Educate Yourself

Week in Review
For the week 10/2/2006 - 10/6/2006
Brian Trumbore
President/Editor, StocksandNews.com

"Pyongyang is showing no signs of wanting to return to the six- party talks on its nuclear weapons program and the more I think about it, the more it makes sense that Kim Jong-il could opt to conduct an underground test in October, right before our mid- term elections."

This week the foreign ministry proclaimed "The DPRK (Democratic People's Republic of Korea) will in the future conduct a nuclear test in a condition where safety is firmly guaranteed," the first time the North has publicly announced its intent to join the club of nuclear powers, citing Washington's "threat of nuclear war." Immediately everyone began to scramble to prevent it, but a UN Security Council statement adopted on Friday, 15-0, was pitifully weak in tone.

"North Korea's threat to conduct a nuclear test is first and foremost a threat to its closest neighbors, China and South Korea. Pyongyang's emergence as a nuclear power would create a grave danger for their people and would probably transform regional security in East Asia in ways that both Beijing and Seoul would find harmful. Among other consequences, Japan might choose to build its own nuclear arsenal. South Korea's policy of seeking closer relations with the North and China's complementary strategy of propping up the totalitarian dictatorship of Kim Jong-il will have produced not stability but a potentially far-reaching destabilization?.

"It follows that the South Korean and Chinese governments ought to be leading the effort to stop North Korea from going forward. They, more than the United States or the United Nations, have the means to exert pressure. Without the energy and food aid they supply, and China's willingness to close its borders to North Korean refugees, the Kim dictatorship would almost certainly collapse. Most experts believe the North is not bluffing when it says it could detonate a nuclear warhead, but whether it does will probably depend on international reaction to this week's threat?.

"The North's latest provocation produced the usual claims that the United States was somehow at fault for failing to 'engage' the dictatorship. Yet the Bush administration has made it clear that it will be open to a broad security dialogue if the North returns to the multiparty negotiations it has boycotted for the past year. Just last month the senior U.S. negotiator again offered to meet his North Korean counterpart to discuss how talks could resume. There was no response.

"Instead of demanding that Washington answer the threats of a criminal regime with appeasement or bribery, those who want to prevent a North Korean bomb test should be insisting on action by the governments that now shirk their responsibility to stand up to that regime - South Korea and China."

"If the flower children in charge of South Korean national security policy these days have acquitted themselves poorly, the record of the self-proclaimed grownups who took charge of Washington's policies in 2001 does not look that much better. Passive-aggressive in the face of North Korean brinkmanship, irritable and reactive in the face of mounting frictions in the relationship with Seoul, the Bush administration's main achievement to date in 'alliance management' seems to have been the drawdown of U.S. forces in South Korea, with more in store. It is not even clear that our statesmen understand the stakes of the game they are embroiled in. All this, of course, will hardly dissuade Pyongyang from pressing the U.S.-South Korea alliance ever harder.

"With his latest nuclear gambit, Kim Jong-il has just reset the clock on the U.S.-South Korean military alliance, moving the hands palpably closer to midnight. If we listen closely, we can hear the ticking."

Last week I touched on Russian pride and nationalism (as opposed to the lack of same I found in Bulgaria and Romania) and there is no clearer example of what I've been writing on Russia for years now than its ongoing actions against neighbor Georgia. The Kremlin's deputy foreign minister said on Thursday, "Russia does not want to be provoked. Russia wants to be respected. Russia wants the anti-Russian campaign to stop."

Yes, it's increasingly about Russian pride and President Vladimir Putin's growing nationalism and reassertion of his nation's "near abroad."

This time the one stuck in the middle is fledgling democracy Georgia, and the United States and Europe, for different reasons, are virtually powerless to do anything about it.

Even when the Georgian government returned the alleged Russian spies, whose arrest had precipitated this crisis, to Moscow, the Kremlin merely tightened the screws further. Georgian businesses in Russia were raided and 130 Georgian citizens were deported. Moscow also levied all kinds of trade sanctions, stopped the mail between the two and sealed the border. Russian defense minister Sergei Ivanov accused Eastern European members of NATO of illegally selling Soviet-made arms to Georgia. Putin accused Georgia of "state terrorism."

One million Georgians work in Russia and now the vital money flow back to their homes has been cut off. Putin's thugocracy is exhibiting its muscle.

Amidst all this you can be sure Russian natural gas monopoly Gazprom will be putting the screws to Georgia; that is if the Kremlin wants the residents to receive any gas at all. Georgian officials are looking for a three-fold increase in prices shortly.

"I would not advise anyone to talk with Russia in the language of provocation and blackmail."

