Week in Review 
For the week 7/3/2006 - 7/7/2006
Brian Trumbore
President/Editor, StocksandNews.com

Bad Hair Day

Following North Korean dictator Kim Jong Il's own pyrotechnics on the Fourth of July, President George W. Bush kept repeating the same thing over and over again.

"Diplomacy takes awhile. We're working this issue hard?we're working the Iranian issue hard."

One hears this and can't help but think of the "Saturday Night Live" take-off on Bush, "It's hard work," which will no doubt be part of the show's opening monologue come the new fall season. In other words the president has become a caricature of himself, which normally isn't a good thing in the world of politics and foreign affairs.

Of course Kim's actions this week are but one topic taking up space on the agenda at the White House these days. As the editor of Foreign Policy told the Washington Post, "(the administration) is a distracted government that has to take care of too many things at the same time."

Scholar Nicholas Eberstadt in an op-ed in the Wall Street Journal:

"Back in 2000, during the final phase of the Clinton administration's ill-fated 'peace offensive' toward the North Korean regime, Kim Jong Il personally assured an American secretary of state that the 1998 test-firing of a ballistic rocket 'was our first launch - and our last' of the DPRK's long-range Taepodong-1. The ever-magnanimous Dear Leader is still true to his word, as it were. For the long-range rocket launched this week (along with six short-range missiles) was not a Taepodong- 1, but rather a Taepodong-2: North Korea's new and improved multistage intercontinental ballistic weapon.

"Wordplay and semiotics, however, cannot obscure the grim significance of North Korea's latest move. Without warning, it shot off a missile it has been developing for the purpose of striking the U.S. Lest there be any possible ambiguity about the nature of the intended threat, North Korea's National Defense Commission (chaired by Kim Jong Il) timed the launch to coincide with America's Independence Day celebrations.

"By this provocation, Pyongyang has done more than simply raise the stakes in its contest of wills with the Bush administration. Much more ominously, the launch reveals that the Dear Leader and his inner circle are ready to ratchet up their confrontation with 'the imperialists' to a new and still more dangerous level - and that North Korea's masters are confident that they hold the upper hand in this escalation?.

"(North Korea's) leaders seem to have concluded that the Bush North Korea policy consists mainly of empty words - and that oft-repeated admonitions and warnings need not be taken terribly seriously. By more than one criterion, indeed, Pyongyang's strategic successes on the Bush watch outshine those from its brinkmanship during the Clinton years. Apparently unwilling to move against North Korea's nuclear challenges by itself, and evidently incapable of fashioning a practical response involving allies and others, the Bush administration's response to Pyongyang's atomic provocations is today principally characterized by renewed calls for additional rounds of toothless conference diplomacy.

"Having taken the measure of his American adversaries, Kim Jong Il and his regime are now embarking on a perilous new high-stakes gamble, one through which they may earn unprecedented economic and strategic benefits. Ballistic missiles are their instrument in this venture. These will be wielded as like a strategic battering ram, with the aim of shattering the U.S. security architecture in the Korean peninsula and throughout northeast Asia."

William Kristol, editor of the conservative Weekly Standard, on the overwhelming concerns facing the Bush administration:

"North Korea is firing missiles. Iran is going nuclear. Somalia is controlled by radical Islamists. Iraq isn't getting better, and Afghanistan is getting worse. I give the president a lot of credit for hanging tough on Iraq. But I am worried that it has made them too passive in confronting the other threats." [Washington Post]

The only thing saving the administration domestically when it comes to both Iran and North Korea is the fact no one else has stepped forward with a realistic solution and backbiting on both sides of the political aisle has been fairly tame, for now.

As for yours truly, I told you years ago China loved to see the United States sweat and that has never been more apparent than today. Of course they can put an end to this lounge lizard act, "Kim and The Generals," anytime they want. Just cut off the North's oil, for starters, and North Korea's war machine would be a sitting duck. [Think Gulf War I.] As that's all Kim has, aside from his missiles and a few thousand artillery shells (albeit very dangerous ones), the generals would immediately tell him to tone it down.

And when it comes to South Korea, sorry to repeat myself but for you new readers out there I was just in Seoul, and at the DMZ, specifically, this past April 29. ["Week in Review" 4/29/06 and 5/6/06] Among my musings then:

"I saw firsthand how in a recent poll here, half of South Korea's young people would side with North Korea if the United States attacked Kim Jong Il's nuclear facilities. You're reading that right. In turn, just a fraction of those with memories of the war and its depressing aftermath would?.

