Educate Yourself

Week in Review
For the week 11/27/2006 - 12/1/2006
Brian Trumbore
President/Editor, StocksandNews.com

I commented to a friend of mine the other day, when is the stock market going to wake up to the distressing situation in the Middle East? As I write this hundreds of thousands of supporters of Hizbullah and its pro-Syria allies have been marching in Beirut in what leaders are promising is the beginning of the end of the democratically elected government of Fouad Siniora.

The situation in Lebanon is as tense as it's ever been and you have to picture that the various factions have been furiously arming themselves the past few months, especially following the war with Israel. At the same time, many of the cabinet ministers are fearful of becoming the next assassination target and can't leave their compounds.

So as you watch events unfold over the coming days and weeks, understand it's the anti-Syria Siniora / March 14 forces (including Walid Jumblatt's Druze) vs. the pro-Syria Free Patriotic Movement (led by Michel Aoun), parliament speaker Nabi Berri's Amal Movement and Sheikh Nasrallah's Hizbullah. And it's not just about the standing of the existing government, one assassination away from being dissolved under the constitution for lack of a quorum, but also whether or not the government of Syria and its agents is called before a UN- sponsored tribunal for the killing of former prime minister Rafik Hariri and others, including Pierre Gemayel.

The tragedy is the increasingly irrelevant United States seems powerless to do anything, thanks to a White House that abandoned the Siniora government over a year ago and now wonders how things could have deteriorated so quickly.

And Iraq? It's been too late for the better part of a year, certainly since the whirlwind was unleashed with the Zarqawi-inspired attack on the Golden Mosque at Samarra last February; an act that I wrote back on 2/25/06 "would reverberate for years."

Yet it was only because of a Republican drubbing at the polls in November that President Bush suddenly developed a sense of urgency; and then this week we learned what it will lead to? hurry up and wait. As in stay the course; as in forget any new ideas.

President Bush's meeting with Iraqi Prime Minister Maliki was a disaster, though the administration helped bring this on itself thanks to a purposefully leaked memo from National Security Advisor Stephen Hadley.

"(Maliki's) intentions seem good when he talks with Americans, and sensitive reporting suggests he is trying to stand up to the Shia hierarchy and force positive change. But the reality on the streets of Baghdad suggests Maliki is either ignorant of what is going on, misrepresenting his intentions, or that his capabilities are not yet sufficient to turn his good intentions into action." [Michael Gordon / New York Times]

In other words, Mr. President, Maliki is a loser. But let's let him see this profile I put together for you before your visit. Maybe it will light a fire under his butt. Instead Maliki saw it for what it is, deeply insulting.

I'm no supporter of Maliki; he's not to be trusted, for starters. But this is how the United States now conducts foreign policy?

Of course our president then had coffee with Maliki for a few hours, after being blown off the evening before, and emerged in the end to say "(Maliki's) a strong leader?We'll be in Iraq until the job is complete?.as long as the government wants us there." Gotta go. Zooooooommm! Off Bush went on Air Force One, leaving the rest of us wondering 'just what the heck was that all about?!'

"U.S. influence in the Middle East is ebbing, largely as a result of the consequences of our decision to invade Iraq. The U.S. will still have influence but will have to share it as never before with a motley crew of local forces ranging from Iran to Hamas and Hizbullah." [USA Today]

"There will be no victory or defeat for the United States in Iraq. These terms do not reflect the reality of what is going to happen there. The future of Iraq was always going to be determined by the Iraqis - not the Americans.

"Iraq is not a prize to be won or lost. It is part of the ongoing global struggle against instability, brutality, intolerance, extremism and terrorism?.

"We have misunderstood, misread, misplanned and mismanaged our honorable intentions in Iraq with an arrogant self-delusion reminiscent of Vietnam. Honorable intentions are not policies and plans. Iraq belongs to the 25 million Iraqis who live there. They will decide their fate and form of government?.

"The United States must begin planning for a phased troop withdrawal from Iraq. The cost of combat in Iraq in terms of American lives, dollars and world standing has been devastating. We've already spent more than $300 billion there to prosecute an almost four-year-old war and are still spending $8 billion per month. The United States has spent more than $500 billion on our wars in Iraq and Afghanistan. And our effort in Afghanistan continues to deteriorate, partly because we took our focus off the real terrorist threat, which was there, and not in Iraq.

"We are destroying our force structure, which took 30 years to build. We've been funding this war dishonestly, mainly through supplemental appropriations, which minimizes responsible congressional oversight and allows the administration to duck tough questions in defending its policies. Congress has abdicated its oversight responsibility in the past four years.

