Educate Yourself

Week in Review
For the week 12/11/2006 - 12/15/2006
Brian Trumbore
President/Editor, StocksandNews.com

Look! The tagline for our new strategy for Iraq, now to be unveiled after New Year's instead of before Christmas.

"George Bush has wisely decided not to ruin everybody's Christmas by announcing his plans for a new strategy in Iraq before the end of the year. It would have been preferable if the White House had not added to the general impression of disarray in Washington by saying initially that he would speak next week and then saying he would wait. But in grand strategy as in courtship, even when you are inclined to haste, it is better to be right than quick. We will have to wait until the new year.

"It is unlikely that the delay is caused by President Bush's desire to ponder more deeply the findings of the Iraq Study Group. Rarely in the history of the deliberations of great men has the shrift accorded their views been shorter. Not that you would know it from reading the world's press.

"Outside the U.S. the Baker report was greeted with the kind of hushed reverence with which the shepherds heard out the Archangel that wintry night in Bethlehem 2,000 years ago. The great and the good had deliberated for months and lo! from the clouds there came a great host of the heavenly army with a stunning rebuke for the Bush administration, pointing the way forward, with stops at all the favorite travel destinations of America's critics. Simply invite the Iranians and the Syrians to the White House for tea and pistachios, tell the Iraqis to solve their political and religious differences and start shipping the boys home. Oh, and while you're at it, lean on the Israelis to solve their differences with the Palestinians, and everything will be fine. Next: the Baker report into The Cure For The Common Cold. 79 Recommendations!"

What's going on these days is really almost surrealistic. Two polls, AP-Ipsos and NBC News/Wall Street Journal, have 71% of Americans disapproving of President Bush's handling of the war in Iraq. I'm scratching my head and wondering why it's not 100%. This has nothing to do with whether you're Republican or Democrat, whether you voted for the man (I did twice), or whether or not you agreed with going after Saddam in the first place; it's about common sense.

Alas, this week I lost a ton of respect for First Lady Laura Bush. In an interview on MSNBC she joined the dwindling chorus blaming the media for not presenting the good side of what's going on in Iraq. Incredible.

And then I caught Sean Hannity interview Donald Rumsfeld in Baghdad, and there was the outgoing secretary lying through his teeth yet again; telling a suddenly less bombastic Hannity (when it comes to the war) that all remains hunky-dory. The media "isn't using good metrics!" Rumsfeld implored. 14 or so of Iraq's provinces are fine! We're winning! For the first time, Hannity was speechless.

Just what are the president, Laura, Rumsfeld and the Deniers looking at? Start with the ethnic cleansing and the reality that an entire middle and professional class is disappearing at light speed.

So is it any wonder that Republican Senator Gordon Smith went to the floor a week ago Friday and said he was "at the end of the rope when it comes to supporting our Iraq policy?it's absurd; it may even be criminal."

"We have very few options left. In my judgment, taking down the Saddam Hussein regime was a huge gift to the Iraqi people. Done right, it might have left the region and the United States safer for years to come. But the American people have withdrawn their support for the war, although they remain intensely committed to and protective of our armed forces. We have run out of time. Our troops and their families will remain bitter for a generation if we abandon the Iraqis, just as another generation did after we abandoned the South Vietnamese for whom Americans had fought and died. We owe them and our own national interest this one last effort. If we cannot generate the political will to take this action, it is time to pull out and search for those we will hold responsible in Congress and the administration."

I like Gen. McCaffrey, one of those who advised the president this week, but I've also said on more than one occasion that where I've disagreed is with his fawning support of his fellow generals. Everyone is "world class" in his book. They obviously haven't been.

But what now? What is President Bush possibly thinking about in formulating his "New Way Forward," even as he acts like what we'll see is more of the same?

This week Senators John McCain and Joe Lieberman were among a group of congressional leaders in Baghdad.

"The American people are disappointed and frustrated with the Iraq war, but they want us to succeed if there's any way to do that."

McCain is calling for 15,000 to 30,000 more troops to attempt to secure Baghdad and buy the Iraqis time to work out some form of workable government that doesn't include Moqtada al-Sadr. "In my view," he added, without a troop increase "the results are going to be inevitable." Both McCain and Lieberman pressured Prime Minister Nuri al-Maliki to break ties with Sadr and disarm his militia.

But the Joint Chiefs of Staff are against more troops, as are many on the ground in Iraq and the cause of McCain and Lieberman isn't helped by the testimony of Army chief of staff Gen. Peter Schoomaker, who told a congressional panel that the Army "will break" under the strain of today's war-zone rotations; this also being McCaffrey's argument for over a year.

We know this. The president has known this. Rumsfeld has known it. So where the heck is the leadership to rectify it? It's sickening?and it should break every American's heart because we have hundreds of thousands of brave men and women, many of whom are being ripped from their families and jobs, whose lives are impacted.

Friends, you shouldn't be surprised I review the Middle East every day, searching for reasons to be the least bit optimistic. There are moments when I actually am, but they pass quickly.

I was sharing some notes with an old friend from college, Dr. W., who did his own review, concluding "mankind is too stupid and short-sighted to make decisions that will be truly beneficial to the greater masses over time. And if the United States is far from perfect, what possible hope is there for almost any country in the Middle East? Unemployment is sky high, the percentages of those that are educated in the traditional sense are abysmal, and the culture of most countries in the region has not progressed beyond the loyalty of the family-tribe-clan mentality for hundreds of years."

