Educate Yourself

Week in Review
For the week 12/4/2006 - 12/8/2006
Brian Trumbore
President/Editor, StocksandNews.com

Following are various opinions on the Iraq Study Group's report, as well as the state of the war in general.

"This report gives a very tough assessment of the situation in Iraq. It is a report that brings some really very interesting proposals, and we will take every proposal seriously and we will act in a timely fashion?.This report will give us all an opportunity to find common ground, for the good of the country."

"This report is an acknowledgement that there will be no military solution in Iraq. It will require a political solution arrived at through sustained Iraqi and region-wide diplomacy and engagement."

"James Baker and Lee Hamilton have delivered a superb, blunt account of the U.S.'s 'dire' and 'deteriorating' predicament in Iraq. Options have not yet been exhausted, they say, although none may now succeed; they have identified the few potentially workable ones that remain.

"Their strongest recommendation is to plan to pull U.S. combat troops out by the spring of 2008, and to warn the Iraq Government that it may have only that period to bring warring groups together and improve security.

"The first weakness is that the panel members allowed themselves nine months to deliberate, holding back their conclusions until a month after the congressional elections, and published the report too late. The panel's plea for President Bush now to respond quickly, in case events overtake the recommendations, is an embarrassment.

"The second is that in the members' proper but relentless search for 'pragmatism,' they ditch the idealism about the promotion of democratic values that accompanied the Iraq invasion. They advocate dealing with regimes that have been steadily malevolent to the U.S. in a desperate quest for stability?.

"On Iran, it begins with some sensible suggestions. First, that the U.S. is simply in too weak a position to strike any deal while it has so many troops in Iraq.

"Secondly, that it might use the notional threat of Saudi assistance for Iraq's Sunnis to get Iran to the table.

"But in saying that Iran's nuclear ambitions should be dealt with separately, in the United Nations Security Council, it ducks the central problem; that the U.S. wants Iran to help to achieve stability in Iraq but does not want to pay the price Iran has implicitly asked - to tolerate its nuclear ambitions."

"As for specific proposals, the Study Group proves Robert Gates's point from his nomination hearing on Tuesday that 'there are no new ideas on Iraq.' Its best proposal - embedding more American troops to train and fight with Iraqi military units - is well under way at the Pentagon. It has been clear for some time that the Iraqi Army needs at least to double its current size, and the presence of U.S. troops with Iraqi units has produced better results.

"On the other hand, the ISG's proposal to negotiate with Iran and Syria is a very old idea that isn't likely to go anywhere. The report argues that because both Iran and Syria have an 'interest in avoiding chaos in Iraq,' they will want to cooperate in some larger regional settlement.

"Come again? Iran's leadership proclaims its satisfaction with the U.S. troubles in Iraq on an almost daily basis. They seem to believe their interest lies in bleeding the U.S. so much that no President will ever contemplate regime change anywhere else for a very long time. In any case, while Iran and Syria can harm us in Iraq at the margins, Iraq's sectarian violence is primarily indigenous - fomented by Sunni Baathists and their al Qaeda allies, and countered by Shiite militias."

"What we need in Iraq is not a New Diplomatic Offensive (capitals in the original) so much as energy and competence in fighting the fight. From the outset of the Iraq war much of our difficulty has stemmed not so much from failures to find the right strategy, as from an astounding and depressing inability to implement the strategic and operational choices we have nominally made.

"This inability has come from things as personal as picking the wrong people for key positions, in the apparent belief that generals are interchangeable cogs in a counterinsurgency machine. It has come from an unwillingness or inability to grab the bureaucracy by the throat and make it act - which is why, three years after the insurgency began, we still send soldiers out to risk roadside bomb attacks in overweight Humvees when there are half a dozen commercially available armored vehicles designed to minimize the effects of such blasts?.

"We have not come up to the brink of failure because we did not know how important it is to employ young Iraqi men or to keep detained insurgents out of circulation or to prevent militia penetration of the security forces by vetting the commanders of those forces. We have known these things - but we have not done these things."

"The difference between the child-killers in the Middle East 2,000 years ago and those today is that Herod's men rode into Bethlehem to preserve a threatened political system, while the terrorists we face in Iraq seek to destroy a government in their god's name.

"Today's butchers are far more merciless, indiscriminate and dangerous. For Herod's henchmen, killing was a job. For today's faith-fueled fanatics, slaughtering the innocents is doing Allah's will. Our modern magis' negotiations won't fix Iraq, no matter what gifts they bring.

"Former Secretary of State James Baker and his panelists are trying to shore up the failing regional system that their generation designed?.(The) report doesn't offer 'a new way forward.' Its recommendations echo past failures. And it shows no sense of how gravely the world has changed?.

"By tying Iraq to Palestine, Baker makes the problem immeasurably tougher, not easier. The Palestinian problem isn't the cause of all that's gone wrong, just another symptom. If Iraq can't be fixed without resolving the Palestinian issue, then the answer is that Iraq can't be fixed.

"(What Baker) argues for is the traditional Saudi and Arabist view that the Middle East's problems are Israel's fault?.

"Baker believes in strong central governments. Just as he once insisted that the Soviet Union and Yugoslavia should stay together, he now demands (without asking the Iraqis) that Iraq remain rigidly unified?.

"But perhaps the most striking aspect of the report is its underlying nostalgia. Baker longs for the 'orderly' world of Saddam Hussein, the Shah of Iran, the elder Assad and, above all, unchallenged Saudi influence in Washington.

