Educate Yourself

Week in Review
For the week 12/25/2006 - 12/29/2006
Brian Trumbore
President/Editor, StocksandNews.com

What an awful year. Of course if you worked on Wall Street, or were fully invested in global equity markets and really didn't give a damn about the state of the world from a geopolitical standpoint, you'd probably beg to differ. Thru 12/30, for example, the Dow Jones World Index was up 19% for the year, while the MSCI Europe Australasia and Far East benchmark was up 23%. That's a helluva year, and there were others such as Russia and China where the returns were two to four times that.

But I'll tell you what kind of year it was. I select a "Person of the Year" from the political realm, unlike some of the farcical selections you see elsewhere, such as Time magazine's "You," and I opted not to go with a winner for the second time in six years. You show me one significant world figure who is deserving of the honor????time's up.

Glance at a map of the world, as I do about ten times a day, and you're reminded of the following:

The situation in Iraq deteriorated badly the past 12 months, Iran is closer to having a nuclear weapon and has been wreaking havoc in Iraq and Lebanon. Lebanon was close to civil war this fall and remains in a very precarious situation; this after Hizbullah went to war with Israel in the summer. In Palestine, President Mahmoud Abbas could actually be a surprise winner of "Person of the Year"?but in 2007?if he can rein in Hamas, but thus far he hasn't.

Going south the situation in Darfur is terrible and we just had an invasion of Somalia by Ethiopia.

Heading northeast, Afghanistan is worse off than a year ago, Pakistan has given in to Islamic militants in the territory of Waziristan, and further east, North Korea tested a nuclear bomb. In this last instance, President Hu Jintao of China is another who might have been a "Person of the Year," believe it or not, had he convinced North Korea to give up its weapons program, but he didn't.

North of China and Mongolia, Russia under Vladimir Putin is taking on a more autocratic bent than at any time since Brezhnev, jeopardizing Europe's energy needs along the way, while across the Atlantic, and down near the equator, Venezuela, while still relatively weak, is not only arming itself with Kalashnikovs and other Russian weaponry, but is also becoming a haven for Iranian operators of all stripes, perhaps the least understood factoid for the average American.

But before I offer some thinking on 2007, as well as more standard fare, let's review the past week in Iraq, Iran and Israel.

[Note: I have nothing to say concerning the death of Saddam Hussein. Your guess is as good as mine if this will lead to any lasting spike in violence.]

President Bush stepped out of his Crawford ranch, accompanied by his war council, including an increasingly out of place Condoleezza Rice I must add, to reassure the American people he was "making good progress" toward coming up with a "New Way Forward" for Iraq.

I prefer to think of whatever the White House decides on as "Starting Over," because that sure as heck captures what needs to be done, at least to the few of us who still believe we must give it one final try before packing it in.

"The American people are justifiably frustrated by the lack of progress (in Iraq), and the price paid by our heroic troops and their families has been heavy. But what is needed now, especially in Washington and Baghdad, is not despair but decisive action?and soon.

"The most pressing problem we face in Iraq is not an absence of Iraqi political will or American diplomatic initiative, both of which are increasing and improving; it is a lack of basic security. As long as insurgents and death squads terrorize Baghdad, Iraq's nascent democratic institutions cannot be expected to function, much less win the trust of the people. The fear created by gang murders and mass abductions ensures that power will continue to flow to the very thugs and extremists who have the least interest in peace and reconciliation.

"This bloodshed, moreover, is not the inevitable product of ancient hatreds. It is the predictable consequence of a failure to ensure basic security and, equally important, of a conscious strategy by al-Qaeda and Iran, which have systematically aimed to undermine Iraq's fragile political center?.

"On this point, let there be no doubt: If Iraq descends into full- scale civil war, it will be a tremendous battlefield victory for al- Qaeda and Iran. Iraq is the central front in the global and regional war against Islamic extremism?.