Iranian President Ahmadinejad, as his nation held a conference on the Holocaust:

"Thanks to people's wishes and God's will the trend for the existence of the Zionist regime is downwards and this is what God has promised and what all nations want. Just as the Soviet Union was wiped out and today does not exist, so will the Zionist regime soon be wiped out."

"Iran does not welcome the escalation of tension in its relations with other countries, but it is fully prepared to defend its national honor if certain countries continue pushing for sanctions and threatening the Iranian people and government in order to deny Iran its nuclear rights."

But this week, in a rarity, Ahmadinejad was heckled at a university as he was giving a speech.

"Ahmadinejad responded by calling the hecklers paid American agents: 'Today the worst type of dictatorship in the world is the American dictatorship, which has been clothed in human rights.' The American dictatorship, clothed in human rights and spouting falsified history: It's the kind of argument you can hear quite often nowadays, in Iran as well as in Russia and Venezuela, not to mention the United States.

"All of which is a roundabout way of saying that this particular brand of historical revisionism is no joke, and we shouldn't be tempted to treat it that way. Yes, we think we know this story already; we think we've institutionalized this memory; we think this particular European horror has been put to rest, and it is time to move on. I've sometimes thought that myself: There is so much other history to learn, after all. The 20th century was not lacking in tragedy.

"And yet - the near-destruction of the European Jews, in a very brief span of time, by a sophisticated European nation using the best technology available was, it seems, an event that requires constant re-explanation, not least because it really did shape subsequent European and world history in untold ways. For that reason alone it seems the archives, the photographs and the endless rebuttals will go on being necessary, long beyond the lifetime of the last survivor."

Senator McCain was in New York before heading to Iraq and gave the convocation at Yeshiva University.

"The Iranian regime defines itself by hostility to Israel and the United States?.We are dealing with a possibly deranged and surely dangerous state.

"We have a long way to go diplomatically before we need to contemplate other measures. But it is a simple observation of reality that there is only one thing worse than a military solution, and that, my friends, is a nuclear-armed Iran.

"The regime must understand that it cannot win a showdown with the world. And as Americans, we also need to reassure the reformers and the millions of Iranians who aspire to self- determination that we support their longing for freedom and democracy."

But when it comes to sanctioning Iran at the UN, it's been nine months since the first resolution calling on Iran to cease enriching uranium, though now Russia has said it is amenable to some provisions in a new draft seeking to stop Tehran's program; but only if it allows official travel and prohibits any financial sanctions. Of course Russia wants its $800 million for completing Iran's Bushehr plant.

So is it any wonder that even if it was a true slip of the tongue, Israeli Prime Minister Ehud Olmert had Iran on his mind when he told a German television station what everyone knows, but is never publicly acknowledged by the Israeli government; that the state has nukes. ["(Iran) is working to get nuclear weapons like the U.S., France, Israel and Russia."]

Vice Premier Shimon Peres, who in the 1950s spearheaded Israel's nuclear efforts, defended Olmert.

"We didn't build a nuclear option in order to create a nuclear bomb. The very suspicion that we have one is enough. It's intended for deterrence and it has achieved its goal."

Message received?.even in Tehran. But will Ahmadinejad be the first to truly cross the line anyway?

One final note. Civil war in the Palestinian territories is closer to fruition than ever, especially after Prime Minister Haniya's attempt to bring $35 million in donations from the likes of Syria and Iran across a checkpoint between Gaza and Egypt on Thursday. One of his bodyguards was killed amidst the confusion by forces aligned with Fatah.

Upon returning home late Thursday night, Haniya said "We know the party that shot directly at our cars?and we also know how to deal with this." [As for the money, European monitors, working with Israel, allowed it to be placed in an Egyptian account, which Haniya will then undoubtedly access.]

Stocks around the world soared. No need to worry about anything, market participants are saying. The future has never looked brighter! Go forth and obtain a third mortgage, by gosh, and plop it down on a bunch of blue chips; go on a cruise and leave your troubles behind.

No doubt, some of the news was good. Retail sales came in better than expected and the reading on November consumer prices was unchanged, including the core rate, ex-food and energy. Year over year, the core CPI is up 2.6%. You can quibble with how the government comes up with the data, but the number itself is tame.

Earlier in the week the Federal Reserve held the line on interest rates again, as expected, but did admit there was a "substantial cooling of the housing market." Yup, there sure is.

But the Fed added, while core inflation remains elevated (above its preferred 2% target), it expects economic growth to "moderate" and, thanks to falling energy, coupled with the slowing economy, inflation will then "moderate" too.

Only one problem with that?.energy isn't going to fall with what I see going on in the Middle East. Plus OPEC is flexing some muscles, and exhibiting a little discipline, in instituting production cuts that are sticking, to a certain extent; "certain extent" being better than their history of outright shoddy compliance. And in one of the dumber moves in the history of commerce, Angola sold its soul to the devil in agreeing to become the first new member of the cartel since 1975, which also means Angola will have to comply with OPEC's wishes and not necessarily develop its resources in its nation's best interests. But then when I'm up late at night, musing about the world and which places I'd like to visit next, Angola isn't part of the equation.

