Week in Review 
For the week 11/6/2006 - 11/10/2006
Brian Trumbore
President/Editor, StocksandNews.com

Post-Election Foreign Policy

I've been incredulous how during the just concluded campaign President Bush acted as if the Iraq war was still in its infancy rather than in its 44th month. So for the last time, and for new readers, let me remind you of a little history.

Week in Review?8/30/03

"I thought some of the results from the latest Newsweek survey on current attitudes were quite telling.

"61% of Americans still believe the U.S. was right to take action in Iraq, while?

"60% say the U.S. should scale back the effort, and?

"56% approve of keeping a large force in Iraq for 2 years or less.

"This is what I've been referring to the past few months as soft support. This is why President Bush, in prime time, must do a better job of explaining the long-term mission.

"Robert Kagan and William Kristol had the following thoughts in the Sept. 1 / Sept. 8 issue of The Weekly Standard.

" 'We believe the president and his top advisers understand the magnitude of the task. That is why it is so baffling that, up until now, the Bush administration has failed to commit resources to the rebuilding of Iraq commensurate with (the) very high stakes (first and foremost being a safer Middle East).'

"They add: 'Business as usual is not acceptable. Getting the job done in Iraq is our highest priority, and our government needs to treat it as such?.The president knows that failure in Iraq is intolerable. Now is the time to act decisively to prevent it.'"

I then wrote:

"The ill-timed 'Mission Accomplished' banner of May 1st may yet be 5 years from fruition and it will require keeping a large force on the ground there for longer than that, I presume.

"It's frustrating to me, as a supporter of preemption and the domino theory in the region, that shoddy implementation and institutional arrogance, as best exemplified by Secretary of Defense Rumsfeld, could keep us from accomplishing the goal."

Week in Review?9/13/03

"We lost many of the hearts and minds in that critical first 60 days; including those who may have been tempted to turn on the remnants of Saddam's regime before it could gain a new stronghold.

"There are all manner of apologists coming out with stories on how well things are going in parts of Iraq and I don't doubt this is the case, but the Big Picture is nowhere near as good as it should have been and I blame the White House for miscalculating sentiment, let alone failing to come clean with the American people until now as to the costs?.

"I want the apologists to know it's not just Democrats asking questions, loyal Republicans such as yours truly, let alone the likes of Senators McCain, Hagel, and Lugar are as well. I still strongly believe this was a just war, brilliantly executed, but it's as if everyone in the White House sat back on April 9 and had a cigar while patting each other on the back?all through May, June, July and August. Thank God the American servicemen and women continue to perform their duties in the best tradition of this nation's military. The same can't be said of their civilian leadership."

And so we just had an election, a referendum on the war in many respects; three long, bloody years later with our nation continuing to pay a price for the utter incompetence displayed, across the board, by the foreign policy apparatus in Washington. For their part, rank and file Republicans are in an uproar over President Bush's belated maneuver to replace Donald Rumsfeld. We're now told Bush was contemplating this for months and because of his inaction many good Republican candidates were washed out with the tide. Others, thanks in no small part to burgeoning corruption, deserved their fate.

But when I got to work on Wednesday morning, aside from the scope of the GOP losses the first item I focused on was the Israeli shelling in Gaza that claimed 18 innocent lives.

Understand my ire since the start of the Lebanese conflict last summer has been directed not as much at the Israeli government itself as at the Bush White House, because it is the U.S., alone, that can get the warring parties to at least stop the shooting and shelling. Just last week I graded the administration on its foreign policy and said of the Israeli / Palestinian quagmire, "This ongoing crisis has taken another decided turn for the worse and the Bush administration refuses to question anything Israel does." Then Tuesday night's horrific incident and what do you see the White House doing in response? Nothing.

Give me one reason for cause for optimism. Because we totally botched Iraq, we lost our leverage with Iran. Because we then let Israel run roughshod over Lebanon and destroy its infrastructure, we lost our leverage with Iran. Because we have zero credibility left in the region, we can't even assemble Egypt and Saudi Arabia for the purposes of a serious dialogue. And it's because of this last bit that the United States has trouble going to both Israel and the Palestinian leadership to demand a halt to hostilities because there are few if any watching our back.