"The report cries out for an appendix listing Baker's many contacts with Saudis over the decades and all the Saudi-related financial pies in which he had a finger. After all of the blame-it- on-Israel criticism of the neoconservatives, the media have been strangely quiet about Baker's extensive ties to Riyadh."

"After nine laborious months, the Iraq Study Group yesterday recommended that there be peace in the Middle East. Well, of course. But how to achieve it?

"One word: Surrender. Surrender in Iraq - and, in due time but inevitably, beyond."

"Israel has made every manner of concession, fruitlessly. To this day, Hamas, Hizbullah and Iran vow only to erase Israel from the map.

"But the group wants more diplomacy, because it sees the Arab- Israeli conflict as central to the Middle East puzzle.

"Which is nonsense: Israel, in fact, is a vivid symbol of the broader clash between Islamic fundamentalists and jihadis, and Western civilization.

"Ending the conflict there can come only with victory in the War on Terror - not the other way around?.

"The final reason to embrace the Baker-Hamilton report is that its combination of cut-your-losses pragmatism and earnest do- gooderism will reassure the world that America has turned a page on Iraq. The level of anti-American sentiment in the Middle East these days is genuinely frightening. It has become the organizing principle of political life, even in once-friendly countries such as Lebanon. This is the real national security threat to America - this sense in the rest of the world that Iraq symbolizes America's fatal new combination of arrogance and incompetence."

"Islamic extremism is an ideology of menace. It empowers those who, but for menace, would languish in the world's disregard. The dark achievement of bin Laden, Nasrallah and Ahmadinejad, names we know only because of their association to menace, is that they have used menace to make their people visible in the world, to bring them back into the scheme of history. And they are greatly loved for this. If their achievements follow from evil rather than from good, this is a small thing. Worse than evil is invisibility.

"So, in the Middle East, America has gone to war not against Islam but against menace as a formula for power - menace as the force that brings the First World in toe to the Third, and that makes bargaining between the two inevitable. Whether the issue is an obsession with nuclear weapons or terrorism in London or assaults against Israel, menace is the power that draws the West backwards into engagement with otherwise forgotten parts of the world. Iran cannot produce a digital camera or a Ferrari but, through menace, it can affect the balance of power in the world. We in the West, and especially America, then, are at war with menace - the indulgence of evil for strategic advantage - because today it is the power that most compromises us.

"And yet Americans are also at war in the Middle East with our own fate as the world's singular superpower. Our sacrifice is more in proportion to our responsibility as a superpower than to our survival as a nation. We fight menace in Iraq and yet we know that complete victory there will only make us into colonialists, and thus expand our level of responsibility even further. So we fight a little against victory even as we fight for it. At the beginning of this war we delivered the 'shock' but not the 'awe,' and then as the insurgency developed, we made a kind of space for it, almost as if we believed it had a right to fight us. Victory threatens us with the obligations and moral stigma of empire.

"Only reluctant superpowers go to war with a commitment to fight until they can escape. So today the talk is of 'draw-downs,' 'redeployments,' etc. But all these options are undermined by the fact that we simply have not won the war?.

"For every reason, from the humanitarian to the geopolitical to the military, Iraq is a war that America must win in the hegemonic, even colonial sense. It is a test of our civilization's commitment to the good against the alluring notion of menace- as-power that has gripped so much of the Muslim world. Today America is a danger to the world in its own right, not because we are a powerful bully but because we don't fully accept who we are. We rush to war as a superpower protecting the world from menace, then leave the battle winning as a show of what, humility? We confuse our enemies, discouraging them one minute and encouraging them the next.

"Could it be that our enemies are really paper tigers made formidable by our unceasing ambivalence? And could it be that the greater good is in both the idea and the reality of American victory?"

"(In the) week before the ISG's report, the leaked Donald Rumsfeld memo urged policy to 'go minimalist.' That is generally good advice to government, but much of the rest of the memo, with its 21 'illustrative new courses of action' - a large number, and evidence that none is especially promising - echoed the 1960s Great Society confidence in government-engineered behavior modification: jobs programs for unemployed young Iraqis, reallocation funds to 'stop rewarding bad behavior' and 'start rewarding good behavior,' and bribery ('provide money to key political and religious leaders')?.

"Look back two years. In June 2004, at the time the Coalition Provisional Authority was to transfer sovereignty to what it thought would be an Iraqi government, Americans were toiling to finish their work of occupation: 'A lawyer who had once clerked for Supreme Court Chief Justice William Rehnquist was poring over a draft edict requiring Iraqi political parties to engage in American-style financial disclosure.' Such surreal vignettes abound in 'Imperial Life in the Emerald City: Inside Iraq's Green Zone,' by The Post's Rajiv Chandrasekaran. The book, which should be read along with the ISG report, would be hilarious were it not horrifying that so much valor and suffering have been expended in this context:

"Halliburton, writes Chandrasekaran, hired Pakistanis and Indians, but no Iraqis, for kitchen work. 'Nobody ever explained why, but everyone knew. They could poison the food.' Of the CPA staff, 'More than half, according to one estimate, had gotten their first passport in order to travel to Iraq.' Two CPA staffers said that before they were hired, they were asked if they supported Roe v. Wade. The traffic code the CPA wrote for Iraq stipulated that 'the driver shall hold the steering wheel with both hands' and 'rest should be taken for five minutes for every one hour of driving.' But Chandrasekaran's driver, who like other Iraqis had obeyed the laws under Saddam's police state, began disregarding all traffic laws. 'When I asked him what he was doing, he turned to me, smiled, and said, 'Mr. Rajiv, democracy is wonderful. Now we can do whatever we want.''