One item on the energy front I forgot to bring up last time is a tidbit I received from my friends at Pritchard Capital concerning China. China is in the process of building its own petroleum reserves, just like the United States and many European nations have, but it's only up to 4 or 5 days worth presently and the goal is three months supply. Evidently China is buying any dips below $60, so you can see the stabilizing impact this can have on prices. [We closed this week above $63.]

And speaking of China, so much for a successful trip by Treasury Secretary Hank Paulson and his posse which included Fed Chairman Bernanke. Remember, the United States isn't exactly operating from a position of strength these days, for a variety of reasons. You might say, as I have, that we are in fact increasingly irrelevant.

On the power front, for example, it's pretty tough to act like a hard-ass, as Paulson tried to do, when you're talking to a country that holds about $675 billion in U.S. Treasuries.

Before the entourage arrived, China's central bankers warned that while they welcomed the visitors from the West, it would not allow any outsiders to dictate currency policy. Then, upon Paulson and Co.'s arrival, Vice Premier Wu Yi, looking quite communist I might add in her spiffy red outfit, pledged to push ahead with "reform," including on exchange rates; but then she criticized Americans for "not only having limited knowledge of, but harboring much misunderstanding about the reality in China."

Ms. Wu explained how poor much of her country remains and "To change the underdeveloped productivity remains a long term and arduous historic task."

Then Ben Bernanke, looking very capitalist, released a copy of his remarks that branded China's undervalued currency as an "effective subsidy" that was distorting trade and providing an unfair advantage to its exporters.

However, after someone pulled him aside and explained a public forum probably wasn't the place to confront China, on their soil, he removed the passage before his speech to the Chinese Academy of Social Sciences.

So what's the bottom line? It's certainly good to engage China on the contentious issues of the day, but China really couldn't give a damn about us. As long as our economy is growing, even at a slow clip, Americans will buy enough exports to continue to keep China's factories humming and a majority of the people happy. But we aren't as important as we once were to their economic well-being, except in times of recession, as China is broadening its influence and opening markets all over the world. In other words, China is going to continue to operate at its own pace and it will ever so slowly adjust its currency on its own timetable, not ours.

U.S. manufacturers, though, are not likely to like the fact little was accomplished by this expensive mission and soon again, cries of protectionism will echo through the halls of a now Democratic Congress.

What the U.S. needs to do a better job of is confronting China in the World Trade Organization. The mechanisms are in place, China has had an ample honeymoon since becoming a member, and now, working with Europe, which is just as ticked off as we are, if not more so, we can team up and gain some successes. For all the grief the WTO gets, more often than not if you have a case you win.

--Observing a vast majority of market mavens these days on television, one can easily detect more than a bit of swelling around the brain. Yes, there's a bit of hubris out there. But I'm close to having used up all my ammo this year and I have to leave some for my year-end review and look ahead to 2007. So for now Goldilocks prevailed yet again as the Dow Jones rocketed to another new high, finishing the week at 12445, or up 1.1%. The S&P 500 is now exactly 100 points from its all-time mark of 1527, having tacked on 1.2% to 1427, and Nasdaq is just shy of its own 6-year high at 2457. More merger news, plus the outlandish earnings reports from the brokerage sector helped propel equities, but the deteriorating housing industry also led others such as Black & Decker, Illinois Tool Works and Stanley Works, all dependent on new home construction to a large extent, to lower earnings expectations; in the case of Black & Decker severely as its shares fell 10% on Friday.

The bond market barely responded to the Fed's statement and yields ticked up slightly on the stronger than expected retail sales data. Otherwise, the dollar stabilized some and it's tough to envision too many fireworks in the bond pits before year-end. Everyone is ready for a break.

--The Bank for International Settlements confirmed that Russia and members of OPEC have been moving out of the dollar and into euros, yen and sterling; reducing their dollar holdings from 67% to 65%. That may not seem like much, but OPEC's dollar deposits, for example, fell by $5.3 billion?in case you're looking for a reason for the greenback's decline, this past week notwithstanding.

--Goldman Sachs earned a post-Roman Empire record $3.15 billion for the quarter and $9.54 billion for its fiscal year on revenue of $37.7 billion. So?$16.5 billion was set aside for bonuses, which works out to something like $623,000 per employee. 70% of Goldman's revenues for the fourth quarter resulted from trading and principal investments.

--Meanwhile, bonus numbers for Wall Street's titans are beginning to be released. Morgan Stanley's John Mack is first out of the gate at $40 million, which means the others are likely to match or exceed it.

Then when they all get together for surf and turf in January, the conversation will go something like this.

--First it was US Airways and its bid for Delta. Now there is talk of UAL's United and Continental Airlines hooking up, while a private investor group and Australia's Macquarie Bank are taking out Qantas. In the case of the first two, however, Delta is still balking and a UAL-Continental match has to first placate Continental's alliance partner Northwest. Bottom line, airline share prices have been rockin' and rollin' in 2006 and my gloomy geopolitical outlook has prevented me from cashing in. Me so stupid!

[By the way, a UN report estimates that airliners account for over 3.5% of all greenhouse gas emissions and by 2050 this will rise to 5%.]

--The Financial Times and management consultant McKinsey have completed the first study of the value of the world's largest unlisted companies and Saudi Aramco comes out on top with an estimated value of $780 billion; far greater than the current market capitalization of ExxonMobil, $450 billion.