The president of Georgia's Nation Bank said Georgia, a member of the World Trade Organization, would oppose Russian entry to the WTO until Russia lifted its economic sanctions. I noted earlier this year that Russia was already banning Georgian wine and mineral water.

The official, Roman Gotsiridze, said "These sanctions are the behavior of an uncivilized country, and it is hard to imagine that a country that imposes a blockade on its neighbor is a member of the Group of Eight."

Good point, but alas the ultimate victim of all this maneuvering is possibly Georgian President Mikhail Saakashvili, a staunch ally of the White House.

"Russian President Vladimir Putin has never fully accepted the breakup of the Soviet Union, which he once called 'the greatest catastrophe of the 20th century.' Having consolidated power in Moscow by dismantling his country's nascent democracy, he has devoted himself in recent years to reestablishing the Kremlin's political and economic dominion over former Soviet republics?.

"Yesterday (Monday), pressed by the Bush administration, Georgia allowed the Russian officers to return home. But Russia continued its bellicose acts, while improbably claiming that it - and not the poor nation of 5 million it is besieging - is the victim of aggression. In a telephone conversation, Mr. Putin told President Bush that 'it was unacceptable for other countries to take steps that Georgia could interpret as support,' according to the Russian news agency RIA Novosti.

"Mr. Bush ought to reject that imperious warning. U.S. diplomats in fact have spent the past several days urging compromise and caution on the part of Georgia's sometimes impulsive president?.But the United States has not only the right but also the duty to support Georgia's independence and Mr. Saakashvili's aspirations to consolidate liberal democracy and steer his country toward membership in NATO. As the Georgian president rightly said yesterday, 'The message to Russia is: 'Enough is enough.''"

But Putin won't see it that way, and, back to the issue of energy security, Robert Amsterdam, a defense counsel for former Yukos founder Mikhail Khodorkovsky, wrote the following in the International Herald Tribune.

"A global economic challenge has been presented by Russia, driven by energy markets and threatening to distort the foundations of international trade?.

"The Kremlin has stolen one of the world's key oil producers and then resold it to Western investors who have now bought the same assets twice, with the complicity of Western banks.

"It has steered its foreign relations so as to divide the West. No sooner does the Kremlin have Romano Prodi accept market access for Gazprom than Gazprom seals a deal with Algeria to tie up over two thirds of Italy's energy supply.

"In addition?(the) failure to soften the Gazprom monopoly, which violates fundamental norms of competition, is somehow deemed acceptable because Western financiers and investors can participate in the resulting windfalls.

"The true brilliance of the Kremlin's strategy is the concept of cooptation. Whether turning Germany against Poland or political leaders against their own people or ABN AMRO against a proud Dutch history of sensitivity to human rights, not only does everyone have a price, but everyone avoids shame while loudly declaring the beauty of the emperor's clothes.

"The consequences are worrisome when political considerations trump capital markets logic and respect for law?.

"Another feature of the Russian offensive is speed. From Algeria to Iran to Venezuela, a new gas cartel is being formed. From Norway to Canada to Brazil, new opportunistic energy market players are being coopted. From Slovakia to Lithuania to Poland and Ukraine, old-style energy hardball is being played involving everything from phony pipeline repairs to outright blockade?.

"Western leaders must challenge their own assumptions about the real nature of the current Russian regime. A parallel may be drawn to 1946, when George Kennan dispatched his celebrated 'long telegram' from the U.S. Embassy in Moscow. The 8,000- word dispatch provided an elaborate explanation of the undercurrents of the emerging post-war Soviet foreign policy.

"For more than a generation, Washington's Cold War strategy of containment was grounded in the analysis and recommendations in the telegram.

"Today the world stands at a similar geopolitical turning point. Russia is mutating rapidly, and the post-Cold War window of opportunity to engage Russia as an ally and partner is closing.

"It is time for someone to write the 'long telegram' of 2006 - not to reignite a Cold War, but to avert one by awakening to the realities and implications of a kleptocracy that poses real threats to global economic and political security."

John Warner is the highly respected Republican chairman of the Senate Armed Services Committee and upon his return from yet another fact-finding trip to Iraq, he uttered some words that are reverberating loudly. Addressing the ongoing violence and the Maliki government's inability to control it, Warner said:

"In two or three months if this thing hasn't come to fruition and this level of violence is not under control, I think it's a responsibility of our government to determine: Is there a change of course we should take?"

While Warner didn't go on to say just what changes may be necessary, he said no options can be taken off the table.