Senator John McCain (R-AZ.), in various settings in response to the Baker/Hamilton report.

"There's only one thing worse than an overstressed Army and Marine Corps, and that's a defeated Army and Marine Corps?.

"I believe that this [report] is a recipe that will lead to, sooner or later, our defeat in Iraq?.

"We must be realistic about what Iranian and Syrian participation is likely to achieve. Our interests diverge significantly from those of Damascus and Tehran, and this is unlikely to change under the current regimes?.

"Our troops should be sent to Baghdad, or anywhere in Iraq, in order to complete a defined mission, not to serve until some predetermined date passes. Such a step would complicate our considerable difficulties."

This has been yet another dark week for America, at least in the eyes of this reporter. Not just because the ISG report described the situation in Iraq as "grave and deteriorating" or because the incoming Secretary of Defense Robert Gates admitted in his confirmation hearings the U.S. was not winning, but because what's going on in the entire Middle East, and the debate surrounding it, points to one critical fact. We have a president who simply isn't up to the job.

I ask you to envision that you're on a desert isle and each day a bottle washes up with quotes from President Bush since the invasion of Iraq. Reading in such a vacuum you'd probably muse, "Boy, I'm glad there is such a man leading the Free World at this critical time. Go Bush." Not only have Bush's words seemed steadfast, but they also show flexibility, as when he uttered for the hundredth time in his press conference with British Prime Minister Tony Blair "We are willing to change as the enemy has changed."

Then imagine one day a crate washes up on the beach containing the newspapers of the past three years and soon reality is slapping you in the face.

What's particularly frustrating for a neocon like me who feels totally abandoned is that some on the far right continue to blindly follow their talk show leaders and don't want to deal with the truth. Stop defending President Bush.

The best line of the week was uttered by former senator Alan Simpson, a member of the ISG, who said at the panel's Wednesday press conference "This report is not going to please the 100 percenters," meaning those on the extremes of both the far right and the far left. Today's media continually tries to break the country down to 100 percenters, and here I sit, increasingly just right of center, with just the facts. America is increasingly irrelevant.

America is losing the war in Iraq. Iran is nearing a day when it will have nuclear weapons. North Korea already has them. Lebanon is on the verge of collapse and civil war. Parts of Afghanistan are actually back under Taliban control. Russia is once again a bully, with far more weapons of mass destruction than the entire Middle East combined, and an increasingly erratic leader who is sanctioning assassination. China is rapidly building up an offensive military capability, while hiding under its economic juggernaut and mammoth holdings of U.S. securities which at a moment's notice can be used as a different kind of WMD. Even much of Latin America is no longer the bastion of democracy it was just a few short years ago. Finally, America's true friends are few and far between, and of those that remain, few individuals currently at the helm will be around much longer.

All of this is occurring under George W. Bush's watch. But is there hope? On a totally different topic Michael J. Fox recently commented "What's wrong with having hope?" Nothing, but I have to admit I'm praying a lot more these days.

After weeks like this past one, and my compulsion to lay it all out there, I lose a ton of readers?.at least I suspect I do. And I have to reiterate for those who haven't been with me too long that I was a big-time supporter of the war in Iraq, but identified almost immediately the shortcomings in our efforts and have had a problem with our president ever since.

Today, I support Sen. McCain and his views more than ever. As futile as it may appear to be, I just believe the United States must make a final stand, starting in Baghdad. But if we aren't willing to make the commitment required, then we should get out, as McCain has himself essentially said. Only in giving ourselves one last shot at some semblance of victory can America then truly look itself in the mirror and say we tried our best. I can also guarantee I'm right on one matter. As of today President Bush can not do the same.

And as the world turns in the Middle East, there was once a time to engage Iran and Syria in serious discussions, but it's too late. Syria is a paper tiger, yet on the issue of Lebanon it has the United States over a barrel. Iran, on the other hand, has real teeth, and shortly nukes, and allowing them to obtain the same spells unmitigated disaster.

Former Israeli ambassador to the U.S. Danny Ayalon told The Jerusalem Post "I am absolutely certain that the U.S. will not allow Iran to go nuclear, because this is a direct challenge to the most vital interests of the U.S. in the region and beyond. There is a deep understanding of this among American strategic thinkers and political leaders in both parties. It's true that the focus right now is on a diplomatic solution and all avenues will be exhausted there, but we should take seriously Bush and Rice's statements that all options are on the table, because they're not just posturing."

But Robert Gates said this week U.S. "military action against Iran would be an absolute last resort. I think that we have seen, in Iraq, that once war is unleashed, it becomes unpredictable." At the same time Gates stated the obvious. "If Iran obtains nuclear weapons no one can promise that it would not use them against Israel."

Yet after all these years, just what has the Bush White House been able to accomplish on this front? Nothing. And so we have Iranian President Ahmadinejad saying this week:

"I'm telling you in plain language that as of now, if you try, whether in your propaganda or at international organizations, to take steps against the rights of the Iranian nation, the Iranian nation will consider it an act of hostility. And if you insist on pursuing this path, (Iran) will reconsider its relations with you."