"In Baghdad and Ramadi [ed. Lieberman was in the region recently with John McCain], I found that it was the American colonels, even more than the generals, who were asking for more troops. In both places these soldiers showed a strong commitment to the cause of stopping the extremists. One colonel followed me out of the meeting with our military leaders in Ramadi and said with great emotion, 'Sir, I regret that I did not have the chance to speak in the meeting, but I want you to know on behalf of the soldiers in my unit and myself that we believe in why we are fighting here and we want to finish this fight. We know we can win it.'?.

"I saw firsthand evidence in Iraq of the development of a multiethnic, moderate coalition against the extremists of al- Qaeda and against the Mahdi Army, which is sponsored and armed by Iran and has inflamed the sectarian violence. We cannot abandon these brave Iraqi patriots who have stood up and fought the extremists and terrorists?.

"As the hostile regimes in Iran and Syria appreciate - at times, it seems, more keenly that we do - failure in Iraq would be a strategic and moral catastrophe for the United States and its allies. Radical Islamist terrorist groups, both Sunni and Shiite, would reap victories simultaneously symbolic and tangible, as Iraq became a safe haven in which to train and strengthen their foot soldiers and Iran's terrorist agents. Hizbullah and Hamas would be greatly strengthened against their moderate opponents ?.

"In Iraq today we have a responsibility to do what is strategically and morally right for our nation over the long term - not what appears easier in the short term. The daily scenes of death and destruction are heartbreaking and infuriating. But there is no better strategic and moral alternative for America than standing with the moderate Iraqis until the country is stable and they can take over their security. Rather than engaging in hand-wringing, carping or calls for withdrawal, we must summon the vision, will and courage to take the difficult and decisive steps needed for success and, yes, victory in Iraq. That will greatly advance the cause of moderation and freedom throughout the Middle East and protect our security at home."

I agree with Senator Lieberman, and I support the addition of more troops, specifically for Baghdad, as I've spelled out not just in past weeks but, on a broader scale, since the summer of 2003.

What appears to be emerging, however, is just how awful former Secretary of Defense Donald Rumsfeld was, and how intimidated the generals were by him. Now you're hearing of generals such as Casey, in charge of U.S. forces in Iraq, suddenly being receptive to troop increases when he and others weren't in the past. This is frankly pitiful and why I've disagreed with retired General Barry McCaffrey when he lumps all our military leaders into one category, "world class." They haven't been. But listen to those right below, like the colonel who spoke to Lieberman. This is what's so frustrating about the past 3 ? years. We didn't have to come to this point, but we are where we are.

So, yes, for President Bush it's "Starting Over." I urge him to do it right this time. We need to secure Baghdad, one neighborhood at a time, and then put the military, first the U.S. and then Iraqis, in charge of the reconstruction effort. It's about buying time until some semblance of a true political agreement can be reached and the country stabilized. Again, I know this is the view of a shrinking minority in America, but let me shock you.

Despite the failed efforts of our president, leaders such as John McCain, Rudy Giuliani, Joe Lieberman and Rumsfeld's replacement, Robert Gates, will spearhead the mission over the coming year. I just urge my fellow Americans to not give in to defeatism. We can turn this around?I truly believe this.

Today President Bush's legacy is in tatters in no small part because he has allowed Russia and China to dictate terms in the case of both Iran and North Korea.

Last Saturday, as expected, the UN Security Council approved Resolution 1737, a greatly watered down act that orders Iran to cease with its uranium enrichment while prohibiting countries from supplying Tehran with materials and technology that could be used in both its nuclear and missile programs. Instead of a blanket asset freeze on Iranian officials, the assets of just 10 companies and 12 individuals have been targeted and, in the case of Iran's key nuclear facility at Bushehr, it has been excluded from any punitive action due to the fact Russia wants the $800 million it is owed when the plant is completed sometime in 2007, at which point Bushehr will be "Weapons Central."

Previously, the Security Council had ordered Iran to cease enriching uranium by Aug. 31, which of course the mullahs ignored. This time the International Atomic Energy Agency, Mohamed ElBaradei's organization, must report back to the Security Council within 60 days to provide an update.