We are not the honest broker the Arab world has been crying out for. Instead, thanks to the tragedy in Gaza, we have Hamas now threatening U.S. interests, as well as an Iran that is increasingly arming it (Hizbullah II) while the mullahs in Tehran continue on their merry way to the bomb.

I've thought a lot about Ariel Sharon lately and how the situation would have been different were he still functioning as head of state. Many in Israel, of course, would quickly say he started it all by handing Gaza over to the Palestinians. But Sharon had evolved into a special kind of leader, and I remind you again of the respect he had gained, including in the Arab world, in the months before his stroke. I just can't believe Hizbullah and Hamas would have tested him like they have his successor, though at some point both would have had to be confronted.

As for Israel and Lebanon, again, just how can the Israelis continue to invade Lebanese airspace, in clear violation of the ceasefire? Because the Bush administration lets it. This week it was the French who warned Israel about buzzing French peacekeepers. Earlier, Israeli jets had buzzed German warships.

So while America sleeps, the Middle East threatens to blow all over again, far beyond Iraq, as the Arab street remains a seething cauldron.

The moderate Daily Star of Lebanon ran the following editorial on Friday, Nov. 10.

[Excerpts]

"The Arab League foreign ministers meeting in Cairo next week to discuss the recent killing of 18 Palestinian civilians in a single artillery barrage need to understand that their purpose will not be well served by limiting their purview to a single event, or even to the week-long offensive that preceded it: The Israeli military has been bleeding Gaza for six years, long before and ever since the laughable 'withdrawal' of August 2005. The massacres have come at a slower pace than those in Lebanon this past summer, but the victims have been just as brutally killed and have been even more numerous. The ministers need to be fully cognizant of this monstrous crime if they are to take what should be their next step: an attempt to communicate the scale of the problem to both the White House and the newly elected U.S. Congress.

"Washington, too, has much to gain - or at least considerable losses to avoid - by drawing the appropriate conclusions from the bloodletting in Gaza. More than 100,000 U.S. troops are currently mired in the Iraq mess, and every act of injustice committed by Israel with America's blessing exposes those men and women to the fury of Iraqis and other Arabs who have resolved to stop turning the other cheek.

"The Middle East will not know stability unless and until Israel finds something other than the profligate and indiscriminate use of force to function as its foreign policy. But that can only be made to happen by a U.S. government that finally understands how misguided has been its traditional practice of unconditional support for the Jewish state. That realization will not take place of its own accord: It is therefore up to the Arabs to get much better at articulating what should be an easy argument to make."

My own frustration boils down to this. Without success in the foreign policy sphere there will be no lasting success in the war against the terrorists. We now have a lame-duck president who can't seem to grasp the complexities of the issues facing us. He says he receives an intelligence briefing every morning, but one wonders if he's listening.

It's also important to add that some of our staunchest allies, such as Japan and Australia, are having serious post-election misgivings for their unstinting support of this president. John Howard and Junichiro Koizumi invested in the Bush presidency, with Koizumi's successor Shinzo Abe of like mind, and what do they have to show for it? Can this White House be trusted to honor its security commitments, for example? Is the U.S. military, currently in severe disrepair, capable of a full response should Kim Jong-il act up? China is busily modernizing its military, focusing on sealift and an offensive capability. Our Pentagon is warning of the threats, but what are both it and the president going to do to address this over his remaining two years?

Our response to 9/11 was Afghanistan and then Iraq. It's been five years already in the former and almost four in the latter. Regarding Iraq, President Bush said on the campaign trail last week "I want to assure you I see the danger, and that is why we'll stay and fight in Iraq." Wednesday after the election the president said "Iraq has not been going well enough or fast enough."

I'd love to be pleasantly surprised during the final days of the Bush presidency, but instead we're likely to see Iran with the bomb. Some Republican candidates already received a surprise of a different sort; Donald Rumsfeld being let go, three months too late to save them.

Wall Street

I thought it was kind of funny that in a week where a number of Republican congressional candidates were thrown out for corruption, the latest survey on the topic by Transparency International, best places in the world to do business, ranks the United States 20th, down from 17th last year.

20th. Nice job, America. Of course after all the accounting scandals of the post-Bubble era no one should be surprised, but as I noted the other week our accounting standards are nowhere near as clean as some of those being employed elsewhere, a fact which the Big Four firms recognize as a hindrance that must be corrected if we are to remain the world leader in commerce.