He wasn't addressing the United States. No, that was for Europe's consumption. And later he added "Thanks to the grace of God and (the Iranian people's) resistance, we are on the final stage of the path to the nuclear peak. Not more than one step is left to be taken. By the end of the year, we will organize a celebration across the country to mark the stabilization of our nuclear rights," he said referring to the Iranian calendar that ends March 20. [Los Angeles Times / AP] Arab experts assume 'stabilization' refers to the level of enriched uranium required for making nuclear fuel, and weapons.

"The Bush administration is correct when it asserts that only the threat of serious military action and serious sanctions may deter the Iranians. But American public opinion will not lightly accept another war, given the calamity now playing out in Iraq and the fear of being bogged down in another endless war of attrition. 'We know how to be patient,' the Iranians like to say. 'We have been weaving carpets for thousands of years.'

"There is no magic bullet here, of course, but we cannot just sit back. We must find a way and the will to show the mullahs we are deadly serious, or we will face the worst crisis in international relations since the Cuban missile crisis.

"The West will have to decide what is more dangerous - to attack the infrastructure of the Iranians sooner rather than later or to deal with an Iranian nuclear capability after the fact. The choices are not between good and bad but between bad and worse - and the longer we delay, the more dire those bad and worse choices will become."

In Lebanon, the protests designed to bring down the government of Prime Minister Siniora continue. Hizbullah leader Sheikh Nasrallah vowed not to take up arms in a sectarian war, but in an address to his supporters in Beirut on Friday added "If anyone thought that we would be frightened away and just surrender and go back home, they are gravely mistaken and are living in illusions, illusions, illusions!"

Nasrallah then blasted Siniora for having the Lebanese Army seize weapons being delivered to Hizbullah during the war with Israel, and he once again blamed the U.S. for getting Israel to destroy Hizbullah. For his part Siniora countered, "You are not our Lord and your party is not our Lord."

"For Hizbullah and its allies to drop the existing political structures and opt for mass street demonstrations, after participating in the government and Parliament for years, seems perplexing to many, myself included. If this government is illegitimate, as Hizbullah charges, why did Hizbullah join the government in the first place? If the government's illegitimacy is mainly a function of its determination to proceed with the mixed Lebanese-international tribunal that will try those accused of killing the late Prime Minister Rafik Hariri and others last year, then we have the bigger and more vexing problem of Lebanese-Syrian tensions. If so, this should be acknowledged and resolved as an act of honest and courageous leadership, rather than camouflaged as a perpetual charade that demeans the self-respect of Lebanese and Syrians alike.

"It has always been both a weakness and a strength of Lebanese and Arab politics that honesty and clarity are sacrificed for the sake of an ambiguity that allows all sides to make compromises and achieve a usually unstable consensus. In Lebanon, this has always been referred to as the concept of 'no victor, no vanquished.' Unfortunately, it also usually means no resolution of fundamental political disagreements."

As for Afghanistan, the outgoing commander of U.S. forces said the fight is being undermined by a lack of NATO troops, as well as the restrictions placed on the soldiers that prevent some from being involved in actual combat.

"Could you have an alliance in which you have one group that is always going into the toughest places and fighting and taking casualties, and you have a second group that is in a different category?" said Lt. Gen. Karl Eikenberry. "Over the next several years, that is something that could be a challenge if it is not addressed." No kidding.

Regarding Israel, the Iraq Study Group believes the Israeli- Palestinian issue must be resolved in order to see wider progress in the region. British Prime Minister Blair is headed there for discussions with all parties. I agree we must pull out all the stops, but it has to be an even dialogue when it comes to the Israelis. The White House made a huge tactical error in allowing Israel to destroy Lebanon's infrastructure this summer. President Bush has not been an honest broker; the kind Middle Eastern leaders are looking for.

Finally, some opinion from Garry Kasparov, in an op-ed for The Wall Street Journal, including his take on Russia.

"The U.S. must refocus and recognize the failure of its post-9/11 foreign policy. Preemptive strikes and deposing dictators may or may not have been a good plan, but at least it was a plan. However, if you attack Iraq, the potential to go after Iran and Syria must also be on the table. Instead, the U.S. finds itself supervising a civil war while helplessly making concessions elsewhere.

"This dire situation is a result of the only thing worse than a failed strategy: the inability to recognize, or to admit, that a strategy has failed. Since the invasion of Iraq in March 2003, North Korea has tested a nuclear weapon. Iran is openly boasting of its uranium enrichment program while pouring money into Hizbullah and Hamas. A resurgent Taliban is on the rise in Afghanistan. Nearly off the radar, Somalia is becoming an al Qaeda haven. Worst of all is the answer to the question that ties all of these burning fuses. No, we are not safer now than we were before?.

"Learning from our defeats is obvious, but too often we fail to appreciate the reasons for our successes; we take them for granted. The U.S. charged into Iraq without appreciating the far greater difficulty of the postwar task there, and how it would be complicated by the increasingly hostile global opinion of America's military adventures.

"America's role as 'bad cop' has been a flop on the global stage. Without the American presence in Iraq as a target and scapegoat, Iraqis would be forced to make the hard political decisions they are currently avoiding. We won't know if Iraq can stand on its own until the U.S. forces leave. Meanwhile, South Korea and China refuse to take action on North Korea while accusing the U.S. of provocative behavior. How quickly would their attitudes change if the U.S. pulled its troops out of the Korean Peninsula? Or if Japan - not to mention Taiwan - announced nuclear weapon plans?