But what then? Should Iran continue to defy the world, as they will, the next round of sanctions still would not include the use of force. What's the point then for this entire exercise? The United States' only option is to pursue tougher sanctions outside the UN with the likes of Japan and Europe.

And while President Ahmadinejad's own popularity at home is on the decline, Iran does have a point when it comes to the entire nuclear issue. Unlike Israel, Pakistan, India and now North Korea, Iran is still a member of the 1970 Nuclear Non- proliferation Treaty (NPT), which states that Iran has the right to produce nuclear energy as long as it forswears pursuit of nuclear warheads. [Which is why the others either never signed the NPT or have since pulled out.]

So it's up to the UN and the IAEA to prove to the world that Iran is indeed pursuing nuclear weapons.

At the same time, Egypt and Saudi Arabia have already announced they are pursuing "nuclear energy" and Egypt's foreign minister came to the defense of Iran the other day.

"The negligence of certain Western countries over questions of non-proliferation, and the fact that they permit some states to acquire a nuclear capacity while preventing others from doing so, is nothing but double standards. That must stop. It is known that Israel has a nuclear capability that is not subject to any control by the IAEA." [Tehran Times]

I'm just stating the facts, friends. We all know what Iran is up to, and the scary consequences of success, but what is the Bush administration, or Israel, going to do about it when Russia and China keep blocking our efforts?

This week Iran's parliament voted 161-15 to "revise its cooperation" with the IAEA and accelerate its quest. President Ahmadinejad said "You have to accept that Iran has the technology of producing nuclear fuel. And it will celebrate it in (February?11-20)."

"As his Presidency grows shorter, Mr. Bush is going to have to decide how much longer he can afford to let diplomacy dominate his Iran strategy. The mullahs in Tehran have made clear their determination to build a nuclear weapon; the West has yet to show any comparable determination to stop them."

I would just add one other item, via a report by Johns Hopkins and the National Academy of Sciences. According to experts at both, Iran faces a dwindling revenue stream from its oil production (a fact I pointed out a long time ago, actually), due to soaring domestic consumption. In other words, you see sloppy news stories that Iran can produce up to 4 million barrels of oil per day, but seldom in the same report does it go on to say that only about 2.8 million, or less, is available for export because Iranians are using the rest. Oil exports represent 65% of government revenues today. Iran needs nuclear power, that's a fact. What's also a fact is the world today is lacking great leaders who recognized this, thus missing out on an opportunity to sit down with Tehran years ago, pre-Ahmadinejad, to negotiate a viable solution. It's too late now.

What a frustrating story, and again a lack of leadership in the White House is hurting the cause of peace. Israeli Prime Minister Ehud Olmert had a surprisingly productive meeting with Palestinian President Abbas last weekend, with Israel agreeing to remove scores of West Bank checkpoints that severely hamper movement by Palestinians, as well as the return of $100 million in tax revenues and arms shipments for Abbas's security forces, courtesy of Egypt (with Israeli and U.S. permission). But then Israel's Defense Ministry announced it had given approval on a new settlement in the West Bank, which is totally against the U.S.-backed "road map" for peace that come hell or high water has to be the starting point of any viable negotiations in the future.

Israel had pledged to freeze all settlement expansion, while the Palestinians were to crack down on terrorist activity. Of course neither side has followed through, but this tit for tat garbage can not go on forever.

Never has there been a clearer instance for President Bush to threaten the flow of funds to Israel unless they cease with the settlements. Instead all we saw was a "rebuke" from the State Department. As Abbas aide Saeb Erekat said, "What message are they trying to send" after such a positive meeting a few days earlier?

But let's look ahead, after a brief examination of how I fared in '06 after last year's predictions. I had a few good lines.

"It's clear China is of zero help in dealing with Kim Jong-il as Beijing also enjoys watching America sweat."

"Russia's true relationship with Iran will?become readily apparent over just the next few months. The U.S. probably won't like what it sees."