It certainly hasn't been a good stretch for the U.S. in Iraq. Between last Saturday and Friday, at least 23 Americans were killed, many in Baghdad as a result of the conscious decision to increase U.S. exposure there. For the month of September, 74 Americans were killed while only 150 Iraqi security forces died.

And speaking of the Iraqi 'face' on things, a police brigade of 700 was disbanded and sent back to school, so to speak, for being tied to death squads, as Prime Minister Maliki continues to be criticized for not doing enough to crack down on them; one of Sen. Warner's clear inferences.

But thankfully, the United States, and the Bush administration, escaped what could have been a catastrophe in breaking up an alleged plot by a leading Sunni politician's bodyguard to wreak havoc inside the Green Zone. Last January 28, I wrote in this space that U.S. military experts had told Defense News this was their ultimate concern and I added "one catastrophic attack in the Green Zone could represent the final tipping point in maintaining our forces there at significant levels," meaning if this plan had been carried out and, say, 20 or 30 soldiers and/or American officials had been killed (let alone if the Iraqi government itself had been decapitated), the calls to bring our troops home would have resulted in an almost immediate forced withdrawal, regardless of the president's apparent resolve. It also would have resulted in huge Republican losses at the polls, with or without the scandal de jour.

As for the spate of books critical of the Bush White House and its handling of Iraq, topped off by Bob Woodward's "State of Denial," it's all just more of the same, or, as the Washington Post put it, further examples of the "overwhelming and shocking incompetence" in the administration's handling of the war.

"We continue to agree with Mr. Bush that it would be wrong and dangerous for U.S. troops simply to withdraw. But it is also dangerous when leaders such as Mr. Bush, Vice President Cheney and Mr. Rumsfeld continue to resist reality."

It's been over five weeks since the UN Security Council demanded Tehran cease with its uranium enrichment program and now it appears the latest attempt at talks with the EU has failed.

Secretary of State Condoleezza Rice toured Israel and Palestine in an attempt to jumpstart the peace process here as the White House does what it can to buck up Palestinian President Mahmoud Abbas. But these days the battle is as much between Abbas's Fatah organization and Hamas as between Israel and the Palestinians. Nine were killed in one day of fighting between Fatah and Hamas over a pay row, while in a survey 77 percent of Palestinians described themselves as "severely depressed."

In Lebanon, no one should be surprised if a coup topples the government of Prime Minister Fouad Siniora. Siniora is making a sincere attempt to get a handle on reconstruction and to ensure funds are distributed properly and not handed to corrupt officials instead, but at the same time the only real help people are seeing in the devastated south remains through the auspices of Hizbullah.

Meanwhile Speaker Nabi Berri, a Hizbullah sympathizer, warned Israel that fighting could be renewed unless Israel withdraws from Shebaa Farms, though at the same time Berri claims he's getting along with Siniora.

"U.S. Secretary of State Condoleezza Rice's current mission in the Middle East faces a number of difficult hurdles that are indigenous to the region, but the most daunting obstacle is one of her own government's making. The crux of the matter is that the U.S. secretary of state cannot hope to revive the Arab-Israeli peace process unless and until she at least feigns evenhandedness. As the Jewish state's most ardent advocate, Washington's only hope of achieving credibility in the Arab world is to examine Israeli actions in an unbiased fashion and to condemn those that are not conducive to the building of confidence and trust that are so badly needed.

"There is no shortage of issues on which Rice could do so without contradicting existing U.S. policy. Provocative Israeli policies like settlement expansion and assassination, for example, are two areas in which she could help convince Arabs in general, and Palestinians in particular, of America's good faith. To do so, however, Rice needs to take a stand.

"It is rare for U.S. officials to publicly criticize Israeli actions, which is precisely why a forthright American message is so necessary at this juncture. The Arabs need to feel that the would- be mediator in any future negotiations is capable of straight talk when it comes to their Israeli interlocutors' more egregious activities. And the Israelis need to understand that there are limits to how far they can go without incurring U.S. displeasure.

"Rice and her colleagues have not been reticent to condemn immoderate positions held by the current Palestinian Cabinet. Without a similar willingness to acknowledge the extremist and unhelpful nature of certain Israeli policies, however, American words will continue to ring hollow among Arab audiences. That can only make Rice's attempts to foster a resumption of dialogue look something less than genuine."

"There is a new regional cold war taking place in the Middle East, pitting pro-Western leaderships against those forces who defy and resist U.S. and Israeli-led Western aims in the area. The ideological polarization that has taken place in recent years, however, is partly, perhaps largely, a consequence of Washington's use of its army, diplomacy and economy to push for Israeli strategic aims and to go against majority sentiment in most Arab countries. The U.S. speaks about promoting democracy, but largely supports non-democratic Arab regimes. It has actively isolated and tried to bring down the democratically elected Hamas government in Palestine, instead of engaging it and nudging it and Israel toward mutually rewarding peace talks.