"From Caracas to Moscow to Pyongyang, everyone follows their own agenda while ignoring President Bush and the UN. Here in Russia, for example, Vladimir Putin gets Mr. Bush's endorsement for membership to the World Trade Organization while selling advanced air defense missile systems to Iran and imposing sanctions on Georgia, itself a WTO member. WTO membership is not going to benefit ordinary Russians, but it will provide more cover for Mr. Putin and his gang of oligarchs to continue to loot the country and launder the money abroad with no resistance from a distracted, discredited and enfeebled West."

Friday's employment report for November added further ammunition for those in the Goldilocks / soft landing camps. The unemployment rate ticked up to 4.5% but the economy supposedly created 132,000 jobs and, more importantly, since this number is subject to countless revisions, for the year the figure is closer to 150,000 per month. Pretty darn good, assuming these are "good paying jobs," as our president is fond of saying.

Earlier, a reading on the service economy was stronger than expected and oil prices stabilized after a two-week surge so it shouldn't be a great surprise that stocks rallied back some after a middling prior two weeks.

But it still all comes down to housing as to the future direction, and on this score it remains pretty bleak. In fact while some figures may reflect a bottoming process, I'm even more convinced of an imminent second leg down.

For starters, you have the likes of Merrill Lynch chief economist David Rosenberg pounding the table that the decline in housing will lead to a significant drop in consumer spending. [Rosenberg, in calling for only 1.7% growth in GDP in '07, also sees a 55% chance of an outright recession.]

Then you read the remarks of home builder Toll Brothers and its CEO Robert Toll. While some viewed the comments following the release of their latest earnings as a sign of stability, I'll let you be the judge.

"This quarter's results were negatively impacted by our higher than normal 585 cancellations. With these cancellations?we could face increasing margin pressure as we seek to move these homes."

Toll went on to say it is renegotiating many of its optioned land positions due to market conditions, something we discussed long ago?. Follow the land!

But a few investors hung their hat on Toll Brothers' thoughts that some of its markets are stabilizing. Are they really? And as I've argued, is consumer spending going to be strong in '07 if we have a year of flat home prices after a decade of rising ones? I don't think so, and Friday's downbeat consumer confidence forecast lent further credence to this viewpoint.

David Leonhardt of The New York Times had an interesting comment on the housing market.

"The truth is that the official numbers on house prices - the last refuge of soothing information about the real estate market on the coasts - are deeply misleading. Depending on which set you look at, you'll see that prices have either continued to rise, albeit modestly, or have fallen slightly over the last year. But the statistics have a number of flaws, perhaps the biggest being that they are based only on homes that have actually sold. The numbers overlook all those homes that have been languishing on the market for months, getting only offers that their owners have not been willing to accept."

And then there are the rapidly growing issues in the 'subprime' market; i.e., those who have no business buying a home in the first place due to their current financial situation. Wall Street has securitized some $435 billion in mortgage-backed bonds secured by these loans (just this year) and the default and delinquency rates are soaring, with one small subprime lender in California going out of business this week as a result. [For those of you in the New York area, Champion Mortgage is an example of a subprime lender. "When the bank says no?Champion says yesss!" Well some banks are saying no for a reason, sports fans.]

So let's face it. The news on the delinquency front is only going to get worse, and that's without any kind of real economic downturn. Imagine what would happen should pink slips begin to go out in serious numbers?

But I've gone this entire segment without mentioning the Middle East. As I noted last week, on one hand I'm amazed more investors don't get it. On the other, as I point out further below, those running America's corporations do, and the impact will be felt in terms of reduced capital spending, sooner than later.

Finally, in his 12/4 column Barron's Randall Forsyth had some words from Bank of America chief market strategist Joseph Quinlan concerning the dollar and global growth.

"We believe the world wants a weaker U.S. dollar about as much as U.S. consumers want to pay more at the pump for gasoline. Despite all the chatter about global imbalances and the need for a correction in the greenback, the world, in our opinion, just isn't ready for a sizable, secular decline in the buck. Such a move would undercut the primary source of growth of many nations: exports.

"Over the past decade, the United States has emerged as the market of first and last resort for the world, obviating the need for domestic-led growth in many nations and spawning a global addiction to exports."

--The Dow Jones and S&P 500 both rose 0.9% on the week, with the Dow closing at 12307 and the S&P 1409. Nasdaq picked up 1.0% to finish at 2437.

Bonds fell, yields rose, on the stronger than expected reading on the service economy as well as the jobs report. Additionally, on Friday Treasury Secretary Hank Paulson, about to head to China for key discussions, said he felt "very good" about the economy while adding what every treasury secretary is trained to say these days, "I believe very strongly that a strong dollar is in our nation's best interest." The market, populated with idiots, eats this stuff up for a few hours, which is normally long enough for a little rally in equities.

In other words, with the Federal Reserve meeting on Tuesday, the bond market is back to thinking a rate cut may not be in the cards now until late spring at the earliest. I'll go on record as saying it happens in March as both the second leg down in housing and a rapidly deteriorating situation in the Middle East finally gets the Fed to take notice.

--Knowing that a weak dollar (which is what we've had for months until Friday afternoon) is good for U.S. multi-nationals and their earnings prospects, the Wall Street Journal had a good table on the percent of revenue derived from overseas sources among the Dow 30?in case you want to go this route. [This is not a recommendation on my part.]