But in coming up with a corruption score that takes into account the general cost of doing business, including government's, here we've been learning in greater detail than ever before that when it comes to Washington it's a cesspool. Frankly, it's pitiful that we, the supposed model of capitalism and free markets are ranked so low. It's also kind of embarrassing that Iraq is third from the bottom of 163 nations surveyed, beaten out only by Myanmar and Haiti. Maybe it's a good thing most voters don't read stuff like this. The Republicans may have done even worse.

As for the post-election business environment with a new Congress, let's agree to apply my adage of wait 24 hours. It's far too easy to say that because of certain committee chairmanships falling to the likes of Charles Rangel and Henry Waxman that taxes are going up and drug companies are going to get whacked. Or, should some of this prove to be the case, that it is necessarily bad for America. The $trillion alternative minimum tax conundrum, for example, should be foremost on most agendas but the only way to fix it is to compromise in other areas.

In the meantime some of us are most concerned about trade policy in a Democratic Congress and growing protectionism, but we'll have plenty of time to focus on issues such as that, in both this space and other columns on the site I have something to do with.

For now it's a certainty the minimum wage is going up and it's about time. I prefer a country where the poor in our midst can at least buy some pasta now and again. If I have to pay a dime extra on a Big Mac, so be it; though I'd also hope our Federal Reserve wouldn't immediately panic and raise interest rates as a result.

But regarding the overall state of the U.S. economy, I've been talking about the haves and have nots when I just realized there may be something more original.

Normally in our economic cycles all classes rise and fall at the same time, albeit at far different paces.

But let's start by dividing the nation into five classes:

Upper, upper middle, middle, lower middle, and lower.

I would submit that today there are really three different economies.

Upper / upper middle?rising above a 2.5 percent rate on GDP

Middle?stagnating

Lower middle / lower?recession

It's time for new models, after all, in an era where total CEO compensation is increasing at a 15% to 20% rate, the average worker's at around 4% (so the current statistics say), and the lower class below that level; in some cases actually declining as they rotate into lower-paying jobs. And this doesn't include inflation; especially on those big-ticket items that truly matter, such as for health care, tuition, and property taxes.

This isn't your father's economy (or society) anymore. The days of management types like Ward Cleaver earning a solid living but not significantly more than the workers below him are long over and despite the steady growth of the past few years the polls say a majority of Americans are uneasy about their economic situation. This isn't just about spikes in gasoline prices or globalization. There is something else at work here.

So from time to time I may refer to my new proprietary model, drawn up on a beer coaster in Deadwood, South Dakota, and obviously not at the Univ. of Chicago or Stanford. Yes, no one from Stockholm will be inviting me to accept the Nobel Prize in Economics; I'd just argue the above is as good as any other explanation I've seen as to why our country and economy is so increasingly polarized.

Of course the biggest reason why the bottom three, or even four of the five classes could be increasingly struggling is real estate. This week the incredibly overrated former Federal Reserve chairman Alan Greenspan reiterated "the worst is behind us" in terms of housing's effect on the economy, but then in typical Greenspan fashion he added the downturn has "a way to go" before it hits bottom.

Well I'm no Milton Friedman but if you tell me the downturn has a way to go, I'm certainly not going to say the worst is thus behind us. I mean do I have to find another coaster to prove this to the chairman?

And you've gotta love Dallas Federal Reserve Bank president Richard Fisher, who says what's on his mind more often than not and really doesn't seem to care if he takes out a few targets in the process. For example, in a speech last week he said that during the Greenspan era, because of faulty price data, the Fed's benchmark funds rate, adjusted for inflation, was cut to a level that "turned out to be lower than what was deemed appropriate at the time, and was held lower longer than it should have been."

Ergo, the Fed "amplified speculative activity in the housing and other markets," said the Fisher King. Today, he added, the correction in housing is "inflicting real costs to millions of homeowners across the country" and complicating the Fed's task of containing inflation. [Nell Henderson / Washington Post]

Greenspan, torqued off over such talk, blamed global financial conditions for the excessively low short rates and then sulked away to take a bath?.which is what many who got into the real estate game late are doing.