"It is not too late. The United States can still extricate itself honorably from an impending disaster in Iraq. The Baker- Hamilton commission gives the president a new opportunity to form a bipartisan consensus to get out of Iraq. If the president fails to build a bipartisan foundation for an exit strategy, America will pay a high price for this blunder - one that we will have difficulty recovering from in the years ahead.

"To squander this moment would be to squander future possibilities for the Middle East and the world. That is what is at stake over the next few months."

"So let's add up the 'realist' proposals: We must retreat from Iraq, and thus abandon all those Iraqis - Shiite, Sunni, Kurd, and others - who have depended on the United States for safety and the promise of a better future. We must abandon our allies in Lebanon and the very idea of an independent Lebanon in order to win Syria's support for our retreat from Iraq. We must abandon our opposition to Iran's nuclear program in order to convince Iran to help us abandon Iraq. And we must pressure our ally, Israel, to accommodate a violent Hamas in order to gain radical Arab support for our retreat from Iraq.

"This is what passes for realism these days. But of course this is not realism. It is capitulation. Were the United States to adopt this approach every time we faced a difficult set of problems, were we to attempt to satisfy our adversaries' every whim in order to win their acquiescence, we would rapidly cease to play any significant role in the world. We would be neither feared nor respected - nor, of course, would we be any better liked. Our retreat would win us no friends and lose us no adversaries.

"What our adversaries in the Middle East want from us is very simple: They want us out. Unless we are prepared to withdraw, not just from Iraq but from the entire region, and from elsewhere as well, we had better start figuring out how to pursue effectively - realistically - our interests and goals. This is true American realism. All the rest is a fancy way of justifying surrender."

But as if all the above isn't bad enough, throw in the revolt in Iraq by the parliamentary forces under cleric Moqtada al-Sadr (the Sadrists) who suspended participation in the government over Maliki's meeting with Bush. They will come back, but Maliki is more beholden to them than ever.

And then there is Iraqi President Talibani, a Kurd, who met with Iranian President Ahmadinejad. Talibani said "Our top priority is expansion of comprehensive ties. We will also talk in detail about Iraq's security because Iraq is in dire need of Iran's comprehensive assistance for pursuing its campaign against terrorism and for the establishment of peace and security."

"A secure, advanced and powerful Iraq can secure the interests of the Iraqi nation, be beneficial for Iran and the entire region. We have to remain by the side of one another and to share the sorrows and happy moments."

"To save a little face, (the United States) should leave Iraq? according to a timetable, handing over responsibilities as asked by the Iraqi government." [Financial Times / Bloomberg News]

"The Islamic Republic of Iran is considering help to Iraq to establish security in the country as a religious and humane task." [Tehran Times]

Is it any wonder that Jordan's King Abdullah was all over the airwaves warning of three civil wars; in Palestine, Iraq and Lebanon?

"One way to understand the deteriorating situation in the Middle East is to contrast last week's assassination of Lebanese Christian leader Pierre Gemayel with the response to it. The assassination was a shockingly audacious attack on Lebanon's democratic forces and their U.S. and European allies. But those Western governments remain in a profound muddle about how to address Iran and Syria, which have been fomenting the destabilization of Lebanon, Iraq and the Palestinian territories.

"The killers of Mr. Gemayel have not been identified and may never be. But the attack fits snugly into a pattern of provocations across the region by Iran and Syria, which appear to believe that American reversals in Iraq have given them the opportunity to create what Syrian dictator Bashar al-Assad calls a 'new Middle East' - one in which their influence and radical ideology will predominate. They would make their client Hizbullah the power broker in Lebanon, restoring Syrian suzerainty. They would use Hamas to block any progress toward an Israeli-Palestinian settlement and perpetuate a continuing, if low-grade, war on Israel. And they would continue to bleed the United States by supplying insurgents in Iraq with arms and sanctuary. Iran meanwhile presses ahead with its barely disguised nuclear weapons program?.

"In response to this bold bid for regional hegemony, the United States has apparently resolved to intensively negotiate with itself and its chief European allies about how it might 'engage' Mr. Ahmadinejad and Mr. Assad. Should a U.S. ambassador return to Damascus, once the uproar over Mr. Gemayel dies down? Should the administration drop its demand that Iran obey a UN resolution ordering it to suspend enrichment before talks can begin? While the debate goes on, the Western effort to sanction Iran for its nuclear program is stalled and all but forgotten. No punitive action against Syria is even being discussed?.