"Washington looks very foolish or very na?ve talking about a plan to work with Arab moderate governments to check extremists. Its own policies have helped promote the extremism it now fears, and have weakened the impact and credibility of the so-called moderate Arabs it now seeks to bolster. The GCC (Gulf Cooperation Council), Egypt and Jordan do not have the collective credibility or clout to have much impact beyond their own Green Zones in their own capitals; for they - like the U.S. in Baghdad - often tend to be out of touch and out of step with public opinion in their own societies."

Last week I said I was going to comment on President Bush from the standpoint of why so many around the world truly despise him. I've seen countless examples of this in my own travels, believe me, and in a nutshell it comes down to seeming arrogance and disdain for the rest of the global community.

Oh, I know how many on the far right dismiss such talk with a wave of the hand?.as in 'who gives a damn about what some Europeans or Muslims in the Gulf think. It's about protecting fortress America.'

But this is such a dangerous sentiment at a time when we need allies to keep up the pressure not just on the al Qaeda types, but also rogue regimes and ensuring the safety of existing weapons of mass destruction in places like Russia.

I caught former secretary of state James Baker on Fox the other day as he promoted his new book. Understand that Baker had worked for Bush 41 and Reagan and he is loath to criticize the current inhabitant of the White House, but he nonetheless made it clear that one must constantly engage leaders in other nations, including one's enemies. Baker cited the case of Syria, where he shuttled 15 times for fruitless discussions with then Syrian leader Hafez Assad, but suddenly on the 16th attempt struck gold and Assad agreed to talks with Israel.

It's about pragmatism, which is in short supply in the White House these days. But more importantly, as alluded to in some of the opinion pieces above, the U.S. must be seen as an honest broker and today that is the furthest thing from the truth and a major cause why, as the National Intelligence Estimate concluded, there is a "pervasive anti-U.S. sentiment among Muslims."

Talk, as Baker himself says, is not appeasement. As I've spelled out recently, and do further below, for example, what Pope Benedict XVI is doing in attempting to establish a dialogue with the leaders of Islam shows guts and if other religious and political leaders don't take such steps themselves we will never reach solutions to the biggest problems on the geopolitical scene.

But talk of any kind is worthless if one of the party's to the dialogue also happens to be incompetent and the Bush White House has exhibited this trait in spades; or as Bob Woodward described some of Condi Rice's moves, "pathetic."

I've held back on President Bush this week, though only because my true opinions should have been long clear. Suffice it to say, America is losing the battle for the hearts and minds and it's our leaders who are failing us.

Thank goodness the market doesn't waste its time with weightier issues like I do. It's far easier to ignore the potential implications of a nuclearized Korean peninsula and Japan, let alone a bunch of nuclear mullahs, and focus on Goldilocks instead.

In this instance Goldilocks refers to the perfect scenario for the markets; an economy that's not too hot and not too cold, with tame interest rates and inflation and steadily growing earnings. For this week, and basically for the past few months for that matter, most investors believe we are in a Goldilocks environment and the Dow Jones hit a new all-time closing high of 11866 as a result. [That and the fact neither North Korea nor Iran forced television networks to break into "The View."]

But what did the economic data actually tell us this week? Key readings on both manufacturing and the service sector were down, though still at levels reflecting growth, and retail sales for September at the large chain stores were very strong, all except, it seems, Wal-Mart, which had to revise downward an already desultory figure due to a bookkeeping error. [In order to reduce costs and further lower prices, Wal-Mart has been employing Bob Cratchett. Good guy, mind you, but a little in over his head.]

Friday's employment report showed a meager gain in job creation, just 51,000 in September, but prior months were revised sharply upward, let alone the fact the Labor Department, in an annual revision, checked its abacus and?presto!...810,000 more jobs were found in the U.S.

Well, take the above and couple it with a lowering of the unemployment rate to 4.6 percent, a five-year low, and it's no wonder the president stepped forward to crow, even though the latest NBC News / Wall Street Journal survey still gives him just a 41 percent approval rating (53 percent disapproval) on his handling of the economy.

For consumers, gasoline prices continue to decline, to about $2.30 a gallon nationwide, and OPEC's murmurings about a production cut to stem the slide have been met with a big yawn.

And speaking of the savings in energy, including September utility bills for those of us in the northeast, it would appear my monologue of two weeks ago is panning out. Consumers are clearly preferring to look at actual cash savings from lower gas prices, say at an annualized rate of $450 a year, vs. a paper loss on their real estate investment of, say, $20,000 to $50,000 after a prior gain of $200,000. I mean that's pretty much the logic being followed these days. [Of course more recent home buyers may view this whole equation differently.]