Intel?85.4% foreign revenue
Coca-Cola?71.1
Exxon Mobil?69.2
McDonald's?66.0
Hewlett-Packard?64.8

--December 5 represented the 10th anniversary of Alan Greenspan's "irrational exuberance" comment. In a speech that day he offered:

"How do we know when irrational exuberance has unduly escalated asset values which then become subject to unexpected and prolonged contractions as they have in Japan over the past decade?"

The Dow Jones was at 6437 and on Dec. 6 the Tokyo Nikkei index dropped 3.2% and the S&P 500 was down over 2% before recovering to post a smaller loss. But while the S&P declined 2.2% for all of December, it rose 6.1% in January 1997 and continued rallying until March 2000.

--A UN-sponsored study has found that the richest 2% of adults in the world own more than half of all household wealth. I'm frankly surprised it's not higher. 90% of the wealth is concentrated in North America, Europe, parts of Asia and Australia.

--Shares in Pfizer plummeted on Monday after the world's largest drugmaker suddenly announced it was ending development of a new cholesterol drug, torcetrapib, following evidence a slew of patients died when it was used in combination with Pfizer's Lipitor. Over $800 million had been spent on torcetrapib in the hope it would take over for Lipitor when its patent expires in 2010; Lipitor being responsible for about half of Pfizer's annual profits.

But as if that wasn't bad enough, the announcement to pull the drug came just three days after Pfizer had told analysts how well the torcetrapib trial was going, with CEO Jeffrey Kindler calling it "one of the most important developments in medicine in our generation." So of course countless investors bought the shares on that statement and then a few days later were taken to the cleaners.

--Lehman Brothers is rewarding CEO Richard Fuld, Jr. with a $186 million stock award over the next ten years to supplement his already ample compensation. Last year the heads of Goldman Sachs, Merrill and Bear Stearns, as well as Fuld, picked up total cash and prizes of over $30 million apiece. Try $35 mm to $40 mm for '06.

--Bank of New York is taking over Mellon Financial in a $16.5 billion deal that creates the world's largest securities servicing company with $16.6 trillion in assets under custody?.or about 3 light years, if you translated dollars into miles by my back of the beer coaster calculation. [About 4,000 jobs will be eliminated with the combination of the two banks.]

--According to a report by Bloomberg, insiders are selling $63 in stock for every $1 they are buying these days. Per my bit last week on the gloomy attitude of CEOs in New Jersey, the insider selling not only speaks to a lack of confidence on the future direction of the economy, but it also has to do with the attitude on the overall geopolitical scene.

Fannie Mae finally finished up a report on several years of accounting shenanigans and said the losses on its derivatives positions were only $7.9 billion?not the $10.8 billion originally estimated. From an earnings standpoint, it only misstated by $6.3 billion! [For the period 2001 through the first two quarters of 2004.] Congratulations, guys, on a job done badly.

But what gives some of us a warm and fuzzy feeling is word that the Office of Housing and Enterprise Oversight is close to filing a lawsuit against former Fannie Mae executives Timothy Howard and Franklin Raines. Unfortunately, while the two will eventually be forced to give up some of their ill-gotten gains, this is not a 'criminal' matter so they won't be serving the jail time they're entitled to. At least it will show the government has some backbone after all.

And then there is former UnitedHealth Group CEO William McGuire. The Journal's James Bandler and Charles Forelle had a terrific story on Thursday addressing just what a lying SOB Dr. McGuire truly was as he accumulated about $2 billion (with a 'b') in options awards, the bulk of which was magically backdated to the lowest share price for a quarter.

Lastly, Jefferies & Co was fined $9.7 million by the SEC and NASD for sanctioning the gift-giving of Kevin Quinn as he courted five Fidelity traders, paying for private flights to Turks and Caicos, Bermuda, strip club and golf outings, trips to Wimbledon?you name it, Quinn and the Fidelity Five did it. Even "dwarf tossing." Well, seeing as the NASD's gift-giving limit is $100, it was pretty clear cut Quinn's actions were illegal. Quinn was barred from the securities industry for life.

--The merger between US Airways and Delta is very much in doubt as Delta management refuses to go along with the terms, insisting it can make it on its own. But since Delta is in bankruptcy, it's the creditors who ultimately have the final say as they are the ones who decide on the fate of any post-bankruptcy plan issued by Delta.

--Yahoo is in the midst of a big shakeup, with CFO Susan Decker assuming more responsibilities. The company is having to deal with slowing demand in advertising, especially from automakers and financial-services industries. As I've been writing, the Big Picture is even bleaker for online advertising in general than the industry understands.

--Last week I wrote about Leonardo DiCaprio's new movie "Blood Diamond" and the impact it could have on the diamond business. Well this week a slew of articles were written on the topic, with far more to follow now that the picture has been released. DeBeers is claiming it has long resolved the issue of "conflict diamonds," which in years past helped finance wars in Sierra Leone, Liberia, Angola and Congo. DiCaprio himself, though, is saying the issue isn't as bad as it was in the 1990s. "You just have to go into the stores and ask for a certificate, ask for some sort of authentication that you aren't getting a conflict diamond." [New York Post] As if Leo himself would know.

But as one activist put it, "The industry is spreading misinformation?blood diamonds are not a problem of the past." I tend to agree with the skeptics.

--Taco Bell found the source of its serious E. coli outbreak? green onions. In case you were wondering, it was back in 1962 that Booker T. & the MG's had the #3 Billboard hit of the same name?"Green Onions."