Separately, we learned this week that in the first six months of 2006, more money has been taken out of Americans' homes (such as for home equity lines) than all of 2005! While on the developer side, Toll Brothers' CEO said "recovery is not yet in sight" in reporting new orders were off 56% from year ago levels. Beazer Homes' were off 58% and Hovnanian's 36%.

Also, that old issue of ours, the actual land that developers acquire to build their homes on, is coming back to bite them in a big way. The developers are frantically trying to renegotiate their positions with the banks, this as cancellations soar.

Lastly, the New York Time ran a piece on Tuesday addressing the tumbling Phoenix market, which was very similar to everything I observed while in Tucson the other week. Cancellations are in the 40% range, home prices are down 10% over last year, and builders are loath to buy new land at bubble prices.

Street Bytes

--Equities shook off any negative implications as a result of a Democratic Congress, with the exception of the drug sector, and the major averages rallied anew after taking a one week respite.

The Dow Jones closed at 12108, up 1%, while the S&P 500 gained 1.2% and Nasdaq 2.5%; the latter to a new five-year high of 2389. Early in the week, another Merger Monday, the markets were helped by Abbott Labs' purchase of Kos Pharmaceuticals, while an investor group including Bill Gates is going after the Four Seasons hotel chain. You know, the guys who charge $600 a night for a room and still feel obligated to ask for another $35 for Net service.

--U.S. Treasury Yields

6-mo. 5.14% 2-yr. 4.73% 10-yr. 4.59% 30-yr. 4.69%

There wasn't any big economic news but bonds staged a rally even as China said it would diversify its currency holdings away from the dollar over time. The dollar itself continues to weaken.

We'll get more clarity on the interest rate picture, ahead of the Federal Reserve's December meeting, with the release this week of inflation data on producer and consumer prices, retail sales, and housing starts.

--The issue of trade and China is about to heat up in a big way with the change in Congress, helped along in no small part by the latest data on China's trade surplus with the U.S., $23.8 billion. Premier Wen Jiabao has long recognized the coming crisis himself, saying the swelling surpluses with the West are his country's biggest economic "problem" because of the protectionist threat.

The New York Times' Thomas Friedman commented on Friday:

"China, in other words, is inevitably going to move back to the center of U.S. politics (with the change in power in Congress), because it crystallizes the economic challenges faced by U.S. workers in the 21st century. The big question for me is, how will President Bush and the Democratic Congress use China: as a scapegoat or a Sputnik?

"Will they use it as an excuse to avoid doing the hard things, because it's all just China's fault, or as an excuse to rally the country - as we did after the Soviets leapt ahead of us in the space race and launched Sputnik - to make the kind of comprehensive changes in health care, portability of pensions, entitlements and lifelong learning to give America's middle class the best tools possible to thrive? A lot of history is going to turn on that answer, because if people don't feel they have the tools or skills to thrive in a world without walls, the pressure to put up walls, especially against China, will steadily mount."

But in his piece Mr. Friedman says nothing about China continually breaking the rules as dictated by its membership in the World Trade Organization. You see who's leading the fight, not the U.S. (outside of a few senators), but Europe.

Take a look at my 11/10 edition of "Wall Street History" for more comment on this topic, including a bit on the experience of China in acquiring U.S. companies. The track record isn't good, as was proved yet again by word from China's leading computer maker, Lenovo Group, that its acquisition of IBM's PC business is going miserably with a 15 percent drop in profits due to higher than expected integration costs. Chinese television maker TCL Corp. is facing similar problems after recent acquisitions of U.S. and European manufacturers.

--The U.S. and Russia are finally set to sign an accord on Russia's admittance to the WTO. Russia would become the last major market to enter the group and despite a number of issues, including piracy, let alone Russia's treatment of its neighbors on the energy front, it's rather hypocritical not to have Russia in the WTO when you have all sorts of bad characters already in it. The agreement, to be signed this week, still must be ratified by Congress.

--The International Energy Agency warned "the energy supply to meet the needs of the world economy over the next 25 years is too vulnerable to failure arising from under-investment, environmental catastrophe or sudden supply interruption." Of course if Democrats come down too hard on the oil industry, further much-needed investment will largely dry up. Additionally, the IEA warns the increasing reliance on coal in some parts threatens the environment unless the industry invests heavily in technology to capture the carbon emitted by the black stuff.