"Because both the U.S. and France were afraid to confront Syria's President Bashar Assad, the window (of opportunity in Lebanon) closed and the bombs and assassinations have resumed. For its part, Lebanon is too weak to confront Hizbullah's presence, and here Israel does the cause no favors when it continually violates Lebanese airspace beyond targeting Hizbullah along the disputed border."

"(In Afghanistan) the tremendous success we've had could all be for naught by end of 2006 unless NATO accepts the challenge. Don't hold your breath."

"Europe: There will be another major terror attack and it will spur an anti-Islamic fervor that will then be met head-on by home-grown Islamists, making Paris' recent troubles look like a tea party."

"Bird flu: Watch out for spring when the infected birds migrate back home. Tweet tweet!"

It's about 2008, really. In China the lead up to the Olympics in Beijing and in Russia the lead up to a possible presidential election should Putin actually step down. I still maintain he will find a reason to hang on and the constitution will be amended by next fall.

Energy security in Europe will of course remain a huge issue and there will be some tense moments, including rumors of troop movements at some point, most likely because of a Russia- Poland spat.

[As for China, it missed its window for taking over Taiwan. This subject is now closed until after the Olympics.]

Watch the Balkans as the issue of Kosovo gets center stage for a spell. Nothing too deadly, but between increasing concerns over Russia's intentions and the need for vigilance in the Balkans as well as what should be an increased presence in Afghanistan, NATO is going to have to confront the fact it is turning increasingly into a paper tiger and must, therefore, recommit itself to the security of Europe and beyond.

France's presidential election in April could lead to some fireworks. It should be an exciting race between the comely Socialist Party leader Segolene Royal and Conservative Nicolas Sarkozy. Sarkozy will eke out a win.

Watch Colombia. A growing political crisis could encourage Venezuela's Hugo Chavez to grab some territory. Otherwise, Chavez will be quiet but behind the scenes Iran will be spreading its agents around the continent to plan for an explosive 2008.

The Dow Jones will have two dreadful days. One when Iran tests a crude nuclear device. The second when there is a major assassination in the Middle East.

North Korea will test another nuclear bomb, but otherwise will remain the hermit kingdom as talks over its weapons program continue to go nowhere.

Iraq will show solid improvement by July, but it may not be enough to placate the American people as casualties continue to mount.

Afghanistan will stabilize some after a bad 2006. The Taliban, however, will only be regrouping in Pakistan, along with al- Qaeda.

President Calderon in Mexico will prove to be a pleasant surprise as he has some success in cracking down on crime internally, though immigration will remain a white hot topic between our two countries.

The United States will be increasingly irrelevant in many global situations. But as depressing as I find this, attitudes will change following the 2008 vote when we elect a president who once again commands the world's respect. The issue becomes can we make it until then?

"The U.S. housing market will continue to stagnate in the first two quarters, with some regions seeing slight declines in value, but then things really begin to get dicey in the second half. I would call for an outright crash, with values down 20% or more in many areas, were it not for the fact that long-term interest rates will remain at benign levels for much of the year."

That wasn't bad. And seeing as I was calling for the major equity averages to be down 3% to 7%, as of July 14 I was doing pretty well.

Ahem ahem. Of course that was July. Oil also peaked that week at $78. Then crude fell back to more reasonable levels, gasoline prices declined about 25%, and stocks roared. The economy has been falling, from a 5.6% rate of growth in the first quarter to 2.0% in the third, but earnings remained strong.

By comparison my model portfolio of 80% cash / 20% stocks (as represented by the S&P), finished up about 6.5%.

But before we look ahead, let's just review some positive data that came out this past week. Both new home and existing home sales for November rose more than expected, though in the case of the former, year over year, new home sales are still off 15%, while in the case of the latter, the median existing home price is off 3% from November '05.

Separately, a leading indicator of consumer confidence rose and the closely followed Chicago Purchasing Managers index, a barometer of manufacturing, climbed back above the key 50 barrier (52.4), after flashing a recession warning signal at 49.9 the previous month.