"The elderly here understand just how wicked and dastardly the North Korean regime is and how at a moment's notice, Seoul could be vaporized. The youth are like 'whatever.'"

To be fair, though, I praised the South for some of its moves to integrate economically with the North, but I concluded many, particularly the youth again, were "hopelessly na?ve." Having also seen some of the defenses the South has against an invasion, however, this isn't a viable option for the North.

Which leaves Kim with the artillery shells and a nuclear option. Or rather it leaves his generals with this option, because at the end of the day it's still about the men behind the Porn King. Are they nuts? No one has an answer to that one.

So this week we were left to watch the Bush administration largely flail away on the diplomatic front. Even the Japanese were backing down on levying new sanctions against North Korea as both Russia and China said they wouldn't approve of them. The point is not that sanctions would be anymore of a threat to Kim than what is already in place, but at least it would send a unified response. Instead, we have China's diplomats stating they are "seriously concerned" out of one side of their mouth, while adding there is no need to disturb the "peace and stability" out of the other.

At least as I go to post, South Korea has suspended food aid as well as denying the North's request for military talks, in a mild sign that Seoul could be finally getting it.

Once again, though, what is increasingly apparent these days is there are no Churchills, no Roosevelts, no Reagans, or even a vintage Kissinger. Maybe one will eventually emerge. I just hope he or she has at least been born. We're running out of time.

Iran / Iraq / Israel

Baghdad's central morgue took in 1,600 bodies in June (Zarqawi was killed on June 7), the highest monthly total since February and the attack on the Golden Mosque that led to the surge in sectarian violence. Last weekend, 66 were killed in a single car bomb in Sadr City, while a female Sunni lawmaker was kidnapped along with 11 of her bodyguards.

And while this was going on, General Peter Pace, head of the Joint Chiefs of Staff, was on "Today" Tuesday morning, conceding that September was a "reasonable date" for possible troop withdrawals. Democrats have every right to ask, "Just who is talking of cutting and running and setting timetables?" General George Casey, the vaunted 'man on the ground' who President Bush reiterated on Friday would be the final arbiter, already told us he's looking to withdraw a sizable portion of the forces by year end.

Yes, it's all tied to our mid-term election and not necessarily the actual security picture. You have a hard time convincing me this administration will truly do the right thing; that is if the Iraqi security forces aren't ready we stay with the full existing complement.

That said the new Iraqi government is being given a chance to succeed. We'll have a good idea whether they can establish some kind of stability in just another six to eight weeks.

As for Iran, the mullahs were rejoicing over Kim Jong Il's demonstration, even if at the same time they had to be wondering whether they were sold some damaged goods; i.e., the missiles they received from the North last year.

We'll also see how the G-8 summit in St. Petersburg goes in terms of any new initiatives on the Iranian front, but it bears repeating that Iran continues to play its cards beautifully. President Bush's "hard work" has allowed Iran for the past few years in particular to speed up its weapons program, as well as reinforce its skunk works against any possible attacks by the U.S. or Israel (assuming either had a clue what to strike).

And then there is Israel and its incursions back into Gaza that have turned deadly this week as Hamas and its acolytes stupidly hold onto the kidnapped Israeli soldier.

What was of particular concern to Israel the other day, however, was the rocket fired by Palestinian militants (one can assume Hamas) that landed six miles into Israeli territory; a far greater distance than the crude devices the Palestinians are normally launching. One can never forget that Iran has been arming the terrorists, particularly Hizbullah in Lebanon, and both Hamas and Hizbullah have access to increasingly sophisticated weaponry. It's why Israel has to continue to bomb suspected weapons factories and missile sites. Watch the Lebanese border in particular over the coming weeks.

But on a slightly different topic, the impact the Palestinian crisis is having on the Israeli economy, Bernard Avishai, author and professor, had some of the following thoughts in an op-ed for Barron's.

"A continued stalemate is not a prescription for growth, but for a catastrophic brain-drain?.

"(Prime Minister) Olmert's coalition does not fear radicalized Palestinians, who can be isolated, as it should fear isolated Israelis, who cannot eat algorithms. (Check Point CEO Gil) Shwed also said, 'People who think they are going to suffer here for long will go live someplace else.' Already, 750,000 Israelis (including Olmert's sons) live in the U.S. According to a 2004 poll, nearly half of Israel's young people didn't 'feel connected' to the state, and a quarter of them didn't 'see their future' in the country.