--FedEx canceled an order for Airbus's A380 jumbo flying wiener, citing production delays, and announced it will buy Boeing 777s instead. Airbus is reeling and they are scared to death that Emirates, which has orders for 45 of the passenger model A380, will back off as well.

--You have to feel good for Cisco Systems CEO John Chambers and the solid comeback he has engineered by having a vision and sticking to a long-term plan (as he himself put it) despite all the slings and arrows. And his much criticized, at the time, acquisition of Scientific-Atlanta is looking terrific at this juncture.

--While scandals at Enron, WorldCom, Computer Associates et al garner the publicity, it's easy to forget the size and scope of the mess at Fannie Mae, mostly because leadership avoided punishment, particularly former CEO Franklin Raines. This week the mortgage behemoth announced the cost to clean up its books has grown to over $1 billion. No doubt Raines, a former Clinton hack, was partying down with the Democrats in Washington on Tuesday.

--Bristol-Myers Squibb's former CEO, who was fired for incompetence, will nonetheless receive parting gifts of $10.7 million. This is criminal.

--Merck has major tax problems, both here and in Canada, as the drugmaker admitted it has potential liabilities of $5.58 billion over its accounting in four separate cases. It's kind of confusing so herewith is an explanation as reported by John Carreyrou and Jesse Drucker of The Wall Street Journal.

"The dispute involves revenues Merck had in 1998 to 2004 on its blockbuster asthma and allergy drug Singulair?.Singulair was originally developed by Merck's Canadian subsidiary in Montreal, entitling the Canadian government to tax revenue on the drug?.

"U.S. Patent & Trademark Office records show that, in December 1998, Merck transferred patents associated with Singulair to a Barbados subsidiary called Tradewinds Manufacturing SRL. At the time, Barbados was considered a tax haven because of a variety of favorable tax provisions it offered."

Shares in Merck fell by week's end, but more on fears of the effect a Democratic Congress will have on the pharmaceutical industry in general than this tax issue. I'd suggest the market should focus as much on the latter. And why shouldn't a Henry Waxman look into this case if it's out and out tax evasion?

--Republican Congresswoman Sue Kelly of New York was one of those going down in flames on Tuesday, losing to Orleans frontman John Hall. ["Still The One," "Dance With Me"] The reason why I mention this here is because while driving around on Sunday I heard perhaps the stupidest campaign spots of all time. To paraphrase, "John Hall says he's for the environment, but he invests in mutual funds that invest in Schlumberger, a leading polluter. John Hall says he's for the American worker, but John Hall invests in mutual funds that contain Wal-Mart."

Huh? And it was probably an American Funds position, with like 300 stocks in it. Ms. Kelly, this is absurd, but thankfully your constituents saw through it and sent you packing.

--In another sign of the impact of our computerized world, the New York Stock Exchange will be laying off 500 due to its acquisition of Archipelago Holdings, the electronic exchange.

--This is always a tough time of year for me, I have to admit, as I'm reminded just how much money I left on the table when I quit Wall Street almost 8 years ago. So if I seem a little more cranky than usual these next few weeks, I hope you'll understand.

Not that I would have participated at the level of a managing director at, say, Goldman Sachs or Morgan Stanley, where after another record year bonuses are expected to rise 20 to 30 percent to the level of GDP for most African nations.

Foreign Affairs

Pakistan: A Taliban-linked group claimed responsibility for a horrific suicide attack on an army base, killing 42, in retaliation for President Musharraf's attack on the madrassa that killed 80. The peace deal between the government and the tribal leaders is history.

China: More tidbits?including some market-related ones.

China will surpass the United States in 2009 as the biggest emitter of greenhouse gases, thanks to its reliance on coal, but as a developing nation it's exempt from the Kyoto Protocol's requirements for cuts in emissions. Just four years ago, the government had predicted it wouldn't surpass the U.S. until 2020. For selfish reasons I want China to adopt more wind power, which benefits my carbon fiber holding.

A Chinese official warned that by 2030, the country faces an acute water shortage. At that point, it's estimated China will consume between 700 billion and 800 billion cubic meters of water annually, but only 800 billion to 900 billion will be available. [South China Morning Post] Well, if the government is as accurate as it evidently was with greenhouse emissions, the crisis could hit far sooner. We already know the water is increasingly polluted.