"What's more, no attempt to reason with Mr. Assad and the Iranian mullahs will succeed unless they perceive that the United States and its allies wield sticks as well as carrots. As long as the Bush administration is unable to win UN Security Council approval for sanctions against Iran - or impose them through an ad hoc coalition - Tehran will have no incentive to make concessions. Mr. Assad will demand that the West concede him Lebanon and call off the murder investigations that would likely implicate him - unless he worries that his failure to cooperate will result in fresh international sanctions against Syria.

"Iran and Syria are ruthlessly waging war against Western interests in the Middle East. Offering to talk is only a small part of what it will take to stop them."

As for the Palestinian issue, Secretary of State Rice was in the region, chatting up Palestinian President Mahmoud Abbas, who is at least trying to rein in the terrorist elements in his society, but Rice was her usual ineffective self and Abbas's unity talks with Hamas have basically collapsed.

Meanwhile, Israeli Prime Minister Ehud Olmert offered to release Palestinian prisoners, withdraw from West Bank settlements, and ease checkpoints if Hamas and its ilk abandoned violence. But the Palestinians have to first replace Hamas with a new government that recognized Israel's right to exist. Many experts agreed that Olmert came up with the goody bag simply to appease Bush as the latter was in the region.

Which brings me to former President Jimmy Carter. I caught his interview on MSNBC and for perhaps the first time in my life I found myself agreeing with everything he said on the Israeli- Palestinian issue.

"The persecution of the Palestinians is one of the worst examples of human rights abuses?what's being done to the Palestinians is horrendous."

Harsh, but I've been writing that the White House, in giving Israel free rein to do absolutely anything it wanted, including in Lebanon, was only making the situation far worse. As Carter said, it's amazing how "there is no criticism of Israel in this country" whatsoever.

I just have to add that for those who are new to the site and wondering how I can be so hard on the Israeli state at times, understand Ariel Sharon was my 2005 "Man of the Year." It's been nothing but downhill ever since his stroke.

Well whaddya know?the Dow Jones has its first two-week losing streak since July, after which back then the market took off. It's really no surprise, either, after some dismal news on the economic front, namely in manufacturing. Both the Chicago Purchasing Managers Index and the national ISM index of manufacturing came in below 50 for the month of November, meaning manufacturing is contracting for the first since time April 2003. Normally, an ISM reading below 50 signals recession, sports fans. Earlier in the week I was reading in New Jersey's Star-Ledger that a survey of my state's business leaders revealed 51% expect New Jersey's economy to worsen in the 1st half of 2007, the least optimistic outlook in 16 years.

Other indicators were weak, such as October's figure on durable goods, down 8%, though this is always way too volatile to be of much use. However, the capital spending component, non- defense, was off 5% and that deserves to get thrown in the mix.

We also had the monthly data on existing and new home sales. The former was up 0.5%, with the median price down 3.5% year over year, while new home sales were down 3% with the median price up a little.

So whither housing in general? Thanks to the fact mortgage rates are falling anew, under 6.15% for a 30-year fixed, that's supplying some support for the sector. No doubt Ben Bernanke is focusing on this. He doesn't dare raise interest rates again until he's certain housing is stabilizing. I just see another leg down coming.

Speaking of the Fed chairman, he offered in a speech this week that the Fed would still raise rates before cutting, because he remains concerned about labor costs. Well this is a crock; all he's doing is jawboning. You can be sure corporations, with slowing in evidence now for some time, aren't about to be handing out big raises in 2007. Enjoy what increase you received this year, folks.

Anyway, with a sliding economy Wall Street is getting religion, as in maybe corporate earnings won't be exceeding expectations like they have been, quarter after quarter. It's really not any more difficult than that; except I would add wait 'til the Street really wakes up to the fact the crisis in the Middle East is going to deepen throughout next year.

As for the plight of the U.S. dollar, I try not to fall into the trap of making too much of the action in the currency pits. I learned long ago that in this arena the only thing you need to be concerned with is "speed," as in speed kills. No doubt, the decline has been swift of late, and so you watch it, but I'm not saying we're witnessing the long-feared crash.

I'll tell you what I have written of in the past as being a primary concern and that is China (with its humongous holdings of U.S. securities) using the dollar as a weapon of mass destruction. But that will only occur if China finds the need to play the nationalism card, which in turn would come about if there is major unrest in the cities, for whatever reason, and China finds the need to get the people's minds off their own plight and instead thinking about America bashing. That day will come, but at this point, less than two years from the 2008 Olympic Games in Beijing, I don't see it.

In the meantime, a weak dollar helps our export sector (and the earnings of large multi-nationals) and thus the trade balance, in theory, though that hasn't really been the case the past few years. The recent decline, however, is about a lack of confidence in the U.S. economy, certainly warranted, while at the same time as U.S. interest rates decline other opportunities beckon, be they in Europe or Asia. The risk is that the decline becomes so severe the Federal Reserve is forced to raise interest rates to defend the dollar at the very worst possible time, as the U.S. economy is already softening and on the verge of recession.