"Olmert's first priority, and Israel's best hope of holding onto its best youth, is an advanced knowledge economy, which depends on peace. But then sustaining peace will depend on this same economy, which will spread science, management - and even hope - to the West Bank and beyond."

By the way, when you're talking brain drain, there is none greater these days than in Iraq.

Wall Street

After last week's stemwinder, I'll try to be mercifully brief. Stocks finished down this week, though when it comes to the Dow Jones the damage could have been far worse were it not for the Florida Supreme Court reaffirming a lower court's decision to toss out a $145 billion punitive-damage award against the tobacco industry. Shares in Dow component Altria Group (the parent of Philip Morris) accounted for about 40 of the Dow's 77-point gain on Thursday.

Overall, though, the Dow fell 60 points, 0.5 percent, to 11090, while Nasdaq lost 1.9 percent to 2130. The market had a rough go of it on Friday and in this instance Dow component 3M's earnings warning was the chief culprit, losing 9 percent or $7. [And accounting for about 60 of the Dow's 134-point loss that day.]

The lion's share of the economic data this week was disappointing. The Institute of Supply Management's manufacturing and service sector indices both came in below expectations, construction spending was down in May (the biggest drop here in two years thanks to slowing housing activity), and major retailers reported June sales that were rather tepid. An index of 56 of the big boys revealed overall sales gains of 2.6 percent for the month, vs. an average of 4.3 percent for the first five months of the year. Wal-Mart came in at just 1.2 percent and is only forecasting 1-3 percent for July. [Target and J.C. Penney, though, were better?4.8 and 4.3 percent, respectively.]

But the big story was on the jobs front. On Wednesday, a report out of ADP showed explosive growth in June so everyone assumed that Friday's government labor report would be far above the expectation for 165,000 new jobs. Wrong. It came in at 121,000 instead.

However, the average hourly wage component rose more than expected and is now at a 12-month rate of 3.9%. Good for all of you receiving this, or more, but not necessarily good if you want the Federal Reserve to stop hiking interest rates.

For Friday, though, the bond market chose to focus on the week's evidence that the economy is slowing and thus by the time the Fed reconvenes on Aug. 8, perhaps it will decide to hold the line after all. Of course a rapidly slowing economy would also inevitably lead to disappointing earnings, with more 3Ms the norm.

But I was reading Crain's New York Business and if you wanted a real life example of how the Fed's previous moves have begun to impact business, be it small, medium or large, here is a snippet from a report by Tom Fredrickson.

"Emilia Fabricant, who designs stylish maternity wear for celebrities like Angelina Jolie, has hit the jackpot, with demand for her fashions soaring in the past year.

"Unfortunately, so have the costs of financing the larger inventory she needs to keep up with demand.

" 'We're getting killed on our cash flow,' says Ms. Fabricant, founder of Manhattan-based clothier Cadeau. Interest charges at the clothier are up tens of thousands of dollars this year - a result of the double-whammy of larger borrowings and soaring interest rates."

It's all about a 9% prime rate, or higher. Yup, it's biting. [And, look, I haven't even brought up the impact on adjustable rate mortga???doh!]

Finally, while Americans like to believe it's all about us most of the time, these days it's also about Europe and Japan, or more specifically the Bank of Japan and the European Central Bank.

A key index of business confidence in Japan rose smartly and while the government remains split on the idea of finally raising interest rates here for the first time in six years, chances are it will do just that next week. Sure, they'll still be close to zero, but it's the trend (and the continued unwinding of the 'carry trade') that will be worrisome to world markets.

And in Europe, the 12-nation Euro-zone is seeing its highest inflation in five years, with the ECB set to hike its benchmark rate on August 3.

What does it all mean? The U.S., and its stock and bond market, is far from the only game in town, which wouldn't really matter except we have all these deficits to service, see, and we need folks all around the world to love us; well, maybe not exactly love us, since most really don't, but at least love our bonds, for crying out loud!

Street Bytes

--U.S. Treasury Yields

6-mo. 5.28% 2-yr. 5.17% 10-yr. 5.13% 30-yr. 5.17%

Following the strong labor report from ADP, which from here on will be viewed with far greater skepticism I imagine, yields soared with the 10-year back up to 5.23%. But then sanity returned on Friday, bonds rallied, and PIMCO's Bill Gross reiterated his position that the bear market in bonds is over.

