah and Palestinian Islamic factions can pressure Israel or the United States. Damascus wants chaos to disrupt the UN investigation (into the death of former Lebanese Prime Minister Rafik Hariri) and force the West to relax its isolation of Syria.?

India: The Bush administration attained a major victory this week with the approval in both houses of Congress of the nuclear cooperation agreement between the U.S. and India. The Senate foreign relations committee voted to approve, 16-2, and its House counterpart voted 37-5. This is good, though it?s important final legislation not be delayed beyond the November elections and that it?s not watered down to the point where the Indian government quashes it.

Mexico: As the nation goes to the polls on Sunday in what is shaping up to be a battle royal between the left-wing populist Andres Manuel Lopez Obrador and the conservative Felipe Calderon, Washington Post columnist/economist Robert J. Samuelson writes of the current state of Mexico?s economy.

?It?s not that Mexico has made no progress. Its economy was once crisis-prone, inflation-ridden and heavily insulated from foreign trade. Now it has quelled inflation (about 4 percent, down from 17 percent in the late 1990s), controlled government spending and opened up to trade?.In recent years its economy has grown almost 4 percent annually.

?But that growth ? fine for an advanced country such as the United States ? doesn?t suffice for a poor country whose population is increasing by more than 1 percent a year. In China, economic growth averages 9 to 10 percent annually; in India, 6 to 8 percent. Mexico isn?t in the same league.

?Economies advance through the adoption of better technologies and business methods. Production and efficiency improve. Prices go down or incomes go up?.Either way, people can buy more ? more old stuff (say, food or housing); or more new stuff (say, Internet connections or iPods). In Mexico, this process is weak. To simplify slightly: Its economy consists of two vast sectors, each slow to adopt better technology and business practices?.

?An extreme case in point is Pemex, the state-owned monopoly oil company. Without competitors or complaining shareholders, its operations are lax. In 2004 Pemex had $69 billion in sales and 137,722 employees, according to its Web site; in the same year, Exxon Mobil had $291 billion in revenue and 85,900 employees.?

And due to the fact Pemex has been loath to accept foreign investment, production of oil is declining dangerously; just another example of the global supply/demand conundrum.

Spain: Prime Minister Zapatero said his government will begin talks with separatist group Eta. While a majority of Spaniards support talks, a sizable minority is against them in accusing the prime minister of abetting terrorism.

Argentina: Here?s a little story to tuck in the back of your brain for future reference. Argentina is making waves over the Falkland Islands, which the Argentines invaded unsuccessfully in 1982, leaving the territory in Britain?s hands. The government of Nestor Kirchner is up for reelection in 2007 and there has been a bit of saber-rattling as Argentina seeks to reopen the issue of sovereignty. For its part, Britain won?t address the topic, and hold serious talks, until the islanders say they want to be part of Argentina. [I would?the food is bound to be better under Argentine rule?not sure of the beer, though?but I digress?] Argentina says there is no right to self-determination?what?s rightfully theirs is theirs.

Britain: Meanwhile, lawmakers are going to debate later this year whether or not to replace aging Trident missile-carrying submarines that form Britain?s nuclear arsenal. Don?t give ?em up, ol? chaps. We may need that deterrent in the Persian Gulf some day.

Netherlands: What a mess. The government collapsed as a tiny, but crucial member of the ruling coalition withdrew its support over the handling of former lawmaker Ayaan Hirsi Ali?s efforts to remain in the country. [Hirsi Ali, you?ll recall, led the opposition to Islamic fundamentalism and helped in Theo Van Gogh?s documentary that got him killed.] The D66 party called for the resignation of Immigration Minister ?Iron Rita? Verdonk, and with D66?s withdrawal, Prime Minister Balkenende was forced to resign as new elections will have to be called soon. But at least Balkenende recently got to see the White House as well as Camp David.

Ukraine: If you had Ukraine forming a government within three months after its election?you lost! The opposition continues to block a new coalition that had been formed in the past few weeks because it wants representation on important legislative committees.

Which is why, sports fans, just as in the case of the Netherlands, parliamentary forms of government often, err, fall short, shall we say. But as I detail below, our two-party system certainly has its own limitations.

Which is also why at StocksandNews, we like the idea of a monarchy and we?ll back the heirs of George Washington in any attempt to assume power??????????just kidding.

Dow Jones +1.5% [11150]
S&P 500 +2.1% [1270]
S&P MidCap +3.2%
Russell 2000 +5.0%
Nasdaq +2.4% [2172]

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.

The BUYandHOLD website contains links to third-party websites on the Internet. BUYandHOLD provides these links to these websites only as a convenience to users of the website. Links on the BUYandHOLD website are not endorsements by BUYandHOLD or Freedom Investments, implied or express, of the linked sites or any products, services or links in such sites; and no information in such sites has been endorsed or approved by BUYandHOLD. Linked sites are not under the control of BUYandHOLD or Freedom Investments, and we are not responsible for the contents of any linked site or any link contained in a linked site. No information contained in the BUYandHOLD website or accessed through any linked site, or any link contained in a linked site, constitutes a recommendation by BUYandHOLD or Freedom Investments to buy, sell or hold any security, financial product or instrument. Information accessed through linked sites is not, nor should be construed as, an offer or a solicitation of an offer, to buy or sell securities by BUYandHOLD or Freedom Investments. 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, and any investment decisions you make will be based solely on your evaluation of your financial circumstances, investment objectives, risk tolerance, and liquidity needs.