--The Seminole tribe of Florida is acquiring the Hard Rock chain of cafes and hotels for $965 million. So look for extensive use of the Florida State and Atlanta Braves tomahawk chop and war chant in a new advertising effort.?then again, maybe not.

--New York City's Board of Health approved the first mandated ban in the country on trans fats in cooking oils, to take effect in the city's restaurants in 18 months. Good. There is irrefutable evidence trans fats contribute to heart disease and the fact the vote was unanimous speaks volumes.

--And following up on my comments on fish farming and salmon last week, on Monday the New York Times ran an editorial, a passage of which follows.

"A wild salmon is a glorious thing, and every bit as delectable as its cousins raised in fish farms that are, or are not, organic. But to call a salmon organic is to demean it, since it comes from a place where the word has no meaning. That is a little like calling the ocean 'natural.' The trouble is, there is no U.S.D.A. 'wild' label, nor should there be, for that would represent some final surrender to ourselves.

"There are really two answers to what is, after all, a problem of terminology. The first is consumer education. There are few shoppers out there who know as much as they need to know about the fish they buy, how the fish are harvested or what effect industrial fishing is having on the oceans. The other answer is to continue to be strict and judicious with the U.S.D.A. 'organic' label, and use it as a tool to help distinguish between fish farming that is done responsibly and fish farming that is not.

"Too often, consumers assume that fish farms are inherently 'organic,' perhaps merely because they are aquatic. Nothing could be further from the truth. They can be as organic as the finest pasture-raised organic pig farm or as inorganic as a hog confinement operation. Let's use the word 'organic' as a way to distinguish between them, all the while hoping that there remain wild salmon out in the oceans, beyond any of our categorizing."

So I then get this note from reader Bill H. on the topic, concerning a web site that specializes in truly wild salmon (as well as other species)?conservationsalmon.com?and first, Bill, I spent some time on this tasty site the other night and this weekend I'll place my first order. Thanks a million for passing it along. This appears to be a superior alternative.

--I have had no reason whatsoever to check out MySpace.com, until now. Being a member of the Rock and Roll Hall of Fame Museum, I got this note that the Hall has a blog on MySpace, so I thought 'this could be good?and a source of material for another column I write.' But when I clicked on the site of one of the 'friends,' it was as vile as anything I've seen on the web. At the same time MySpace announced this week it was developing technologies to help combat the use of its site by sexual predators. All I can say is I feel for you parents out there.

--Lastly, we note the passing of a great American, trucking industry giant Johnnie B. Hunt. Mr. Hunt was the son of a sharecropper who dropped out of school in the sixth grade to support his family. Later, after driving his own rig for nine years, he decided to create J.B. Hunt Transport Services, which today has 11,000 trucks and 47,000 trailers, all electronically tracked from headquarters in Lowell, Arkansas. J.B. Hunt employs 16,000 people. And as Steve Barnes wrote in The New York Times, "Unfailingly polite, he stood more than six feet tall and almost always wore a Stetson hat and cowboy boots. (Hunt) dispensed $100 bills to the needy, explaining that his memories of childhood as a poor sharecropper's son were still vivid." I only wish I had had the opportunity to meet him.

Russia: Kremlin authorities are not cooperating much with Scotland Yard and the investigation on Russian soil into the poisoning of Alexander Litvinenko. The Russians have not agreed to extradite any suspects and will not help identify the source of the polonium-210. Meanwhile, intelligence services in Britain are convinced the poisoning was authorized by the Russian Federal Security Service (formerly the KGB, now FSB). As the London Times pointed out, "The judgment by British intelligence has been strengthened by the knowledge that the FSB has legislative approval for eliminating terrorists and enemies of the state abroad, after the passing of a controversial anti-terrorism law in the summer."

"Do you think Anna Politkovskaya, the journalist who was investigating the war in Chechnya, was shot dead in her elevator by rogue elements? What about Viktor Yushchenko, the presidential candidate in Ukraine and eventual winner, poisoned with dioxin during the campaign, leaving him alive but disfigured? Ultranationalist Russians?

"Opponents of Putin have been falling like flies. Some jailed, some exiled, some killed. True, Litvinenko's murder will never be traced directly to Putin, no matter how dogged the British police investigation. State-sponsored assassinations are almost never traceable to the source. Too many cutouts. Too many layers of protection between the don and the hit man.

"Moreover, Russia has a long and distinguished history of state- sponsored assassination, of which the ice-pick murder of Leon Trotsky was but the most notorious. Does anyone believe that Pope John Paul II, then shaking the foundations of the Soviet empire, was shot by a crazed Turk acting on behalf of only Bulgaria?....

"Some say that the Litvinenko murder was so obvious, so bold, so messy - five airplanes contaminated, 30,000 people alerted, dozens of places in London radioactive - that it could not possibly have been the KGB.

"But that's the beauty of it. Do it obvious, do it brazen, and count on those too-clever-by-half Westerners to find that exonerating?.

"The other reason for making it obvious and brazen is to send a message. This is a warning to all the future Litvinenkos of what awaits them if they continue to go after the Russian government. They'll get you even in London, where there is the rule of law. And they'll get you even if it makes negative headlines for a month?.

"The prosecution rests. We await definitive confirmation in Putin's memoirs. Working title: 'If I Did It.'"