As for holiday sales, the only gauge I look at is that of the National Retail Federation which rose 6% in Christmas '05 but is estimated to have risen 5% this year. [This could change a bit as final figures come in.] So it wasn't a super Christmas and Hanukkah, but it wasn't a lousy one either.

So what of next year? Those who are trying to convince us housing has bottomed and that it's soon back off to the races are nuts. There is absolutely no way housing, at least as represented by prices, has a good 2007.

Housing was in a bubble, period. Bubbles, witness Nasdaq in 1999/2000, don't just pop and then return to old prices. But I'll grant you the housing sector could just stagnate for all of 2007, though I believe instead we will see another leg down.

Remember, it's still largely about affordability and not one of the optimist shills ever brings this up. Prices have only retreated slightly in the bigger bubble markets and, as represented by the huge percentage of first-time and new-home buyers who are taking out subprime mortgages the past 12-24 months, a large percentage of Americans are still stretching way beyond their means. And this is with historically low interest rates and a solid job market. I also need to add that while rates remain low, this recent tick up in yields (to a 6.20% level for a 30-year fixed) isn't helping matters.

So in our three-legged stool; housing, the consumer, and capital (business) spending, housing remains a problem.

And it will increasingly wear on consumer spending. This hasn't happened as quickly as I thought it would, nor has the market stagnated long enough for psychology to begin to wear thin. But at some point in 2007 reality will begin to hit Americans in the face; their leading asset has stopped appreciating, best case. The reverse wealth effect will then come into play.

As for capital spending, I remain convinced this is to a large extent hostage to the geopolitical scene because business leaders are simply more in tune with what's happening around them. If Iran doesn't pursue its weapons program, for example, and if peace breaks out in the Middle East and oil drops below $50, well then that's a pretty positive scenario.

But if as is more likely the case the Middle East flares anew, oil heads back over $70 and the global economy shudders, particularly in Asia, capital spending will dry up faster than you can say 'backdated options.'

Bottom line, stocks will meander around the breakeven mark in '07, call it up or down 3% on the troika - the Dow, the S&P and Nasdaq - when the final bell for the year rings next December. But then all hell breaks loose in 2008.

--Deficits do matter, but will remain largely a non-issue in '07; ditto for the dollar. Deficits matter for the simple reason that China just so happens to be financing an increasing portion of ours and they will use these burgeoning dollar reserves as a weapon; I just don't see this happening yet because the Chinese government will manage its internal problems well enough to avoid needing to play the nationalism card in '07.

--I have been so very wrong on emerging markets, but I can't see playing them next year to make up for lost opportunities.

--Yes, Virginia, there will be a big time hurricane or two again in the Gulf and oil and gas will soar anew. As I note below, with my own investment dollars I'm getting back into the sector at some point.

--For the week the Dow Jones tacked on 1.0% to 12463 after crossing 12500 for the first time earlier in the week. The S&P 500 added 0.5% to 1418 and Nasdaq picked up 0.6% to 2415.

The 10-year actually hasn't moved much in years, finishing 12/31/03 at 4.25% and 12/31/04 at 4.22%. Of course that's a big reason why housing did as well as it did.

But after missing my 2005 prediction on the 10-year by a mere 9 basis points (I had 4.30%), this year I said we'd finish at 3.99%. The consensus among economists, incidentally, was 5.00%. For 2007 it's 4.88% according to an extensive survey in Business Week. I'll go with 4.50% by yearend.

As for inflation, I just don't see it; outside of the energy sector which will have another run by summer to new highs on both oil ($80+) and gasoline futures ($3.00?remember, tack on 60-80 cents for your pump price in most states).

--For the archives, I want to throw out some strategist predictions on the market. Abby Cohen of Goldman Sachs is calling for a 12/07 S&P 500 of 1550; Ed Keon of Prudential is at 1630; Richard Bernstein of Merrill Lynch is at a surprisingly bullish (for him) 1570; and Tobias Levkovich at Smith Barney has pegged the S&P at 1500. [This last guy, though, changes his mind as frequently as Madonna changes outfits at a concert.]