But at some point the mindset is bound to change, though maybe not until 2007, thus perhaps saving Christmas, too.

However, before you go popping the Korbel (hey, it's not like Nasdaq hit a new high, you know), Federal Reserve Chairman Ben Bernanke told you this week, in his strongest words yet on the topic, that real estate was undergoing a "substantial correction" and that it would shave one percent off GDP the second half of the year and who knows how much in '07; admitting it was tough to predict the "dynamics" of housing and its overall impact.

And then Bernanke's vice chairman, Donald Kohn, said the falloff in real estate has "proven to have been more rapid and deeper than many economists had predicted."

Well I'm no economist (my sheepskin says poli-sci major and beer drinker), but anyone with half a brain knew real estate had long entered the frothy stage by last fall?.a full 12 months ago, Mr. Kohn?ergo, when bubbles pop, the fall can be rough. Or maybe Kohn forgot Nasdaq 5048. Moody's Economy.com also weighed in with research that predicts the average home price will decline about 4 percent in 2007, with far greater losses in the hotter markets.

But lest I get too smug, which I'm not entitled to be anyway because I thought the three major equity indexes would decline 3 to 7 percent this year, I do agree with Bernanke that it's tough to predict the dynamics of housing and its overall impact; which is why I muse about the psychological impact between $450 in the pocket and a $20,000 hit to the net worth, as well as the fact that Americans, overall, are spending more on housing (including for real estate taxes, insurance and utilities) than ever before, according to the latest Census Bureau data.

Finally, next week we get the first trickle of report cards on the third quarter and everyone will be looking for the accompanying comments from the executive suite on the future. I'll be shocked if they aren't largely cautious, which may help impede any attempts at further gains in share prices.

--Tuesday through Thursday the Dow Jones Industrial Average hit new highs, only to decline slightly on Friday on the uncertainties surrounding the jobs revisions and its impact on Fed policy. It also didn't help that Dow component General Motors declined on news the respected Jerome York resigned from its board, as his investment partner, Kirk Kerkorian, has decided not to raise his stake in GM following word the automaker was not pursuing an alliance with Renault and Nissan.

For the week the Dow had its second straight advance of 1.5 percent, to 11850, while the S&P 500 added 1 percent and Nasdaq 1.8 percent to 2299. Yes, finally the pattern of alternating weeks of gains and losses has been broken.

Bonds were rallying early in the week on the thought the economy was slowing enough to allow the Federal Reserve to begin lowering rates, perhaps by December, but then on Thursday, Fed officials Kohn and Donald Plosser both said inflation remained a bigger risk than a slowdown. Couple that with Friday's employment report that revealed wage growth of 4 percent over the past 12 months and it's no surprise that bonds tanked at week's end. Additionally, the European Central Bank raised its key lending rate to 3.25 percent and strongly hinted it was going higher by year end.

--Going back to Jan. 14, 2000, and the Dow Jones' previous all- time high of 11722, the five biggest gainers since then among the 30 components in the average have been Altria, Caterpillar, United Technologies, Boeing and Exxon Mobil. The biggest loser has been Intel. [Source: Dow Jones Indexes / Wall Street Journal]

--Russia, continued?..a senior official at oil and gas company TNK-BP was shot three times in the back and head while working on a big project in eastern Siberia. TNK claimed it couldn't have been related to his work. Russian energy giants Gazprom and Rosneft just so happen to be interested in further consolidating their respective holdings by going after TNK.

--Can it get any worse for Airbus and its jumbo flying wiener, the A380? For the third time in 16 months it announced another delay in delivery of this incredibly stupid project and this latest one will cost parent European Aeronautic, Defense & Space Co. (EADS) $6 billion.

Airbus has 159 orders from 16 customers thus far for the plane, which cost $13.5 billion to develop. The biggest is by Emirates for 45 aircraft and it said it's reviewing "all options."

The latest delay has to do with the complexity of installing 300 miles of wiring in each of the double-decker planes. 300 miles! This whole story is a nightmare.

--While SUV and truck sales rebounded some in September thanks to falling gasoline prices, Toyota's market share continued to climb as it posted a 25 percent year-over-year sales increase last month, even as GM and Chrysler's sales dropped and Ford's rose almost 5 percent.

--Trader George alerted me to a Consumer Reports study on ethanol and E85 gasoline (85 percent ethanol / 15 percent gasoline). After putting a 2007 Chevy Tahoe flexible-fuel vehicle through the paces, CR found:

"The fuel economy of the Tahoe dropped 27 percent when running on E85 compared with gasoline?