"A common argument has it that President Vladimir Putin may have cracked down on freedoms and democracy and recentralized power in the Kremlin, but at least he has ensured order and stability. In fact, Putin may have 'stabilized' public politics, but there's no more law or order about his regime than there was in Boris Yeltsin's 'chaotic' Russia.

"The political scene has been fully cleared of genuine competition, and the executive and legislative branches filled with loyalists who need not worry about public accountability. As a result, the members of this greedy bureaucracy have become a privileged circle in which they seek to amass power, which in Russia is closely linked to property and wealth. In the process, they force those with less clout to sell their lucrative properties, as happened not long ago with a Urals titanium factory. If the owner doesn't accept the deal, he can expect the tax police to 'discover' huge instances of evasion, the environmental agency to reveal improper use of his lands or the prosecutor's office to begin proceedings against him. All these government agencies would be working on behalf of the powerful buyer. This is hardly law and order.

"Meanwhile, the regime's loyalists are themselves engaged in a fierce struggle, especially as the crucial 2007-08 elections draw near. All are wondering what the power shifts that Putin has in mind will mean for them personally. Thus, disputes among them grow ever more intense and vicious, creating an atmosphere of rampant corruption and crime. Court rulings are commonly twisted as a result of bribery or pressure from the executive. Contract killings are used to settle scores with rivals and adversaries.

"Aside from the recent high-profile assassinations, there have been the killings, in a period of less than three months, of three bankers, one of them deputy chairman of the central bank. All were slain by contract murderers. A contender for the mayoralty in a Far Eastern town was killed at the height of the election campaign. A pro-Moscow Chechen commander was shot by a group of Chechen law enforcers in broad daylight in the middle of Moscow - in front of passersby and a group of Moscow militiamen who, according to newspaper reports, watched from across the street. None of the perpetrators was arrested.

"Real competitive politics, if they were ever allowed, might be a threat to the ruling elite. Fierce infighting within the regime is a threat to the entire nation and its future."

"As the investigation progresses, I'm sure many more wonderfully shady characters will emerge, along with many theories about who was trying to discredit whom. But though it's doubtful that he ever gave an actual order to an actual thug, Putin is certainly responsible for Litvinenko's death in this deeper sense: He presides over this web of old intelligence operatives, indeed, sits at its center. And he approves of their methods.

"One of his first acts as prime minister in 1999 was the unveiling of a plaque to Yuri Andropov, the former KGB boss best known for his harsh treatment of dissidents. Last year Russians built a statue to Andropov. No one should have been surprised that the former KGB's harassment of modern 'dissidents' grew harsher with every passing year - or that it culminated in this strange murder.

"That we were surprised, are surprised, is both tragic and ironic: After all, for the better part of a decade now, we've been desperately looking for weapons of mass destruction and for the strange new enemies, the Islamic radicals who might be planning to use them. And now we've discovered that there really is nuclear material for sale and that it really is being used, in the West, to kill people. And that the killers aren't strange, or new, or even Islamic."

North Korea: Evidently the United States has offered the most specific package of economic assistance to date if North Korea will give up its nuclear weapons. But Pyongyang would have to begin dismantling some of the key equipment used in the process before the White House would return to negotiations. That said, talks may restart in a week or so.

Turkey: Out of nowhere, Ankara said it would open a port and an airport to traffic from Cyprus in a last-minute attempt to avert a partial shutdown of talks into its candidacy for European Union membership. On Monday, EU ambassadors and foreign ministers will decide on the next step, the issue of Cyprus long being a key stumbling block. Turkey's Foreign Ministry, however, hinted it sought the end of economic isolation of the self-proclaimed Turkish Cypriots in northern Cyprus. [Cyprus has been divided since 1974 following a Turkish invasion in response to a coup by Greek Cypriot militants.]

For its part, Greek Cyprus, which was granted EU membership in 2004, said it will take a harder line if some EU member states use Turkey's move to allay some of the sanctions, because it comes with conditions Greek Cypriots can't accept. It's a confusing issue, to say the least.

Venezuela: Hugo Chavez won another six years by taking 61% of the vote in the presidential election. Chavez proclaimed "Long live the socialist revolution!" and has refused to meet with U.S. representatives.

On the energy front, Chavez has been in discussions with his Brazilian counterpart, Luiz Lula da Silva, on a proposed South American mega-pipeline that in Chavez's words "would strengthen the energy matrix of Brazil, Argentina, Paraguay, Uruguay and all of South America."

Here's the deal. The natural gas pipeline would stretch 5,600 miles and cost at least $20 billion, plus it would cut through the Amazon. Oh yeah, that's a bright move. Just say goodbye to the entire continent's ecosystem if this project goes through.

Pakistan: President Musharraf reiterated he was willing to give up claim to all of Kashmir if India agrees to do the same, thus making Kashmir a self-governing entity. But most of Kashmir is Muslim and Islamic hardliners want Pakistan to retain its claim, while at the same time India says Pakistan must clamp down on Islamic militants fighting Indian rule in Kashmir.

Britain: Prime Minister Blair is proposing that the nation's nuclear warheads be cut in half to 100, but that a new generation of submarines be employed as it would be "unwise and dangerous" to forego the nuclear option entirely with emerging threats from the likes of North Korea and Iran.

Fiji: I can't say I've given the latest military coup here much thought (nor am I losing sleep over it), but it is kind of interesting that with Fiji in its backyard, both Australia and New Zealand opted not to take action in the way of supporting the democratically elected government on the island.

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