--Chile, the world's leading copper producer, is looking to invest an additional $16 billion through 2010 to expand production from its current 5.3 million tons to 6.4 million, which is expected to equate to about 32 percent of the world's total output by that time, down from 35.5 percent in 2005. [Separately, the price of copper is back to the $3.50 level as labor issues in Chile and elsewhere have led to a 'slowdown.']

--But while it is relatively easy to increase mineral production, it is far more difficult to find and produce more energy. Most projects take 8-10 years before a barrel of oil is brought to market, for example, and there are so many environmental and logistical roadblocks to deal with.

Norway is but one example of the latter. Last week I noted it is seeing continuing declines in output as it has the immediate issue of finding rigs that can operate in the North Sea.

This week the Wall Street Journal had a story titled "Oil Rigs Stage Exodus From Gulf of Mexico." As Mike Spector starts off in his report, "The biggest long-term threat to oil and natural-gas production in the Gulf of Mexico isn't hurricanes. It is the dwindling supply of drilling equipment."

Whether it's for deep-water (like the North Sea) or shallow-water projects (like the Persian Gulf), rig operators are going where they'll receive the highest rate for their equipment; not, necessarily, where the oil and gas are.

And while the oil service industry is accelerating its rig-building, most of these won't be available until 2009 at the earliest.

For now, the bottom line is oil hit a new high this week, $75.78 on an intraday basis before closing at $74.

--Continuing with the above topic, though, if you believe that all these new oil wells will one day produce gushers and that supply handily meets, and exceeds, demand, and that there are no hurricanes and that the mullahs turn into monks, making nothing more powerful than beer and wine, I have to remind you where the average price of West Texas Intermediate stood for the period 1986-1999?$14.40 to $24.50. [Source: British Petroleum] But then you'd have to be an idiot to believe all that.

--Last week I mentioned Russia's World Trade Organization bid and how it was likely it would be wrapped up either before or during the G-8 summit in St. Petersburg. This week President Vladimir Putin threatened to stop implementing some trade rules Russia was adhering to, regardless of its WTO status, unless a deal was signed. The U.S. is demanding Russia "allow foreign banks to open directly owned branches, rather than having to set up Russian subsidiaries." [Financial Times]

The reason why WTO status is so important at this moment is the issue of Gazprom's massive Shtokman gas field, with U.S. companies vying to be among the partners.

--June was another terrible month for domestic automakers as General Motors' sales were down a whopping 26%, Ford's 7%, and DaimlerChrysler's off 15%. But Toyota once again bucked the trend, up 14%. GM and Nissan are slated to hold talks next week on the proposed alliance that includes Renault.

[By the way, I'm already tired of those "Dr. Z" commercials for DaimlerChrylser. Lee Iacocca he's not.]

--This isn't good. Prime Minister Manmohan Singh of India has put his nation's privatization plans on hold to appease some of his leftist coalition partners. Some of these same folks could also hinder the nuclear technology deal between Washington and New Delhi unless the U.S. Congress acts quickly to approve it.

--In a sign of just how well the airlines are doing these days, Continental's domestic load factor in June was 86.7 percent. In other words, that's a lot of people sitting in the middle seat, thereby making the other two totally miserable as well. [International traffic for Continental, incidentally, was up a strong 18.5 percent, year-over-year. That's also a lot of jet fuel.]

--According to consultants Milliman and Watson Wyatt Worldwide, the average annual health-care costs for a family of four rose an additional 9.6% in 2006 vs. 2005; with the average employer picking up 62% of the cost [Milliman] while at the same time 14% of companies surveyed said they plan to eliminate benefits for future retirees over age 65, with another 6% eliminating it for current retirees [Watson Wyatt].

--Computerized / program trading accounted for 59% of the overall volume on the New York Stock Exchange in the second quarter.

--And now?another real estate update.

The average sale price of a Manhattan apartment rose 6.6% in the second quarter, over the first quarter, to a new record? $1.386 million.

But before you go "A-ha! So much for your pricked bubble talk, Mr. Editor," understand this was greatly influenced by Wall Street's humongous bonuses. What's more important in gauging the market is inventory and actual sales, with the former up and the latter down in Manhattan.

Josh P. also passed along the latest from the San Diego market, courtesy of ziprealty.com. As he put it, "It's like right before a tsunami hits, when you see all the water get sucked back and then, boom, here comes the 30-foot wave."