"When we calculated the Tahoe's driving range, we found that it decreased to about 300 miles on a full tank of E85 compared with about 440 on gasoline. So you have to fill up more often with E85."

--California's attorney general filed felony charges against former Hewlett-Packard chairwoman Patricia Dunn and four associates, accusing them among other things of using false pretenses to obtain confidential information and identity theft in the ongoing investigation into methods used by HP to probe boardroom leaks.

--The Wall Street Journal reported the European Union has enough evidence to pursue antitrust charges against Intel. The probe, however, has been going on for five years and should charges be formally brought it would be another few years, undoubtedly, before there was any resolution. Rival Advanced Micro Devices has long claimed Intel abused its market-leading position to squelch competition.

--In catching up on my mail following my European trip, I got around to the Oct. 2 issue of Business Week and its cover story on click-fraud, a topic near and dear to my heart. No one should be surprised there is "growing unease among advertisers" as an estimated 15 percent of all clicks are fraudulent.

On a related topic, the New York Post reported that Yahoo is suffering from the softening real estate market to the tune of about $75 million in lost advertising. Industry-wide, online real estate ad spending is expected to reach $1.7 billion this year. [Borell Associates]

--The Securities and Exchange Commission has cleared hedge fund Pequot Capital Management of any wrongdoing in connection with an insider trading investigation that also involved Morgan Stanley CEO John Mack. Back on 6/24/06, I wrote in this space "I give little credence to" the allegations; adding it was only a story because of the Mack angle and his being a leading fundraiser for George Bush.

--Private-equity firms have already raised more money in 2006 than they did all of last year, meaning you'll continue to see leveraged-buyouts such as this week's big entry, a $15 billion move to take Harrah's Entertainment private.

--Andy Xie, the chief economist at Morgan Stanley for Asia, was forced to resign after writing in an internal e-mail that the Association of Southeast Asian Nations was a "failure" and that, basically, Singapore is nothing more than a haven for money laundering. He also had strong comments about Singapore's prime minister, all of which could cost Morgan Stanley significant business in the future. Xie has always been known for his blunt opinions, though in this case he admits he may have crossed the line. It's another lesson learned about e-mail in general as well.

--Online gaming stocks such as PartyGaming, many of which are headquartered in the UK and/or traded on the London Stock Exchange, took a huge hit this week after Congress passed a law banning U.S. gamblers from using credit cards and other fund transfers to place online wagers. These outfits receive a lion's share of their business from the States; like 77 percent in the case of PartyGaming.

--Ryanair made a hostile bid for Aer Lingus just a week after the latter went public. Ryanair's dynamic CEO Michael Ryan is seeking to form "one strong airline group for Ireland," though Aer Lingus has rejected the offer thus far.

--A story in the Journal reminded me it's time for the annual warning to mutual fund buyers. Beware of imbedded capital gains before buying over the coming months or you could find yourself picking up an unwelcome tax liability. Make sure your financial advisor looks into the fund's cap gain estimate before you buy a particular offering. And be careful of bond funds, as well. They too can distribute significant gains, remember.

--The Playboy Club is back?opening at the Palms Casino in Las Vegas this weekend. Some of us of a certain generation recall these quite fondly.

--Crain's New York Business reports that the average room rate at hotels in the Big Apple is approaching $300 and occupancy is declining, slightly, as a result. Yes, at a certain price level consumers begin to rethink some of their plans?a lesson others like Ireland are going to have to be aware of.

--My friend Jimbo is in mourning. The founder of Lands' End, Gary Comer, passed away this week. Comer started out selling sailing equipment in 1963 and rapidly expanded from there. But what I didn't know is that the apostrophe in Lands' was the result of a printer's error and Comer decided to keep it there.

--In the near future, the Census Bureau will announce America's population has hit 300 million; the U.S. being virtually alone among developed nations in exhibiting growth in this area.

"Population growth has raised two serious concerns. One is environmental. It is that we are creating overcongested communities that will demand energy and - particularly in the Southwest - water that won't be there or will be there only at an exorbitant price. Population growth will cause an economic and social backlash.

"Perhaps. But this is a big country, and much of it is still empty. There's plenty of coal. If Southern and Western metro areas become too crowded or costly, maybe people will return to Cleveland and Milwaukee, where water is plentiful and housing prices are low?.Still, population growth shows why curbing energy use - and greenhouse gas emissions - is so hard. The population is projected to increase 40 percent by 2050. Simply to keep total energy demand steady would require each American, on average, to make correspondingly deep cuts in energy use.