--General Electric won its largest gas turbine order in five years, $1 billion, to Saudi Arabia's state power company. This is all part of GE's push to increase sales to developing countries from $27 billion in 2006 to $40 billion by '09.

Overall, GE is forecasting profit growth of between 10% and 13% in 2007, down from the expected 15% this year. But GE hiked its dividend and CEO Jeff Immelt did a good job of spinning the company's prospects and presto! GE shares had their best week in ages.

--David Streitfeld of the L.A. Times had a piece on "pay option" loans that let the homeowner choose what he'll pay.

"One of (Will Hertzberg's) options is to pay $2,513 a month. That would cover the principal and interest as if it were a traditional 30-year loan.

"But each month he always takes the cheapest option: paying $1,106 and promising to make up the shortfall later.

"Essentially, option loans are bets that good things will happen. Maybe the mortgage holder will get a big raise, or sell a script to Hollywood, or inherit a chunk of change. When the borrower has to start paying off the loan in earnest in five years, the plan is that he or she will somehow be able to handle it."

If the housing market goes up enough, then the owner could refinance again. Of course today that's not necessarily the story.

And as Streitfeld points out, whereas in 2003 only about 8 of every 1,000 people buying a home or refinancing a mortgage in California chose the pay option loan, in 2005 this had soared to 1 in 5 applicants. Further, in the first eight months of 2006, nearly 1 in 3 chose them! Yikes.

--One thing that is working?hotels in New York City. Average occupancy is a staggering 88% and average room rates are $260. So with the condo market softening in the Big Apple, developers are switching gears and turning projects into hotels.

--If the Pentagon has its way, spending on Iraq, Afghanistan and other elements of the global war on terror will hit $170 billion in fiscal 2007 as the military has requested $99.7 billion in additional funding to go with $70 billion previously approved. It will be up to the Democratic Congress to handle this.

--Dubai's DP Ports World sold its US interests to a unit of AIG, thus ending the nightmare that began back in February when Congress and the American people got all up in arms over DP World's acquisition of some five container terminals on the U.S. east and gulf coasts, as well as other cargo and passenger- handling businesses. The issue then was the Bush administration not giving key congressional figures a proper heads-up on what promised to be a controversial issue. I'm on record as having supported DP World back then because of broader trade and foreign policy implications. [See my current "Wall Street History" piece for more.]

However, I do have to add that, separately, the White House is now concerned about sensitive military technology finding its way to Iran and Syria via Dubai. Dubai (United Arab Emirates) has always been a key transit point, no doubt, and its financial institutions are used heavily by suspected terrorists.

I just maintain that DP World, with extensive holdings around the globe, is not the issue. It's complicated, though, and I'll have further comment in weeks to come. I'll also certainly admit if perhaps I've been wrong.

--Antitrust authorities in South Korea, the United States and Japan are looking into price-fixing by the two leading makers of flat-panel displays, Samsung Electronics and LG Philips LCD. The European Commission is undertaking its own investigation. This comes at a bad time for the manufacturers because prices are currently plummeting due to oversupply. The inquiries have more to do with 2003 and 2004 when the sector was white hot.

--In one of his last acts before becoming governor of New York, State Attorney General Eliot Spitzer has gone after the brokerage industry again; this time UBS for putting clients into "wrap accounts" when other options would be far less costly.

I imagine some of you may have faced this situation yourself and I had extensive experience in this kind of thing when I was on Wall Street.

It boils down to this. If you have a brokerage account with, say, $100,000 in it and make three or four trades, max, a year, don't let a broker place you in a wrap account with a flat fee of 1.75% to 2%, for instance. [Wrap fees used to be as much as 3% but they've been coming down.] Just understand that the broker is under pressure from management (big-time pressure!) to get more revenue out of relatively dormant accounts and you're a target. It's a dirty game and I fully back Spitzer on his move.

--Speaking of dirty games, when I mentioned GE and its gas turbine contract, the #2 player in this market is generally thought to be Germany's Siemens. This week prosecutors have upped their estimate of suspicious transactions at the conglomerate to $556 million, roughly double earlier projections.

This is no small potatoes, sports fans. Recall a few weeks ago that 200 police raided the offices and residences of various Siemens employees and among those arrested thus far is a chief financial officer of its telecommunications-equipment arm. In a nutshell, the funds were used to bribe potential customers.

--BP faces yet another probe, this one by the Commodity Futures Trading Commission (CFTC), which is alleging price manipulation in unleaded gasoline futures. It's the third time the CFTC has come down on BP this year. Of course BP has also faced investigations over the 2005 Texas City refinery disaster as well as an oil spill in Alaska last March and the later closure of Prudhoe Bay.

--Monster Worldwide, parent of job-search Web site Monster.com, acknowledged officials "intentionally" backdated option grants during a six-year period and the company is restating earnings going back nine years by $272 million. What a bunch of total dirtballs. It does need to be noted, however, that the miscreants, about 60 executives and directors, have already been shown the door over the course of this year and are now posting their resumes on competing sites.

--Kathy Kristof of the L.A. Times had a good column on what to watch out for if you have a 401(k) with a small company. Unfortunately, there have been far too many instances of fraud with these accounts.

"Check the balance on your 401(k) account at least once every three months and double-check it against your payroll deductions. If you get statements just once a year, ask your employer to issue quarterly reports. Watch for late or irregular statements.