In other words, while the median price in this instance is still stable, inventory is up almost 40% just since January and houses are selling at about 80% of last year's best levels.

Finally, for those of you trying to pick the bottom in homebuilder stocks, the sector having taken quite a beating this year, the Journal had a reminder; don't forget the value of the land on their books. Reporters Michael Corkery and Ian McDonald note:

"Parcels are valued at their purchase price on companies' books, so there isn't any way of determining the land's true market value until they sell houses on it. Older purchases are likely worth far more than their listed value on balance sheets, but newer land buys are probably worth less."

--Where have I been? Sure, I know of energy drinks like Red Bull (never had one, though), but I never knew there was "energy beer" until I saw that SABMiller is acquiring McKenzie River Corp.'s Sparks and Steel Reserve caffeine-laced energy beers. So this week I just may have to field test some of these. I've been feeling kind of tired, anyway, these days.

--Speaking of the beverage industry, three folks, including an employee of Coca-Cola, were charged with stealing trade secrets in an attempt to sell information on a new Coke product to Pepsi. But upon receiving a glass vial containing a sample of it, as well as related documents, Pepsi officials turned the discovery back over to Coke, who then brought it before the U.S. attorney. The FBI completed a sting operation to nab the idiots after putting $30,000 in a Girl Scout cookie box. Personally, I have but two questions.

Do Girl Scout cookies still contain trans fats? And does anyone know if that vial wasn't simply someone's drug test?

--AOL has lost 850,000 subscribers to high-speed Internet providers in just the first quarter of this year, with the future of dial-up looking even bleaker (I'm the last one using it, I think), so AOL is now considering a plan to offer its services for free to anyone with a high-speed connection; thereby hoping to make up the revenue loss with increased ad dollars, as well as reduced costs.

Actually, I didn't realize high-speed usage is already up to 72% of all Web users in the U.S.

[By the way, I have good reasons for using dial-up?I think? but I only stay at hotels offering high-speed when I'm on the road, lest you think I'm a total dinosaur. I'm more like a hybrid.]

--Henry Paulson received a nice parting gift from Goldman Sachs, $18.7 million cash for his efforts the first half of this year before he moved on to head up the Treasury Department. Paulson had a choice of going for Monty Hall's cash box or the curtain where Carol Merrill stood; the latter starting off with a year's supply of Good Humor Whammy Sticks. Paulson obviously chose wisely.

--Finally, former Enron Chairman Ken Lay died just six weeks after being convicted for his role in the company's collapse. But due to a quirk in the law, because he was never actually sentenced the case could be expunged, "as if he had never been indicted or convicted," according to a 2004 ruling in a U.S. court of Appeals. This then calls into question all of the civil suits launched against him in the hope he'd have to fork over his remaining assets. Which kind of sucks.

Foreign Affairs

Afghanistan: Five British soldiers have been killed here in the past two weeks, while at least ten interpreters for the U.S. have been killed by the Taliban for cooperating with the coalition. [Washington Post]

The Brits are debating their role, as outlined in an editorial for the London Times.

"Years after the Taliban were supposed to have been defeated, the 3,300 British soldiers in Afghanistan are reporting eight 'contacts' - some fully fledged gun battles - with them daily. Last month three British soldiers, four Americans and a Romanian were killed. Overnight, five American soldiers, two Canadians and three civilian contract workers were injured by a Taliban rocket attack on a base in Kandahar.

"The resurgence of the Taliban is causing deep concern in Downing Street, which describes the situation as 'very dangerous' and wants allied governments to wake up to the importance of securing victory. Yet only two months ago John Reid, then defense secretary, was offering the hope that British soldiers could leave without firing a shot. As Liam Fox, the shadow defense secretary, puts it: 'This mission is turning out to be far more dangerous than the public and backbenchers have been led to believe.'

"So it is. The question is whether we should have expected anything else. Three Anglo-Afghan wars should have told anyone with a passing acquaintance with military history that the Afghans have always been formidable opponents. Yet British commanders appear taken aback by the ferocity of the resistance they encounter. Did they really expect fighters to run away? The Soviet experience of a 10-year occupation, more than 15,000 Russian deaths and retreat in 1989 revealed yet again that this is a country that does not take kindly to foreign intervention."

Russia: As Vladimir Putin prepares to host the G-8, there certainly is no shortage of topics on the table, including Iran and North Korea.