"The second concern involves immigration - and its possibly explosive combination with aging. Up to a point, America's willingness to accept immigrants is a sign of confidence that promotes economic growth. But our careless approach to immigration is creating social problems. Many Hispanic immigrants are poor and have few skills. Their average weekly wages ($389) are only two-thirds of the average for all workers ($577). The predominance of poor workers frustrates future assimilation. It's hard to move into the middle class. All this makes immigration seem threatening to millions of Americans, who visualize their country being overrun by an alien underclass.

"The potential mixing with aging is obvious. Paying the retirement benefits of baby boomers could easily require federal tax increases of 30 to 50 percent. Even without immigration, younger workers might object to such steep burdens, especially because many retirees will be richer than workers. Now add the impact of immigration. A growing part of the labor force will consist of Hispanic and Asian Americans. Most won't have relatives on Social Security and Medicare. They may wonder why they should pay so much to support somebody else's wealthier parents. The politics could get ugly.

"We might have mitigated all these problems. We might have controlled the border better and favored more highly skilled immigrants with better assimilation prospects. We might have reduced boomers' Social Security and Medicare costs by limiting benefits for younger and wealthier retirees. We might even have curbed our energy appetite. But we have done none of these things. So if population growth backfires, we will have only ourselves to blame."

--Ah yes, the coming entitlement disaster. Federal Reserve Chairman Ben Bernanke commented on it this week in an important policy speech. [See my "Wall Street History" link]

Like Samuelson, Bernanke stressed "some sacrifice on the part of the current generation," but then offered no solution. Now I recognize in his position he is not going to talk specifics, but it gives me an opportunity to trumpet yet again my own long-held idea.

Freeze benefits for one year and let the power of compounding take over from there. We may have to do it every four or five years, but at least it's not a hard-dollar cut in benefits and people can plan accordingly. Couple this with a gradual increase in the retirement age and a growing economy and Social Security becomes more of a budget item than a disaster. [Medicare, however, is a different story.]

"Unfortunately, many years of concentrated attention on this issue by policymakers and economists have failed to uncover a silver bullet for increasing household saving. The Federal Reserve has actively supported such efforts, which may be useful in helping people understand the importance of saving and to learn about alternative saving vehicles."

Yeah, but this is another pet peeve of my mine. When the heck did you ever see the Federal Government do a public service announcement on retirement plan investing and saving for the future? Just do it, Uncle Ben!

Afghanistan: In catching up on the mail I noticed a telling chart in the Oct. 2 issue of Newsweek concerning spending in Afghanistan vs. Iraq.

Between 2001-02 and 2006, spending in Afghanistan rose only from $18.1 billion to $19.9 billion.

This week, NATO formally took charge of Afghanistan's eastern provinces, meaning 12,000 U.S. troops are under the control of a British commander. The total NATO force here is 32,000.

The Vatican: Last week I wrote the mass media misinterpreted Pope Benedict XVI's meeting with ambassadors and representatives of Islamic countries and that in reality he had refused "to back down in stressing his opposition to religious intolerance." The following was then part of an op-ed by John Vinocur in Tuesday's International Herald Tribune.

Quoting Marcello Pera, who collaborated with the Pope on a book about Christianity and Islam two years ago:

"I believe he really didn't apologize to the ambassadors. And in using the word dialogue, he knows what he's doing. He also introduced the word 'reciprocity.' That, I think, represents his notion of the necessity of respect for the West."

Which in part also goes to the big issue in Britain at week's end; former cabinet secretary Jack Straw's comment that Muslim women should not wear the full veil because it made community relations "more difficult."

Of course immediately many Muslim leaders took off on Straw, but, like the Pope, he knew full well what he was doing. He is attempting to start a critically important dialogue, and one based on his own past experience.

Straw claims anytime he asked a woman he was meeting within his district (Straw is now Leader of the House of Commons) to take off the veil before talking with him, "Most seem relieved I have asked." He is also not talking about removing the headscarf.

Straw's big point, though, is that Britain now has two parallel societies and that's dangerous.

There are also legitimate security concerns these days, and as one female human rights expert told the BBC during coverage I was watching, remember, back in 1973 Yassir Arafat fled Jordan disguised as a woman; let alone all the tales of suicide bombers today.

China / Japan: New Japanese Prime Minister Shinzo Abe is slated to meet with China's President Hu Jintao and Premier Wen Jiabao on Sunday in China, thanks to some sort of understanding reached ahead of time on the Yasukuni war shrine visits that Abe's predecessor Junichiro Koizumi made, much to the chagrin of both China and South Korea. This could be significant. At the same time, though, the topic of North Korea is overshadowing discussions on China / Japan relations.