"Be alert for a sudden drop in your account balance that can't be explained by market conditions. Watch for investments in funds that you did not authorize.

"Stay in touch with former employees. If they say they are having problems getting access to their 401(k) assets, it could be a sign of trouble.

"Stay abreast of your company's financial health. If your employer is experiencing difficulties, there may be a threat to your retirement savings. Also be on guard if there are frequent or unexplained changes in investment managers or 401(k) consultants.

"If you have concerns, contact your employer or benefits administrator." [The Labor Dept. is another source, (866) 444- 3272.]

--China executed two former employees of the nation's third- largest bank for defrauding customers of millions of dollars; a total of over $50 million worth in the 1990s. The two had fled but were extradited. We'd just need one example here to do away with 90% of the fraud cases in the U.S.

--The Census Bureau's 2007 Statistical Abstract of the United States reveals that 91 million individuals now own stocks and mutual funds.

--Finally, the New York Times' Thomas Friedman had a column on Friday about wind energy. Perfect for my big stock holding, the carbon fiber company that picks up most of its revenue these days from selling its product to turbine blade manufacturers.

But you know how I've been waiting impatiently for this outfit's earnings, for the Sept. 30 quarter? In the dead of night on Thursday they finally reported and once again missed on sales. Plus they have this lawsuit that is a royal pain in the butt. So the stock took another nosedive, after a strong rally the previous week, and I sold some on Friday, though I wish I had actually sold more until the company straightens itself out.

You may recall I visited the company's facility in Abilene, Texas, back in the spring of 2005 to get a better handle on the process. Demand for carbon fiber is huge and growing, but it's not the easiest stuff to manufacture.

Additionally, I have never seen a better example where a change in management could work wonders. The current crew is the pits.

Lebanon: Little to say this week except the stand-off enters a third week as the Arab League has attempted to broker a compromise between the anti- and pro-Syria coalitions. Arab League chief Amr Moussa has proposed an increase in the Cabinet from its current 24 ministers to 30, with Prime Minister Siniora's anti-Syrian partners getting 19, Hizbullah and its allies 10 and one neutral minister. It's unclear to me exactly what is needed for 'veto power.' The issue of the tribunal on the Hariri assassination still hangs in the balance.

Russia: Big meeting in Moscow on Friday (results of which aren't known as I write) between Presidents Vladimir Putin and Belarus' Alexander Lukashenko, with the topic being, of course, energy. Russia has decided to hold up its buddy just like it has its new 'enemies', Ukraine and Georgia, in imposing full customs duties on crude-oil exports to Belarus, along with hiking natural gas to the same $200 per 1,000 cubic meters that it is attempting to get out of the other two nations. The other week I mentioned nat gas giant Gazprom was trying to gain control of Belarus' state-owned pipeline network, Beltransgaz, and these other moves are related to this. Just a few months ago these two countries were talking of a potential merger; now who knows what will happen.

In the meantime, however, the story getting all the headlines is Royal Dutch Shell's cave-in to Gazprom and the huge $20 billion Sakhalin-2 liquefied natural gas project off the far east coast of Russia. The Kremlin is sticking to form and forcing Shell to give up its majority interest.

"The project is governed by a production-sharing agreement (PSA) that allows the operator to recover all its costs from gas sales before the allocation of profits, taxes and royalties. The Russian Government now regards the PSA as too favorable to Shell and has yet to agree to Shell's new cost estimate. The continuing harassment of the project, delays caused by environmental inspections and the persecution of expatriate staff, have taken their toll. Foreign workers in Sakhalin are being prosecuted for visa violations. About 600 are being targeted and several have appeared in court to pay fines.

"Sakhalin sources indicate that expatriates are becoming fearful and concerned that the visa infractions leave them with criminal records that allow the Government to revoke work permits at any time. Some staff have been told to leave, while others have stayed but cannot work. Shell said that there are problems with converting visas to work permits."

Sakhalin-2 remains the only large-scale energy project in Russia that the Kremlin doesn't have a big say in.

So from here on, foreigners will only be allowed to participate in Russia's energy sector from a subcontractor angle. As Putin spokesman Dmitri Peskov told the London Times:

"Our companies have the opportunity to be owners by themselves, to attract finance and certain technologies. This changes the conditions for foreign investors?.

"We understand that it is better to have a direct share but you have to understand these are Russian resources. No country in the world would want to give up its natural resources to foreigners."

"Impatient with the slow pace of proletarian struggle in Europe, Joseph Stalin in 1924 famously abandoned Leninist notions of international revolution and instead decided to go it alone in building a communist state. It was a strategy referred to as Socialism in one Country.

"President Vladimir Putin, too, is in the business of nation- building. While Russia has abandoned the failed communist model, there are signs that President Putin appreciates the Soviet policy of self-reliance. Russia's treatment of Royal Dutch Shell suggests that Mr. Putin operates an updated version of Stalin's Russia First policy: it could be dubbed Capitalism in one Country.

"Free market isolationism is a nonsensical hybrid. Shell's decision to bow to pressure from the Kremlin and cede control of the Sakhalin-2 project is a landmark, but backward step in the development of the Russian economy?.