Bird flu has dropped off the radar screen, for now, but the U.S. State Department is warning its citizens in Hong Kong to build an emergency three-month stockpile of food, water and medicine in case a pandemic yet emerges. Both Hong Kong and U.S. scientists recently announced they had found a new strain of the H5N1 virus, but Beijing disputes this.

And Bloomberg News reports a rabies outbreak in Beijing has raised concerns, though the story starts out "Over-sized dogs and those without photo identification?are being snatched by the city police." Yikes. It's tough enough being a dog in China, having freedoms restricted left and right, let alone having to remember to get your passport and identification papers updated. I mean this isn't something most dogs think about, day to day.

Of course all of the above stories are tied in one form or another to Beijing's hosting of the 2008 Olympic Games. Any of them could make for a huge embarrassment as the world press descends on the place. And we're not even talking about urban unrest in one shape or another.

Meanwhile, over on Taiwan, embattled President Chen Shui-bian spoke before the nation last Sunday to defend his conduct and that of the First Lady in light of her being indicted on corruption charges while the prosecutor said Chen faces indictment once he leaves office.

Chen said he was willing to waive immunity to face his accusers and he continues to insist he didn't embezzle funds, as alleged.

But then he admitted submitting false receipts to claim expenses from public funds and acknowledged misleading investigators; though he defended his actions on the grounds of national security.

I have been a defender of this man over the years because I believed in his attempts to formally set Taiwan free as a fully independent nation. But when the president goes before the people and says, as he did, "I lied and I apologize. But they were white lies, and it was all for the benefit of the country," he's lost me. I don't see how Chen survives?a big win for China.

Afghanistan: Two headlines, the same story.

USA Today

"Poll: Afghans express confidence in country's direction, security"

New York Times

"Afghans Losing Faith in Nation's Path, Poll Shows"

So where's the truth? In a survey of over 6,000 Afghans by the Asia Foundation (financed by the U.S. Agency for International Development), by a 44 to 21 percent margin they believe the country is headed in the right direction rather than the wrong. But, the optimists were down from 64 percent in a similar poll two years ago.

77 percent said they were satisfied with the way democracy is working in Afghanistan, and 85 percent said the government should allow peaceful opposition. But then 64 percent said they would not allow political parties they personally opposed to meet in their areas. And so, sports fans, you have an example of growing pains?.and spinning the news.

Iraq: At this point I'm underwhelmed that Saddam Hussein is being put to death. But it was interesting when Egyptian President Hosni Mubarak, speaking for many in the region, said it was unwise to hang Saddam. I agree with analysts, however, who say Mubarak and his fellow autocratic Arab leaders are simply afraid the same sentence could one day be meted out to them.

Russia: Gazprom deputy CEO Alexander Medvedev, a Putin crony and possible successor, warned Georgia that it better accept Gazprom's price increase to $230 per 1,000 cubic meters of natural gas or Gazprom would cut off the supply. Medvedev said the reason why Armenia, a Russian ally, was only paying $110 was because it signed a contract to that effect a year ago. Gazprom currently charges Belarus just $47, but is threatening to hike its price to $200 unless Belarus grants Gazprom a stake in the national pipeline company. Ye olde shakedown. [Moscow Times]

Separately, David Satter has a depressing, and scary, story in The Weekly Standard on the reaction of the Russian military at Beslan.

Satter concludes:

"The evidence that is now available makes it clear that, despite Putin's promise to protect the hostages, Russian forces attacked the school in Beslan according to classic military doctrine for destroying reinforced objects without the slightest regard for innocent life. This was done although agreement had been reached between the former Chechen president and local Russian political authorities on negotiations that would have ended the crisis. It is also possible that the ease with which the terrorists took over the school was not solely the result of official incompetence. The Russian authorities may have deliberately allowed the terrorists to take over the school in order to have an excuse to destroy them.

"The sad reality is that 15 years after the fall of the Soviet Union, the role of the individual in Russia has not changed. He is seen as a means to an end, not an end in himself. This is why the lives of the children of Beslan were written off the moment the school was seized, a fact to keep in mind lest we agree to give Russia carte blanche in its own 'neighborhood' or look again into Putin's eyes and see something we think resembles a soul."