Separately, Abe, in his first full week in office, called for instilling patriotism in Japanese schools and reviving traditional virtues and family values, which to some of Japan's neighbors is a bit unsettling given the past.

In China itself, the BBC aired a special report on Friday concerning the execution of up to 10,000 people a year here, many falsely accused of crimes who are then tortured into making confessions. The reporter interviewed some victims' family members and it was powerful?.and speaks to the nature of a regime that many prefer to ignore.

Then there is this item, as reported by Robyn Dixon of the Los Angeles Times. You know all those tails of China eagerly exploiting Africa's riches? They may be taking it too far.

"Deep in the tunnel of the Collum mine (in Zambia), coal dust swirls thickly, and it's stifling for workers such as Chengo Nguni. He describes his $2-a-day job with a sigh: His supervisor yells incomprehensibly in Chinese. His rubber boots leak. The buttons to control the flow of ore out of the mine often deliver an electric shock.

"But the worst thing about life in the Chinese-owned mine in southern Zambia is that there is no such thing as a day off. Ever.

"When the government minister concerned with the region, Alice Simango, saw the conditions at the Collum mine, she wept on national television and accused the management of treating workers like animals, prompting the government to close the mine for three days in July."

Chinese investment in Africa is soaring, but in Zambia and elsewhere across the continent, a backlash is growing. Recall from past items I've noted, China has also made threats to those politicians who have the guts to question Beijing's tactics.

This is the China of Mao?rather than the 'China miracle' so many choose to trumpet.

India / Pakistan: After an investigation into the July 11 Mumbai bomb attacks, the Indian government directly blamed Pakistan and elements in the ISI. I'm surprised the story then quickly died down, at least for now.

Turkey: Prime Minister Erdogan met with President Bush and called the U.S. a "strategic partner," while Bush endorsed Turkey's E.U. bid. But all eyes are on Turkey's struggle with the Kurds and, in November, the Pope's still scheduled trip there.

Serbia / Kosovo: The Serbs continue to assert their rights to Kosovo even as the UN prepares to grant Kosovo (comprised of ethnic Albanians) full independence.

This is going to get nasty and Kosovo will be back in the headlines soon. But while it's not necessarily a 'market-moving' event, what it has the potential to do is sap NATO of precious resources at a time when it should be all hands on deck in Afghanistan.

Venezuela: The UN is preparing to vote on Latin America's rotating seat on the Security Council and Hugo Chavez is doling out the cash to secure support for Venezuela's bid. Incredibly, Brazil may side with Chavez as President Lula now faces a tough run-off later this month after he failed to capture the required 50 percent in last week's election.

But just two weeks ago I was writing of how the United States can not ignore the growing role of Iran in Venezuela as relations blossom between the two, yet in comments this week, neither Secretary of Defense Rumsfeld nor the head of the Southern Command brought it up in discussing the threat posed by Chavez's arms build-up. Instead they talked of how Chavez could pass off arms to terrorists to destabilize the region, but I'm arguing, yes, that also includes Iran which will soon have hundreds or thousands of operatives in a nation just about a two- hour flight from Miami. Or am I missing something?

Hungary: Embattled Prime Minister Gyurcsany called for a vote of confidence in parliament on Friday and received it, 207-165, after the opposition president demanded Gyurcsany be ousted for lying about state finances prior to last spring's parliamentary elections.

Austria: Chancellor Wolfgang Schussel's coalition lost to the Social Democrats, after Schussel tried to reform the pension system. Ultra-right Joerg Haider's party barely captured 4 percent of the vote, the threshold for maintaining a presence in parliament.

Czech Republic: I see from Saturday's New York Times that Prague is under its highest terror threat ever and here I didn't even know it in my two trips there over the past few weeks.

Thailand: The coup aftermath is orderly thus far, with the military government reaching out to the insurgency in the south. Former Prime Minister Thaksin, now living in London, quit his party, leaving them in turmoil, as the new government estimates Thaksin's corruption was responsible for almost $12 billion in lost revenue for the state treasury.

Britain: Good news?.a commission monitoring developments in Northern Ireland has declared the IRA's terror "campaign is over." While many members have shifted to more standard criminal activities, the IRA "has done what we asked it to do."

Power-sharing talks between Protestants and Catholics, however, remain an entirely separate, volatile issue.

France: Interior Minister Nikolas Sarkozy, the conservative front-runner for the race to succeed President Jacques Chirac, called for the European Union to toughen immigration standards, blaming Spain in particular for allowing amnesty to flourish there, in his opinion.

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