"Shell may assuage its critics in the Kremlin if it concludes the mooted deal to hand Gazprom a majority share of Sakhalin-2. It should bring to an end the unpleasant harassment of Sakhalin Energy by the environmental agency and it should regularize Shell's relationship with the Kremlin. But the deal needs to be workable for both sides, allowing Shell to recover most of its costs. It has to send a signal to foreign investors that Russian capitalism is not a game with loaded dice.

"Shell's experience of Putinisation reinforces the sense that Russia is a gamble. Foreign companies have to work on the principle that a contract with Russia is, these days, little more than a memorandum of understanding.

"In time, Russians will discover that Muscovite capitalism is not to their benefit either. No company, in Russia or anywhere else, has sufficient management and technical expertise to build alone the scale of infrastructure required to run a modern economy, let alone meet the world's expectations for Russian energy exports. The Russians will end up paying for inefficient exploitation of their energy assets."

"The authoritarian drift of Russia continues apace. Yesterday, the Kremlin managed to pull the rug out from under the largest foreign investment in the country, Royal Dutch Shell's $20 billion oil and gas project?.You might call it the economic version of Polonium-210?.

"(But) Mr. Putin finds no shortage of defenders. After all, goes the refrain, Venezuela, Saudi Arabia, Mexico and other developing countries keep their oil and gas resources tightly held in state hands, too. Vladimir Putin's Russia certainly belongs in that company. So, please remind us, what's the country doing in the G-8 club of the world's leading industrialized democracies?"

"(If) Russia were somehow producing a Baker Commission report this week on Putin's fulfillment of major strategic goals since 2003, from the point of view of Moscow's nationalist power politics, he would get straight A's.

"Putin has pushed and bullied Ukraine and Georgia away from NATO, established and deepened Europe's dependence on Russian energy sources, and elbowed the European Union into near silence in the face of threatened boycotts and Russia's refusal to sign a charter of good conduct between energy suppliers' and their clients.

"Through the Security Council, and Bush's current reliance on it, Putin holds a Russian veto and a gatekeeper's prerogatives in relation to the West's hopes to stop Iran. The war in Chechnya, normally a minus-column entry, escapes serious censure because the allies keep quiet about it. A democracy that's flickered out, a fleeting rule of law? To Putin, they're nonproblems, as disposable as paper hats and tinsel."

"On Nov. 15, the Russian Interior Ministry and Gazprom, the state-controlled energy giant, announced three new senior appointments. Oleg Safonov was named a deputy head of the ministry. Yevgeny Shkolov became head of its economic security department. And Valery Golubev was appointed a deputy chief executive at Gazprom.

"All three men had something important in common beyond the timing of their promotions: backgrounds as KGB officers and experience working directly with President Vladimir Putin when he was a KGB operative himself in Germany or later, when he was a rising presence in the local government of St. Petersburg, his home town."

Finn cites a report by Olga Kryshtanovskaya, director of the Moscow-based Center for the Study of Elites.

"Kryshtanovskaya recently analyzed the official biographies of 1,016 leading political figures - departmental heads of the presidential administration, all members of the government, all deputies of both houses of parliament, the heads of federal units and the heads of regional executive and legislative branches. She found that 26% had reported serving in the KGB or its successor agencies.

"A more microscopic look at the biographies, she said - examining unexplained gaps in resumes, unlikely career paths or service in organizations affiliated with the KGB - suggests the startling figure of 78%."

Finally, I recently wrote that it was I, back in the fall of 1999, who first raised the possibility Vladimir Putin was directly involved in the Moscow area apartment bombings.

"Put yourself in Mr. Putin's shoes. It's hard to see how, except by holding onto power and trying to use it to control his circling enemies, he could hope to avoid becoming a target of political or legal retribution sooner or later. He's riding high in domestic polls, thanks to a recovering economy, no small thing. But the Litvinenko murder may have been the thread that begins the unknitting. The real threat has always been Ryazan. That's the Russian city where on Sept. 22, 1999, a resident noticed men unloading bags of 'sugar' into the basement of a large apartment block. The sugar was the explosive RDX; the men were Russian federal security agents. Moscow claimed the incident was a training exercise, but the apartment bombings, which had killed 300 of Mr. Putin's subjects, suddenly stopped.

"Western governments have been nothing if not resolute in turning away from Ryazan and the evidence of the crime that allegedly underwrote Mr. Putin's rise to power. Western leaders might prefer, all things considered, to see him remain in power rather than deal with the consequences of Ryazan. But it is not in the nature of the world that such a mystery can be concealed forever, or its consequences ducked."

India: The Senate voted unanimously to give India access to American nuclear technology, while in return India will permit inspection of most of its nuclear reactors for the first time. President Bush deserves credit on this one and I view it as a significant achievement in terms of the long-term relationship between our two democracies. [The agreement still needs to be put into formal treaty form and accepted by the Nuclear Suppliers Group of 45 nations. Both are highly likely now.]

But critics of the deal say it will lead to the spread of nuclear weapons, and there is no doubt Iran will use the agreement to the fullest in arguing its case for a nuclear program. In other words some worry there could be a "nuclear weapons domino effect."

To which I'd simply argue, do you think Iran at this point is going to be stopped? Let alone any others seeking nukes in the region? And wouldn't India just get the know-how elsewhere? And isn't Pakistan going to continue to deal with China with regards to its own nuclear weapons program?

North Korea: Six-party talks on Pyongyang's nuclear weapons are slated to restart Monday, but only briefly, before breaking up for Christmas and New Year's.