--The Dow Jones declined 0.7% to 12194, though it recovered 100 points late Friday. The Nasdaq fell 1.9% to 2413 and the S&P 500 registered another fractional loss. Crude oil surged $3.50 and is now up almost $8 in just the past two weeks, sitting at $63.43. Cold weather, falling inventories, and a renewed sense OPEC's production cuts may in large part stick have resulted in the spike. So I hope you gassed up; the price at the pump is heading much higher.

The yield on the key 10-year is at its lowest level in almost a year. Aside from the discussion above, Chicago Fed President Michael Moskow on Friday said the Federal Reserve may yet have to raise interest rates to head off inflation, another misguided thought.

--It's way too soon to know how strong or weak the Christmas shopping season is going to be. While it won't be a happy one at Wal-Mart, it would appear, other retailers remain optimistic.

--China is anticipating full year growth of 10.7% in 2006 with more of the same in '07 as rising consumer spending will underpin growth. India's economy grew at a 9.2% rate in the third quarter as consumer activity here is also picking up.

--The Organization for Economic Co-operation and Development blasted the Russian government and state-run natural gas behemoth Gazprom for what it called a "disturbing trend," tightening the Kremlin's control of important sectors, namely energy, as opposed to actually investing in production.

Gazprom's "seemingly insatiable appetite for asset acquisition," concluded the OECD, "is at the expense of a focus on its core business." Gazprom's investment in new fields, for example, has been minimal and with much of Europe relying on Russia's natural gas this is a huge problem.

Gazprom, as has been well-documented, also continues to seek a monopoly of the transportation infrastructure. It is near an agreement with Belarus, for instance, to acquire partial control of that nation's pipeline in exchange for lower gas prices. Of course Belarus is an ally, while at the same time Gazprom is charging democratic Georgia about three times Belarus' rate.

[In response to the warning from the OECD, Gazprom said it would be increasing gas exports to Western Europe by 20% within a decade, but few believe it can deliver.]

Speaking at a conference this week, U.S. Senator Richard Lugar said NATO should interpret Article 5 of its defense doctrine to mean that the alliance will come to the aid of any member whose energy supply is threatened.

"Article 5 of the NATO charter identified an attack on one member as an attack on all. It was also designed to prevent coercion of a NATO member by a non-member state. We should recognize that there is little ultimate difference between a member being forced to submit to coercion because of an energy cutoff and a member facing a military blockade or other military demonstration on its border." [Judy Dempsey / International Herald Tribune]

But there were two positive potential developments on the energy front in terms of production. EOG Resources announced the discovery of a major expansion to its prolific Barnett Shale gas field and identified four new or emerging shale fields in Texas, North Dakota and western Canada.

[Basically, we should give North America a makeover. Just peel off the entire top layer. This would take care of all the problems in our society that lie just below the surface.]

Kazakhstan announced its giant Kashagan oil field is capable of producing 25% more oil than expected. But before you go "Aha! I told you there was more oil and gas than 'peak oil' proponents have argued," these new discoveries only help to make up for declining production elsewhere, let alone the political problems that are abundant in accessing oil-rich countries such as those in the Middle East and Venezuela.

Lastly, Angola said it was contemplating joining OPEC. Now why the heck would they want to do this? What Western energy companies would then invest here when the interests could be turned over to the state? Angola accounts for about 2% of world oil production, though it is capable of far more.

--Protectionism is at the top of the agenda of many in Congress and as U.S. Treasury Secretary Henry Paulson noted it's more than worrisome.

While Paulson, in a speech in Britain, admitted "the benefits of trade are not spread evenly in any part of the world," it would be "morally wrong" to give in to "protectionist elements." Doing so "would be telling developing nations that while we have benefited from increased trade, we aren't going to allow them the same opportunity to develop." [Deborah Solomon / Wall Street Journal]

Economist Robert Samuelson weighed in on the topic in an op- ed for the Washington Post.

"We may be about to shoot ourselves in the foot - or maybe the chest - on trade. In the name of 'fair trade,' we may punish our own exporters. In 2005 worldwide exports exceeded $10 trillion. Since 1980 they've more than tripled while the overall global economy doubled. Like it or not, massive international flows of goods and services (aka 'globalization') underpin all modern economies. Supply chains have dispersed. We can accept this reality and try to benefit from it. Or we can rail against it. We seem to be edging toward railing."