--Uh oh?this may sound familiar. China's stock markets ended the year at record highs on Friday, with the Shanghai Composite Index soaring 4.2% that day alone and bringing the full year return to a staggering 130%. So I glance at the South China Morning Post and see the headline "Bull run fuels blind rush for funds."

"In big mainland cities, the traditional greeting of 'Have you eaten today?' is being replaced by 'Have you bought into any managed funds lately?'"

Almost three times as many accounts were opened this year over 2005. One person told Ms. Cai that she withdrew 20,000 yuan from her time deposit account to invest it in funds, "leaving only 700 yuan" in her pocket. "We'll use that to put food on our table this month."

Yup?shades of Nasdaq and the rush into tech funds at the end of 1999, early 2000. Maybe China will have to play the nationalism card earlier than I think after all?.when a market crash sends people into the streets wondering what happened to all their wealth. "It's America's fault," the government will say. "We'll sell some bonds and roil their markets."

--Every few days I look up the 10-day weather forecasts for places like Minneapolis, Winnipeg and Toronto to get a sense if any Arctic cold is about to envelop the lower 48. Consider this tidbit. For the first time since 1877, New York City will not have seen a single flake of snow for the month of December. So while Denver has been hit hard with a series of big storms, the rest of us are liking the trend; at least those who aren't big skiers in the northeast.

Of course with the warm temperatures the price of natural gas has plummeted from the mid-$8 range just a few weeks ago to about $6 today?a nice break when it comes to our heating bills.

But while perhaps natural gas continues to slide towards the $5 mark, or maybe even $4, just understand the cycle will at some point reverse. As my friends at Strategic Energy Research pointed out the other day:

"Beginning with the 2007 drilling season, the domestic Exploration & Production managers will slow the level of capital spending to reflect lower margins, especially in light of escalated service costs over the past 18 months. This has become the self- correcting mechanism for the natural gas market. This has also been evident recently in Canada where Canadian producers have reduced spending and rig rates are coming under pressure."

I'm smelling an opportunity to get back into the drilling sector at some point, following a hoped for correction in the share price of many of the operators. Sorry, just being selfish, you understand.

[And on a more personal note, best wishes to George Ross, Doug Foulsham and Mark Kellstrom as they launch Strategic Energy Research in Summit, New Jersey?a block from my own offices. These are good people, with a lot of experience in the field. And frankly I'm just happy it will be easier to sit down and have an adult beverage with them from time to time, as I pick their brains for information I can then pass on to you.]

--So remember how Russia agreed to pay Royal Dutch Shell $7.45 billion for its controlling stake in the Sakhalin-2 project, Gazprom's deal? Now Shell and two Japanese partners are being hit with $3.6 billion in cost overruns. Much more on Russia and Gazprom below.

--The 6.7-magnitude earthquake off Taiwan this week showed just how vulnerable some of our communications links truly are. At least a dozen fiber-optic cables that cross the ocean floor south of Taiwan, carrying traffic between the island itself and China, Japan, Korea, Southeast Asia and even the United States, were damaged.

" 'Pretty much everything south of Taiwan has been reported at fault,' said Frank Cuccio, vice president of marine services at Morristown, N.J.-based Tyco Telecommunications.

"Cuccio expects (a cable-laying ship) to be in position in a few days. It then takes three to five days to repair each cable, but mudslides set off by the earthquake can complicate matters by covering the cables, making them harder to retrieve from the bottom.

"Cuccio said the ruptures are more than 10,800 feet below sea level, too deep for the remote-controlled submersibles that otherwise would find the cables. Instead, the ship will drag grapnels along the bottom to find them."

And how large are these cables? Try two-thirds of an inch, "a testament both to the immense data capacity of optical fiber and the fragility of the links that form the global telecommunications network."

--On Thursday, the Financial Times reported someone at Apple Computer had falsified records related to CEO Steve Jobs receiving an options grant; specifically that a board meeting had taken place to approve the remuneration when in actuality the meeting never occurred.