The North has offered to shut down the main reactor at the key Yongbyon plant, but only if the U.S. lifts all financial restrictions for its alleged counterfeiting and money laundering. In addition, the North insists on energy aid.

If we've learned anything it's this. There will be no great immediate breakthroughs and some of us will be highly skeptical of any that are announced.

Remember, we have no clue what the North has been doing and where. Verification will be a nightmare. And now China has even more of an incentive to jerk the United States around with all the pressure being exhibited on it by the Paulson entourage, so don't look for Beijing to do much to pressure Kim Jong-il.

China: The state-run Xinhua news agency issued a surprise admission in a commentary recently. "The huge number and broad scope of mass incidents (of social unrest) has become the most outstanding problem that seriously impacts social stability."

It's all about the plight of the farmer and loss of land, corruption and the dreadful pollution problem; all of which are contributing to the widening gap between rich and poor.

"Whether we can actively prevent and properly deal with mass incidents is a significant test of the party's ability to govern. The Communist Party - particularly local officials - must do its utmost to help laid-off workers, landless farmers, displaced migrants, peasant workers and the poverty-stricken populations of towns and villages." [Jane McCartney / London Times]

Turkey: The European Union agreed to partially suspend Turkey's membership talks because of its refusal to fully open its ports and airports to Cyprus. But the ministers didn't set a deadline for compliance, so they left the door open a crack.

Turkey, though, was furious, arguing it is being punished for not trading with Cyprus at a time when the EU has failed to fulfill a 2004 agreement to end a trade embargo on the Turkish Cypriot north. Turkish Cypriots had backed a UN plan to unify the island in 2004, but Greek Cypriots in the south rejected it. The Greeks then became part of the EU and now have veto power over Turkey's accession.

But some EU members, such as Britain, maintain Turkey's bid is still on track. I say it derailed a long time ago.

Afghanistan: The Taliban killed two school teachers and three other family members, bringing to 20 the number of educators killed in attacks this year. The sisters had been warned to quit teaching and if they didn't they'd "end up facing the penalty."

Chile: General Augusto Pinochet died and the nation was divided on the matter with sporadic violence in Santiago immediately after. So you might be wondering why there isn't a consensus on Pinochet's dictatorial rule, 1973-1990. Over 3,100 were killed under his regime and 29,000 tortured, with two-thirds of both occurring in 1973 when he took power.

But Chile's economy performed spectacularly in his latter years, especially compared to the previous socialist/communist rule, and he restored the country to civilian leadership under democratic principles. So it shouldn't be too much of a surprise that he leaves the scene with his share of supporters.

Saudi Arabia: Prince Turki al-Faisal, the Saudi ambassador to the United States, suddenly left his post and flew home after only 15 months on the job. The previous ambassador, Prince Bandar bin Sultan, friend to the presidents (cough cough), was on the job 22 years. So wassup?

It appears that Turki's brother, Prince Saud al-Faisal, the influential foreign minister, is seriously ill and as the Washington Post reported, Turki is rumored to be his brother's replacement.

Turki is held in high regard. Then again this begs the admonishment, watch your back.

Separately, on the issue of Saudi Arabia's threat to back Iraq's Sunnis if the U.S. withdraws, Ralph Peters wrote the following commentary in the New York Post, both on this issue and the broader war.

"American diplomats and politically correct generals want to be honest brokers in the Middle East, to achieve peace through forbearance and negotiated compromises. It may be the most hopeless dream in the history of foreign affairs?.

"Although Israel's existence is increasingly threatened, the unavoidable struggle is between Sunni and Shia. Transcending their internal fault lines - for now - these two competing forms of Islam are already at war in Iraq. It's only a matter of time until the fighting spreads.

"The question isn't 'How can we stop it?' We can't. Even delaying the confrontation may come at too high a price. The right question is 'How do we make sure we're on the winning side?'"

"Now the Saudis are threatening us: If we turn our backs on Iraq's Sunni Arabs, Riyadh says it will fund the insurgents.

"The threat might carry more weight if Saudis weren't already funding Iraq's Sunni butchers. And note that Saudi Arabia hasn't threatened to intervene militarily - the playboy princes know that their incompetent armed forces would collapse if sent to Iraq.

"It's time to call Riyadh's bluff. Having made whores of innumerable politicians on both sides of the aisle in Washington, the Saudis still hope to steer American policy the way they did before their citizens attacked us on 9/11.

"Now they demand American protection for those Iraqis who have done their best to kill our troops, instigate a religious civil war, slaughter the innocent and destroy any hope Iraq has of a better future?.

"The Saudis could have undercut the insurgency in Iraq in 2003. Instead, they backed it - because they refused to give up the old order in which the Sunni Arabs - less than 20% of Iraq's population - ruled in Baghdad. But Riyadh's policy of channeling funds through private donors didn't fool anybody who didn't want to be fooled?.

"Equating 'Shia' with 'Iran,' then writing off the Shia option would be strategic idiocy. Instead, we need to ask ourselves how we can wean the region's Shia - including restive young Iranians - from Tehran's breast.

"Some Iraqi Shia do feel an affinity for Iran - but many don't; Arabs find Persians racist and condescending.

"Here's the critical issue: How do we channel the unstoppable rise of Shia power into a course that doesn't threaten us?