Samuelson writes of the effort on the part of many Democratic congressional leaders to derail new trade agreements reached with Colombia and Peru. In the case of the former "darkened prospects have already led to layoffs in Colombia."

"We are dealing with something new here. It transcends protectionism, which tries to shield specific industries and workers from imports. It's trade obstructionism: a reflexive reaction against almost any trade agreement. The idea is that much trade is inherently 'unfair'?.

"Much of this indictment is wrong or wildly exaggerated. For example, American trade deficits haven't destroyed U.S. job creation by sending work abroad. Consider: From 1980 to 2006, the trade deficit jumped from $19 billion to an estimated $786 billion, or from less than 1 percent of GDP to about 6 percent. Still, employment in the same period rose from 99 million to 145 million. Job creation defies the trade deficits, whose causes lie largely beyond our control and have little to do with 'unfair' trade practices.

"Faster economic growth in the United States than in many of our major trading partners has stunted our exports and increased our imports. Likewise, the dollar's role as the main global currency - used for trade and international investment - has kept its exchange rate high. Companies, individuals and governments hold on to dollars rather than selling. This makes U.S. exports more expensive and imports cheaper."

As for China, its "surging exports have (so far) come mostly at the expense of other Asian countries." But while some argue U.S. jobs are being destroyed, this is only partially true. 7 to 8 million jobs disappear every three months, but an equal or greater number are created. Trade, though, has little to do with this; it's more about new domestic competition and new technologies.

As Samuelson opines, trade is an easy scapegoat. The timing of the new obstructionism, however, couldn't be worse.

"The U.S. economy is moving away from growth led by housing and consumer spending. American consumers have borrowed heavily, if not overborrowed?.As Americans curb their borrowing, consumer and home purchases are slowing. Something will have to replace that spending if the economy is to continue to expand. The obvious candidates are exports and investment related to exports (in factories, machinery)?.

"The next Congress must decide whether it embraces the symbolism or the reality of trade. If it chooses symbolism, it will perversely harm many of the workers it's trying to help."

--Some stats on the private-equity / LBO boom. In 2006 there have been more than 2,280 private-equity buyouts worldwide with a combined value of $601.3 billion, up from only 885 deals valued at $71.4 billion in 2001, according to researchers at Dealogic.

We have various audiences here at StocksandNews so for those who want a little primer on this topic, Kit R. Roane of U.S. News & World Report had a simple explanation in a recent article.

"The private-equity buyouts are fueled by several factors. The shares of many public companies, after wringing out the excesses of the late 1990s, are now trading at cheap prices compared with their underlying assets and revenue streams. The Sarbanes- Oxley Act, passed in 2002 as the antidote to a wave of corporate accounting scandals, makes it more difficult and expensive for smaller firms to go public and for already public firms to stay listed. And private-equity firms have found plentiful and cheap debt to leverage their own considerable treasuries, money hoards that continue to attract almost unprecedented amounts of capital from pension funds, university endowments, and wealthy investors seeking greater returns than found in the global stock markets."

Of course it's the debt levels that give some a queasy feeling, and the fact many of the companies are pillaged for excessive dividends. But incoming New York governor-elect Eliot Spitzer, in an interview with CNBC on Friday, gave the whole private- equity concept a ringing endorsement. It's good to purge worthless management in order to shake things up, he said. I would just add, does that still mean the same management being shown the door deserves to keep $30 million to $50 million in parting gifts?

--Microsoft finally launched Windows Vista, its largest operating system upgrade in five years, with the company anticipating 200 million will be using it by the end of 2007. As for Microsoft's efforts to go after Apple Computer in the digital media player market, the Zune is off to a shaky start when measured against iPod sales; not that anyone believed it would compete in the short run.

--Jacqueline Doherty of Barron's slammed Google for its seemingly excessive valuation, but what I found interesting in her report, in light of my own comments in the past year or so, is the fact the "average price paid to buy a search word across the Web in the second quarter has declined 11% from the start of the year and 34% from the peak in April 2005. So far, companies have made up the difference on volume, but it's a trend worth watching." Yup.

--Eliot Spitzer earlier in the week said efforts to dilute corporate accountability reforms, i.e., Sarbanes-Oxley, are "counterproductive." In an interview with the Financial Times he added "The argument that we are failing in competitiveness because of regulations is incomplete. We're failing in competitiveness because of failed business models and the lack of smart investment in technology. General Motors is not failing because of regulations but because it hasn't produced good products. It's failing because it hasn't controlled costs and those costs are from private contracts that GM entered into."

[GM's sales were up 6% in November, while Ford's declined 10%. Toyota, now No. 2 in the U.S., saw its U.S. sales rise another 16%. DaimlerChrysler ticked up 3%.]