But on Friday, Apple said an internal investigation (headed up by former Vice President Al Gore, incidentally) found no misconduct by current management, including Mr. Jobs, though he was aware of some favorable grant dates. Mr. Jobs, however, did not financially benefit from the grants. Something tells me this case isn't over?even as the share price rallied almost $4 on Friday on the seemingly positive news.

--Google will pass both Yahoo and Microsoft as the most visited Web site in 2007.

--This just in?Wisconsin's revenue agency said it sent as many as 170,000 forms to taxpayers with mailing labels mistakenly printed with their Social Security numbers. Idiots.

--The New York Times reported that Microsoft has potentially serious flaws in its new Vista operating system as computer security researchers and hackers have begun their work. Once again it appears there could be a browser flaw where malicious software infects a computer simply by visiting a booby-trapped site; this despite Microsoft's assurances on Vista's improved reliability.

--Texas Pacific Group was the world's most prolific buy-out firm in 2006 in transacting 17 deals with an aggregate value of $101 billion, according to the Financial Times. Overall, private-equity announced deals rose to a record $700 billion, more than double the record set in 2005. There is no reason not to believe there will be even more of a rush in '07, culminating in the acquisition of the entire African continent. The private-equity guys will then suck out all the minerals for themselves, before attempting to fool the public with an IPO for what's left, including the wildebeest.

--New York City will host a record 44 million tourists in 2006, up 7% from 2005, pumping $24 billion into the local economy. 1.2 million British tourists have swarmed the Big Apple, taking advantage of the weak dollar, while overall 7 million foreign visitors have crammed the sidewalks.

--Legg Mason portfolio manager Bill Miller saw his super 15- year streak of outperforming the S&P 500 go down in flames in '06; underperforming the blue-chip benchmark by a whopping 10% on a total return basis. I mean for crying out loud, that's like Joe DiMaggio following his record 56-game hitting streak with a 0-for-48 at the plate!

--Marsh & McLennan is selling its Putnam Funds unit to Canadian outfit Power Corp. Putnam's assets have declined about 50% since 2000.

--The FDA approved the sale of milk and meat from cows, pigs and goats after ruling the products were safe to eat and could be sold without labeling. I recognize some have problems with this on the basis of ethical and religious reasons, so I'll defer comment; except to say, frankly, I'm far more concerned with the quality of my tap water in New Jersey, cancer central, than anything else these days.

--If you want a good look back at the Gerald Ford years from an economic standpoint, check out a series I did for my "Wall Street History" link?beginning with the 7/28/06 piece.

--Barron's Jim McTague had the following comment concerning the FBI's recent report for 2006's first half indicating an ongoing increase in our nation's violent crime rate.

"Based on FBI reports going back to 1972 and the business-cycle chart compiled by the National Bureau of Economic Research, it looks as if violent crime trends upward at the beginning of a contraction and generally stays up through the initial phases of a recovery. The same pattern emerges when you overlay historical statistics for robbery alone from the Bureau of Justice Statistics. Holdups increased noticeably in 1973, 1980, 1981, 1990 and 2001, years in which recessions began?.If the robbery stat is higher when the FBI issues a full-year report in late summer or early fall, take some profits."

--Finally, the other day I was half-watching a CNBC rerun of a show Liz Klayman did with Warren Buffett and caught one item that Buffett said was critical to one's financial success, that being to invest in yourself.

So I'm then reading a story by Michael Daly in the New York Daily News concerning singer James Brown. Wouldn't you know at a critical time in his life Brown did just that.

"Today, James Brown returns to the Apollo Theater, where he bet every penny he had on himself nearly half a century ago.

"In doing so, Brown divined a truth that others of us with outsized dreams would do well to embrace as we enter a new year and all its possibilities.

"The future Godfather of Soul was just beginning to make a modest name for himself in 1962 when he told his record company he wanted to make a live recording of an upcoming concert at the Apollo Theater. King Records boss Syd Nathan responded without even pulling the cigar from his mouth.