Britain: The head of MI5, Britain's security service, revealed her bureau is now involved in 30 "Priority 1" plots against the country. MI5 has also identified at least 1,600 people who could be deemed a threat.

Dame Eliza Manningham-Buller:

"More and more people are moving from passive sympathy towards active terrorism through being radicalized or indoctrinated by friends, families, in organized training events here and overseas. Young teenagers are being groomed to be suicide bombers." [London Times]

Dame Eliza added she is alarmed by the "scale and speed" of the radicalization, which seemingly has intensified post-7/7 and the London subway bombings. One can't help but conjure up some nightmares this holiday season. Police and security officials agree that Britain has become al-Qaeda's #1 target. Further reports have all of Europe on guard.

Thailand: After seemingly making all the right moves in the weeks following the coup, the new prime minister said Muslims in the restive south should be allowed to adopt their own legal system, Shariah law. Surayud Chulanont said since Muslims have different beliefs from Buddhists in the north, they should have their own laws.

Boy, this is incredibly stupid logic. Might as well just split up the country, now. That's where Nigeria is headed, by the way; facing a similar issue, though in its case it's between Christians and Islamic fundamentalists.

Nepal: I can't imagine I have one reader here and, as opposed to Richard Gere, have little interest in the politics of Katmandu, but it is a positive the recently installed government and Maoist rebels have reached accommodation after a bloody 10-year insurgency. In a new constitution, the role of the monarchy, always a sticking point, will be reviewed.

France: This is going to be fun, unless you live in France. The country is holding a presidential election next April and it promises to provide more than a few fireworks. For starters, far- right National Front leader Jean-Marie Le Pen has seen his poll numbers soar to 17 percent on the back of the anti-immigrant fervor sweeping parts of the country.

Nicaragua: Daniel Ortega is back, despite Washington's best efforts to prevent this, and following an election where Ortega captured just 38 percent in a multi-candidate field (35 being necessary to avoid a run-off), the former scourge said he would work with his fellow leftists in Latin America, though he also called for increased trade with the U.S.; Nicaragua being part of the new Central American Free Trade Agreement.

Venezuela: While President Hugo Chavez has a 20-point lead for December's election here, the main opposition candidate did turn out over 100,000 for a rally last weekend.

India: Not a good time to be a deadbeat. With only 4 percent of the population paying taxes to the government, officials in the city of Patna have come up with a way to humiliate those failing to cough up the appropriate dough. Eunuchs are now being employed to shame offenders into paying.

As reported by the London Times, "The castrated men, hermaphrodites and transsexuals, caked in cheap make-up and wearing garish saris, are being paid to stand outside the homes and shops of repeat offenders and loudly sing ditties such as Issat jatau, sohrat jatau, tax na debe ta gharwa nilaam hotau (Your reputation will be tarnished, fame would be malice, if you do not pay your tax your house would be auctioned)."

Aaghhhhhhhh! I'll pay! I'll pay!

Here in the U.S., the SEC et al should have just employed eunuchs to get the likes of Dennis Kozlowski and Jeffrey Skilling to fess up, thus saving us taxpayers a lot of money. In fact, who needs waterboarding?

Uzbekistan: Gulnara Karimova, 33, is being groomed by her dictator father Islam Karimov to be the next ruler of Uzbekistan. The "glamorous" woman who goes by the name GooGoosha is Harvard educated, a pop singer, and martial arts expert. A new target for Borat.

---

Pray for the men and women of our armed forces. We raise our glass to all the Veterans of our great country on this their day.

God bless America.

--- Gold closed at $629
Oil, $59.60

Returns for the week 11/6-11/10

Dow Jones +1.0% [12108]
S&P 500 +1.2% [1380]
S&P MidCap +2.1%
Russell 2000 +2.2%
Nasdaq +2.5% [2389]

Returns for the period 1/1/06-11/10/06

Dow Jones +13.0%
S&P 500 +10.6%
S&P MidCap +7.4%
Russell 2000 +14.3%
Nasdaq +8.4%

Bulls 52.1
Bears 26.0 [Source: Chartcraft / Investors Intelligence]

Have a great week. I appreciate your support.

Brian Trumbore

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