--GM investor Kirk Kerkorian sold off the rest of his stake this week, 42 million shares, so with this irritant now out of the picture, it's put up or shut up time for CEO Rick Wagoner.

--Speaking of failing automakers, Ford announced some 38,000 had taken the company up on its buyout offer, ranging from $35,000 to $140,000 lump sums plus tuition assistance. At the same time Ford is attempting to secure an $18 billion loan package to shore up its rapidly dwindling cash reserves. In other words, Ford is on the "critical list."

--The Pentagon is considering a request of $127 billion to $150 billion in new emergency war funding, the largest yet since the war on terror commenced post-9/11. $70 billion has already been allocated for next year. Additionally, as reported by USA Today's Matt Kelley, "About $2 billion worth of Army and Marine Corps equipment - from rifles to tanks - is wearing out or being destroyed every month in Iraq and Afghanistan." It's tough to keep spending under control under these circumstances. Leon Panetta, a member of the bipartisan Iraq Study Group, says the Pentagon will require $50 billion to $60 billion to re-equip and restore units returning from Iraq. Good for defense contractors.

--U.S.-based mutual fund assets hit the $10 trillion mark for the first time, according to the Investment Company Institute.

--Pfizer is slashing its sales force by 20% (2,200 positions). Others will follow.

--I imagine like myself you're amazed at just how many catalogues clutter your mailbox year round, not just during the Christmas season. In 2005 the number mailed grew by 5.5%, after a gain of 5.3% the prior year. As an article in BusinessWeek pointed out, "Even as they try to drive people to the Web, companies are also working harder to tap into a desire of consumers to have something to touch and hold."

--The "father of the Toyota Prius" hybrid vehicle, David Hermance, died last Saturday after crashing in his experimental plane off the California coast. The Russian-built Interavia E-3 was one of those aircraft assembled from a kit, so I read. I wouldn't touch anything Russian these days.

--I've talked about my habit of Salmon Sunday (baked during the second half of the NFL game and devoured during "60 Minutes" with fine beer and Chex Mix). But I'm always confused as to what I'm really eating; like these days the package says the fish is from Chile or China.

Andrew Martin had a story in The New York Times on the difficult question of what is "natural" or "free range" when it comes to fish and fish farming. Wild salmon, for example, don't meet the Agriculture Department's definition of "organic" fish, even though wild salmon are bagged in generally pristine waters, vs. the farmed variety that is living in cramped quarters in its own waste, to put it indelicately. Actually, I just grossed myself out. I'm buying 'wild' from here on whenever possible.

--I was exchanging notes with my friend from the Great White North, Harry K., concerning Leonardo DiCaprio's new movie, "Blood Diamond," about the illicit diamond trade in Africa. I have no idea exactly how close to the truth the picture is going to be but I'm thinking there are some folks in the business, i.e. DeBeers, who may be a little queasy if a lot of folks see it. So Harry tells me there are some new diamond mines in Canada, branding themselves as "conflict free," where in one instance (Shore Gold) they're mining on a scale as grand as the oil sands. As he put it, "Wonder what that will do to the cartel?"

--CBS has sold the first few Super Bowl 30-second spots for "north of $2.6 million." I would think the network is salivating over the possibility of the Cowboys being in the picture; Tony Romo mania, matched up against Tom Brady or Peyton Manning. You think that would generate some ratings?

--My portfolio: So on Wednesday my carbon fiber holding rises about $1.50 on heavy volume. It's about time, I mused. Now where is that third quarter earnings report? Then after the market closed came word a federal jury had awarded a company I was faintly familiar with $36 million for my company's failure to meet production requirements. Down goes Frazier! [Or so it seemed.] At week's end the stock wasn't much changed from where it was the previous one but the silence from HQ is deafening. You know, I'm still way up on this play but I feel like I'm losing my shirt. I just know there is strong demand for the product so I hang in there.

Russia: Vladimir Ryzhkov, an independent deputy in the lower house of Russia's Parliament and frequent critic of the Kremlin, told the Journal "The risks are growing. For the first time in my political career I'm beginning to feel scared."

The poisoning of former KGB spy Alexander Litvinenko and the apparent poisoning of a former prime minister, Yegor Gaidar, on the heels of the assassination of a leading journalist, Anna Politkovskaya, has many on edge these days.

"In the last six years, the makeup of the ruling elite in Russia has undergone a dramatic change. Once in power, Mr. Putin filled the majority of important posts with veterans of the security services, many with ties to him dating back to his work in St. Petersburg. By 2003, the top ministers, half of the members of the Russian security council and 70% of all senior regional officials in Russia were former members of the security services. At the same time, many of these persons gained access to great wealth. Russia was already highly corrupt under Boris Yeltsin but, according to IDEM, an independent Russian think tank, with the rise in oil prices the level of corruption in Russia between 2002 and 2005 increased 900%.