Others include energy security. This week even the International Energy Agency blasted Russian natural gas behemoth Gazprom, as IEA chief Claude Mandil accused the company of wasting vast amounts of gas each year "by denying independent producers access to its distribution network or paying them so little for their gas that they burn it instead - a practice Mandil called 'absurd.'" [Judy Dempsey / International Herald Tribune]

Mandil added:

"Gazprom has not invested enough in developing new fields or enhancing recovery in existing fields to offset the decrease in its three major oil fields. And it has not invested enough in improving the reliability of the transport grid. That means we are not sure there will be enough gas for the commitments it has taken."

The IEA estimates Gazprom needs to spend $11 billion a year to meet production goals, and what hurts the IEA and others who rely on good data is Gazprom's lack of transparency.

Of course while the IEA is calling for reform and investment, the facts are the Kremlin has continued to place more restrictions on foreign investment. The Russians talk of a free market while at the same time they're closing it.

Which means one thing. If you want to play with Gazprom and its oil partner Rosneft (which is about to come to market in a giant IPO), you better be prepared to do some dirty dealing. Many Western companies will choose to look elsewhere rather than take on both the political and financial risks.

And then there is the topic of securing Russia's nuclear stockpile and weapons of mass destruction, still the #1 security issue in the world in the opinion of your editor.

From Jeff Bliss / Bloomberg News:

"Almost 15 years after the U.S. launched its program to help strengthen controls on the world's largest nuclear stockpile, Russian guards are still patrolling storage sites with unloaded guns, propping open doors that should be locked and turning off intrusion detectors to avoid false alarms, according to a report by Harvard University's Project on Managing the Atom."

Almost half of Russian buildings containing nuclear material have yet to be fully upgraded.

Senator Richard Lugar notes that with Russia's newfound clout as the world's No. 2 oil producer, "They want to point out at the outset, 'We're not supplicants, we're rich,' he said.

But as expert Matthew Bunn of Harvard notes, many of Russia's facilities could not stand up to an attack by, for example, a group of Chechen terrorists.

[On a somewhat related topic, Saturday's Washington Post is reporting the U.S. and Russia are about to sign a civilian nuclear cooperation agreement. But this would create a firestorm in Congress and I'll have far more on the topic next week.]

Lastly, Peter Finn of the Washington Post reported on Friday that Russia has been shutting down the Voice of America and Radio Free Europe / Radio Liberty wherever it's being aired.

So, the chances of a tension convention in St. Petersburg are still rather high, I think you'd agree.

[As for the episode of President Putin lifting up the five-year-old boy's shirt and kissing him on the stomach, I didn't write of it the first chance I had because I didn't think it was a story. But after hearing his explanation in an interview with the BBC the other day, all I can say is this guy is getting increasingly creepy.]

Mexico: By the time some of you read this, we'll have a good idea as to just how far leftist presidential candidate Andres Manuel Lopez Obrador wants to protest the recent election as the final tally showed him falling short of Felipe Calderon by just a few hundred thousand votes. Lopez Obrador was calling for a massive demonstration in Mexico City on Saturday as well as a court challenge. For his part, Calderon sought reconciliation and offered to put Lopez Obrador in his cabinet.

It's a classic rich vs. poor scenario, with half of Mexicans living below the poverty line. So far, though, it's been a hopeful exercise for Mexico's democracy, but that can all change in a flash?.and in that case it would be "Honey, we're going to Disney World!"

China: Columnist Gabriel Rozenberg in the London Times on China's growing influence in Africa, which isn't good for the "Live 8" crowd seeking positive change.

"China makes the G-8 look like, well, a bunch of ageing musicians reforming for one last gig. That weekend [of the 'Live 8' concert], as Pink Floyd sang 'Wish You Were Here,' a Chinese company called Great Wall quietly announced it was to blast Nigeria's first communications satellite into space. Selling Nigeria to investors is a tough job: insurgents, bandits and corruption are endemic. But here is Mustafa Bello, head of the Nigerian Investment Promotion Commission: 'The U.S. will talk to you about governance, about efficiency, about security, about the environment,' he says. 'The Chinese just ask: 'How do we procure this license.''