"And if the terrified Saudis want us to rescue their nasty backsides again, let's ask just what they plan to do for us in return - then let's see them actually do it.

"But our response to any threat from Riyadh should be a public smackdown. Without our support, the Saudis are defenseless. Let's stop pretending we're the ones who need help.

"We have to shift onto the winning side of history. Increasingly, that doesn't look 'Sunni side up.' Yes, face down Iran. But do it wisely, by cooperating with those Shia who fear Tehran's imperial ambitions - rather than alienating them for the sake of Jim Baker's Saudi friends.

Zimbabwe: President Robert Mugabe, 82, has said he agrees with a plan to extend his 28-year run until 2010. The national security minister said "He has done so many wonderful things for this country and its majority population and he is not showing any signs of tiredness. So?why not?"

And just what kind of wonderful job has Mugabe, a two-time StocksandNews "Dirtball of the Year" winner, done?

Well, let's see. The basic needs of a family of six are four times the average wage and even the government admits living standards have declined precipitously over the past decade.

Inflation is running at about 1,000% and at least 65% are basically starving. So with the lack of nutrition, the incidence of AIDS is also skyrocketing.

But wait?there's more! Unemployment is 70% and the average life expectancy is 34 for women and 37 for men; the lowest in the world these days. Freakin' cavemen probably lived longer.

Sudan / Darfur: British Prime Minister Tony Blair has called for a no-fly zone over Darfur if Khartoum doesn't stop the violence there and allow a UN-led peacekeeping force. U.S. officials have said the Bush administration is working on military plans, including airstrikes.

But opposition in the Pentagon is strong and the chances of this happening, with everything else that is going on, would appear to be nil.

Ethiopia / Somalia: Then you have the Horn of Africa, which is threatening to blow at any moment?war between these two specifically. Leaders of Somalia's "Islamic Courts" movement seem bent on creating a "Greater Somalia," including portions of Ethiopia, Kenya and Djibouti. Of course as I noted a while back, al Qaeda is feathering its beds in Somalia; a perfect lair for plotting and scheming.

Britain: For the first time in 90 years, a prime minister has been questioned in a corruption inquiry. Tony Blair was interviewed by police on Thursday (a convenient time as the Princess Di report was being released the same day) on his role, if any, in the "cash-for-honors" investigation.

This has to do with a burgeoning campaign finance scandal investigation that started in March. Basically, Blair's Labour Party is accused by some of accepting loans/donations in exchange for "peerages," or seats in the House of Lords, a cool little perk if you are so inclined. Four lenders are at the center of the inquiry and among the issues, aside from Blair's possible role, is whether or not the loans were illegal. [It's complicated but boils down to whether a commercial lender would have offered the same terms.]

At the same time, Blair's government caved in to the Saudis and their role in another scandal involving British defense giant BAE Systems and 'oil-for-arms' contracts; i.e., bribery. In dropping an investigation here, it, too, was revealed under the cover of the Princess Di report.

BAE gets to keep its order for 72 Eurofighters, while Saudi Arabia won't see its reputation further besmirched. Blair denied talking to Saudi King Abdullah about the issues being raised before the investigation was squelched.

"The 'moral revolution' promised by Poland's Kaczynski twins when they came to power a year ago is foundering amid a series of scandals surrounding allegations of sexual exploitation and neo-Nazi links.

"The Kaczynskis' three-party coalition has been rocked by allegations that Deputy Prime Minister Andrzej Lepper, 52, and members of his Self Defense party demanded sexual favors in return for jobs - they deny the charges - and by reports that associates of another deputy prime minister, Roman Giertych, participated in a 2004 neo-Nazi rally."

Remember, Lech Kaczynski is president and twin Jaroslaw is prime minister. They came to office vowing to stamp out corruption and reintroduce morality.

Now I'm just reporting what I read in Bloomberg and I can't help but add this line, from Krzysztof Bobinski of the Polish Institute of International Affairs in Warsaw. "How can you have a moral revolution if there are people going around screwing their secretaries?" Good point.

Poland in many respects is totally dysfunctional these days, which is one reason why tensions with Russia have been on the rise. The government needs scapegoats (and Moscow is an easy one no doubt) to take attention off its domestic shortcomings.

Belgium: And here's another unbelievable one. Understand that Belgium is split between Dutch-speaking Flanders in the North and French-speaking Wallonia in the south and there has been a separatist movement in the country since the beginning.

So on state television the other night, a program starts out with a newscast, showing "fuzzy pictures that appeared to be King Albert II and Queen Paola fleeing the country on an air force plane as a clutch of pro-monarchy demonstrators waved Belgian flags outside the royal palace. Then there was live footage of trams blocked at Belgium's new border."

"Flanders, the report declared, had proclaimed its independence. Belgium, a fragile federal country of 10 million people, was no more." [International Herald Tribune]

The broadcast rocked the nation?but it was a hoax. There was a very cryptic disclaimer at the start and it wasn't until a half-hour into it that the minister for media affairs forced a message "This is Fiction" onto the screen. Those responsible are idiots.

Mexico: Keep your fingers crossed. The new guy, President Felipe Calderon, is trying. Within his first week he has launched a broad-based crackdown on crime against both leaders of violent protests in Oaxaca state as well as drug traffickers. At least it sends a message. Whether Calderon will be able to keep the pressure on, with the rampant corruption that is part of the police and military's DNA is another story.

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