"The result of these developments was that Mr. Putin created an FSB [Russian Federal Security Service] ruling class. As this class became rooted, the victims of contract killers in Russia began to include some of the most prominent political figures in the country.

"The most sensitive question in Russia is the provenance of the 1999 apartment bombings in Moscow, Volgodonsk and Buinaksk in which 300 persons died. As a result of the bombings, the second Chechen war was launched and, in his role as wartime leader, Mr. Putin, then the prime minister, achieved enough popularity to be elected president. There is widespread belief that the real authors of the bombings were the FSB. Two of the political figures murdered in Russia in recent years were trying to investigate the bombings?.

"In the wake of Litvinenko's death, the West must insist on cooperation from the FSB in finding his killers. If that is not forthcoming, it should be assumed that the murder of Litvinenko was ordered by the Russian regime.

"Under those circumstances, not only should Russia be expelled from the G-8 but the whole structure of mutual consultation and cooperation would need to be re-evaluated. This is not just a matter of refusing to trivialize a murder. It is also a vital political obligation. Russians of all types are watching to see whether the West will simply swallow this crime or finally react to the rampant criminalization of Russian society. There are forces in Russia that want the country to be part of the West. But to back them, we need to demonstrate that we have moral values that we defend. To do less would be to abandon Russia to the forces of nihilism and obscurantism."

"It's time we start thinking of Vladimir Putin's Russia as an enemy of the United States.

"This isn't simply because a former KGB agent turned Putin critic died last week in London after ingesting a dose of polonium-210, an element that usually functions as a neutron trigger in atomic bombs. Nor is it that Alexander Litvinenko's death is the latest in a series of killings, attempted murders, imprisonments and forced exiles whose victims just happened to be prominent opponents of Mr. Putin. It is because the foreign policy of Russia has become openly, and often gratuitously, hostile to the U.S.

"Some examples: Last summer, Russia signed a billion-dollar arms deal with Venezuela; Hugo Chavez wasted no time fantasizing aloud about using the weapons to sink an American aircraft carrier. Last week, Russia began deliveries to Iran of highly sophisticated SA-15 anti-aircraft missiles, at a value of $700 million. Russian Defense Minister Igor Ivanov claims the missiles will 'have no influence on the balance of power in the region.' But the purpose of the missiles is to defend Iran's nuclear sites, which do threaten the balance of power. Mr. Ivanov also says he is 'absolutely sure' the billion-dollar Bushehr reactor that Russia is building for Iran could not be used to build nuclear weapons. This is false, and Mr. Ivanov must know it: The spent plutonium from the reactor can easily be diverted and reprocessed to produce as many as 60 bombs.

"At the United Nations, Russia has consistently opposed U.S. efforts to sanction Iran and North Korea for their nuclear programs and diluted the effects of the resolutions that were passed?.

"It was George W. Bush who first saw gold in Mr. Putin's soul, sometime after the Russian had decimated the city of Grozny. It was Condoleezza Rice who came up with the formulation after the Iraq war that the U.S. should 'punish France, ignore Germany and forgive Russia.' And it was this administration that agreed last week to Russian membership in the World Trade Organization, with Mr. Bush thanking Mr. Putin for 'your time and friendship.'

"A case can be made for bringing Russia into the WTO, but caveat emptor: A government that trashes the rule of law domestically isn't likely to long sit still in any rules-based organization. There is no case for Russia's continued participation as the eighth member of the Group of Seven, once a club for mature democracies only. Putting Mr. Putin on notice that only gentlemen belong in gentlemen's clubs would be the right first step. Treating him for what he is - 'unworthy of the trust of civilized men and women,' as Litvinenko wrote from his deathbed - would be the next."

"On a number of occasions in the last few years, we went to bed in one country and woke up in another. The first was the arrest of Mikhail Khodorkovsky in 2003. Then came the Beslan school siege in 2004 and the subsequent elimination of direct gubernatorial elections.

"After Ukraine's Orange Revolution in late 2004 and early 2005, we went to sleep in a country that was not terribly intelligent, and whose president personally bullied its neighbors and worked as a tub-thumper for Viktor Yanukovych. We awoke in a country surrounded by malicious imperialist enemies.

"But in the last two months, we have awoken in a different country three times: following the government's anti-Georgian campaign, the murder of investigative journalist Anna Politkovskaya and the death of Litvinenko.