"Something extraordinary is going on in the developing world: everywhere you look, there is China. Its foreign minister, Li Zhaoxing, begins each year with a trip around Africa. It helps that he speaks fluent Swahili, which isn't, say, Margaret Beckett's [Britain's foreign secretary] forte. Trade between China and Africa grows at dizzying speed. Chinese firms are drilling for oil, mining metals and logging timber across the continent. They are also building everything from railways to football stadiums, in an unorthodox mix of hard business logic, soft loans and aid."

And the same is happening in Latin America, though I'd add some such as Brazil are increasingly impatient because China is not real good about keeping its word.

Japan / South Korea: The two are still at loggerheads over the disputed islands called Takeshima in Japan and Dokdo in Korea, which lie roughly between them. Japan was upset South Korea began a marine survey of the area, where both claim exclusive natural resources and fishing rights. South Korea claimed Japanese ships had entered South Korean waters without prior consent.

United Kingdom: As Londoners reflected on the one-year anniversary of the 7/7 bombings that killed over 50, a survey of Britain's Islamic community, some 1.6 million strong, reveals that 13 percent see the bombers as "martyrs." Prime Minister Tony Blair blasted moderate Islamic leaders for not doing more to condemn terrorism.

But on a lighter note, perhaps to some, Quentin Letts had the following comments in an op-ed for the Journal after England's loss in the World Cup.

"English men have long prided themselves on a certain resilience. It has been this way since at least 1815, when Lord Uxbridge was hit by a cannon ball in the closing moments of the Battle of Waterloo and said, in mild surprise: 'By God, I've lost my leg.' To which his neighbor, the Duke of Wellington, replied: 'By God sir, so you have.' Today's England was, therefore, a little surprised to switch on its TV sets last weekend and find one of its best-known men [David Beckham] weeping over the result of a soccer match?.

"The England team was about to be eliminated from the World Cup?and 31-year-old Mr. Beckham, a Conservative-supporting father of two, was inconsolable. Tears rolled down his cheeks like autumn raindrops. His eyes spouted like a garden sprinkler.

"When the final whistle blew a few minutes later the England players, almost to a man, sat down and bawled?

"What on earth was happening to the country which bred Captain Oates? Frostbitten Lawrence Oates was the polar explorer who in 1912, not wishing to delay his comrades, stepped out of his tent to certain death with the words: 'I am just going outside and may be some time.' Now that was manly?.

"One newspaper cartoon contrasted the football lamentations with the quiet dignity displayed at last week's 90th anniversary of the Battle of the Somme. In the first day of the Somme alone 19,240 British soldiers died. Today, however, the British people become emotional when even two servicemen are killed in Afghanistan, as also happened last weekend?.

"David Beckham's sniveling about a mere soccer game is ripe with comedy. The Pentagon, however, may want to bear in mind that its main ally in the war against terror is no longer quite so stoical in the face of adversity."

Canada: The new government of Stephen Harper is hiking defense spending to almost double 1998's pace. Much of the effort is to be directed towards better transport; such as helicopters, planes and ships.

Separately, Prime Minister Harper was in Washington for talks with President Bush and of great import to the Canadians is a proposed law, to take effect in 2008, that would mandate travelers crossing the U.S. / Canadian border carry passports or similar identification. This could greatly impede both tourism and trade and Canada's frustration is they haven't been told exactly what kinds of documents they need to provide. It's not like you can just work it up overnight.

At least the two nations have agreed in principle on the longstanding softwood lumber dispute.

Lebanon: The Druze are the smallest of the major players on the political scene here but this week two Druze factions battled it out, with at least one killed. Walid Jumblatt's anti-Syrian group went up against a pro-Syrian Druze element; not good.

And the alleged ringleader of an evolving plot to bomb the PATH train tunnel which connects New Jersey to New York was arrested in Beirut.

Ukraine: If you had Ukraine forming a government 3 ? months after its election?you lost! The fledgling coalition collapsed.

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Pray for the men and women of our armed forces.

God bless America.

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Gold closed at $631
Oil, $74.09

Returns for the week 7/3-7/7

Dow Jones -0.5% [11090]
S&P 500 -0.4% [1265]
S&P MidCap -1.5%
Russell 2000 -2.1%
Nasdaq -1.9% [2130]

Returns for the period 1/1/06-7/7/06

Dow Jones +3.5%
S&P 500 +1.4%
S&P MidCap +2.1%
Russell 2000 +5.4%
Nasdaq -3.4%

Bulls 38.7
Bears 34.4 [Source: Chartcraft / Investors Intelligence]

Have a great week. I appreciate your support.

Brian Trumbore

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