"These events are just signs along the road to a place filled with prison camps?.

"Litvinenko's death (could) turn Russia into a rogue state. In the final analysis regimes are not divided into parliamentary and presidential. They are divided into regimes that are capable of poisoning the opposition with polonium-210 and those that are not. I doubt that President Vladimir Putin will find it easy to explain to his buddy, U.S. President George W. Bush, that Politkovskaya was whacked by renegade thugs. Were the people who slipped Litvinenko the polonium-210 no more than thugs, too?....

"Putin has surrounded himself with friends who were not trained to run businesses or to run the country. They were trained to carry out special operations. They were trained to eliminate enemies of the regime. And when there aren't any real enemies, they have to be created.

"For some reason, as more enemies of the regime are eliminated, their number continues to grow. And Putin is left alone, surrounded by enemies from whom only his friends can save him."

Afghanistan / NATO: 90% of NATO's casualties are being borne by the U.S., Britain and Canada. The mission is going nowhere and nations such as Germany and France are loath to not only contribute more troops, but also to let their existing forces actually fight.

Turkey: Pope Benedict XVI pulled it off, a highly successful trip to Turkey with dangers lurking around every corner. Benedict tweaked his language of two months ago and spoke of the "great benevolence" of Islam after having previously quoted a 14th century Byzantine emperor who linked Islam to violence.

"We believe and confess in one God, even if in different ways," he said this time. To prove it, Benedict prayed in the Blue Mosque of Istanbul, marking only the second papal visit in history to a Muslim place of worship.

Benedict also weighed in on the issue of Turkey and EU membership, reversing earlier comments on the topic before he became pope last spring. In other words, he was looking to mend fences and build bridges; but remember?Pope Benedict, first and foremost, is seeking to save Christianity in an era where Muslim nations are doing all they can to crush it.

As for Turkey's EU application, I stand by my belief the candidacy is dead, despite any moves to the contrary. 8 of 34 'chapters' will be frozen under the European Commission's plan until Turkey opens its ports to Cyprus, an EU member Ankara doesn't recognize. Britain, Sweden and Spain criticized the commission's action, France and Germany cheered it.

But despite Islamist Prime Minister Erdogan's protestations, he is bent on moving Turkey East, which means one thing. We're nearing the day when the generals pull off a coup. This is where the Kurds come in?but more on this in coming weeks.

North Korea: Kim Jong-il is insisting the United States drop sanctions to free its overseas bank accounts as a precondition for dismantling its nuclear program, which it wouldn't do anyway. The U.S. reaction has been to deny Kim some of the luxury goods he craves, like Crystal and Iranian caviar; all while Kim's orcs continue to slave away in his bomb factories.

As for South Korean President Roh, he has an approval rating of 11% and as he's limited to just one term, with a presidential election slated for December 2007, he is merely a lame Peking duck; doing Beijing's bidding rather than Washington's or Tokyo's.

Venezuela: President Hugo Chavez will win his 3rd term in Sunday's vote. But, separately, I've been meaning to comment on some television commercials running in the New York area and the Journal beat me to the punch.

Former Democratic Congressman Joseph Kennedy is all over the airwaves promoting a program whereby heating oil, donated by Chavez's Citgo oil company, is donated to low-income consumers. Kennedy tells those who may qualify for the free stuff to dial 1-877-Joe-4-Oil.

The Journal thus dialed up Kennedy, asking him about a recent comment where he defended his Chavez subsidy deal as "morally righteous."

"Was it also 'righteous' to assist an anti-American tyrant at the expense of the Venezuelan people? In between berating our reporter for daring to ask such a thing, Mr. Kennedy said that Mr. Chavez has done 'so much more' for the poor than any previous government. As for democracy, he said there was 'ample room for improvement in the ways that people get elected in Venezuela as well as in Florida.' Mr. Chavez chose his partner well."

Colombia: The burgeoning scandal here may soon claim another victim, Colombia's foreign minister, Maria Consuelo Araujo. The minister's brother, Sen. Alvaro Araujo, is a key figure in an ongoing investigation linking lawmakers to paramilitary groups.

Mexico: Felipe Calderon was sworn in as Mexico's new president, but Andres Manuel Lopez Obrador continues to run a shadow government nearby and Calderon's inauguration was interrupted by scuffling lawmakers.

Democratic Senator Joe Biden, the incoming chairman of the Foreign Relations Committee and a man with presidential ambitions, told a South Carolina audience this week (South Carolina being a key early primary) that Mexico was nothing more than an "erstwhile democracy" with a "corrupt system" responsible for illegal immigration and drug problems in the U.S. He should have just said Mexico is basically a banana republic.

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