"Brown replied that he would reach into his own pocket and go ahead anyway. He put up $5,700 to rent the theater and cover the recording.

" 'Which was every bit of coin I could lay my hands on,' Brown later wrote in his memoir?.'I knew I wanted a live album so people could at least hear what kind of show I had.'"

That evening, James Brown, "a man who had been so impoverished as a child he was expelled from school for 'insufficient clothes,' hit the stage. He was on this night wearing what might have been called a leopard-print tuxedo if leopards came that elegant. He was risking a tumble back into being broker than broke as he wailed a greeting to the audience.

The resulting LP, "James Brown: Live at the Apollo," became a monster hit and is considered by some the greatest live album ever.

"The hardest accomplishment is always the first," Brown wrote of that long-ago concert that changed everything. "Like that first baby step you take in your long walk through life."

Russia: As noted above, energy security remains a big issue as we close out 2006. Russia and Belarus are heading towards a collision with major implications for the entire European continent. As I go to post, Gazprom is threatening to cut off supplies of natural gas on Jan. 1 unless Belarus gives in to its demands.

Just last week it appeared Presidents Putin and Lukashenko had agreed on a new price structure and deal for control of Beltransgaz, Belarus' pipeline network, but then talks broke down amidst recriminations on both sides.

Gazprom was offering to restrict the price of natural gas for Belarus to $80 per 1,000 cubic meters in return for control of half of Beltransgaz. Belarus, which currently pays $47, wants to buy at the price paid by the neighboring Russian region of Smolensk, where industrial customers pay $54.

Gazprom then said Belarus needs to pay $200 next year, or $110 for the next four years and sell Gazprom half of Beltransgaz. Gazprom agreed to value the pipeline at $5 billion, a satisfactory price to Belarus at one point. But Belarus turned this down.

Here's the problem as far as Europe is concerned. About 80% of Russian exports to Europe are pumped via Ukraine (last December's New Year's gas crisis, you'll recall) and the other 20% through Belarus. A full one-quarter of Europe's natural gas needs come from Russia.

Belarus' Lukashenko, who just a few months ago was supposedly close to firming up a date for reunification with Russia, needs the multi-billion subsidy he currently receives from Gazprom.

Gazprom has told some in Europe not to worry; that it has ample storage at sites in Germany and Austria to meet any curtailment in the flow of gas, at least for several weeks. But these are the last people I'd trust.

Meanwhile, Russia's Prosecutor General's Office is claiming that a former Yukos official, Leonid Nevzlin, may be involved in the murder of former KGB officer Alexander Litvinenko. Can you say Stalin / Lavrenti Beria? At the same time the Kremlin is looking into filing money-laundering charges against former Yukos CEO Mikhail Khodorkovsky, already serving time for tax fraud, which could add 15 years to his current sentence that doesn't end until 2012. Prosecutors say Khordorkovsky stole oil revenues from Yukos and then donated them to Open Russia, a philanthropic foundation established by MK. As a strategist at Alfa Bank, Chris Weafer (sic), told Carl Schreck of the Moscow Times, "The money-laundering charges would give authorities a chance to portray the Yukos dismemberment as the Russian equivalent of the United States' Enron case rather than a state assault on a private firm."

Back to Mr. Nevzlin, he recently arrived in Newark, N.J., on a visa from Israel, where he had fled to avoid prosecution by the Kremlin over his connection to Yukos. According to Steven Lee Myers of The New York Times, Nevzlin did indeed have contact with Litvinenko a few weeks before his poisoning, but it was to provide Litvinenko with a dossier that "shed light on most significant aspects of the Yukos affair," according to Nevzlin, who also said he provided the same material to British officials.

Lastly, this week represented the 15th anniversary of the breakup of the Soviet Union. It's a time, perhaps, to reassess Boris Yeltsin.

"At the end of 1991, Yeltsin was the only Soviet politician with a popular mandate to act. He was the democratically elected president of Russia. No one else was in a position to deal with the three crises that had broken his predecessor - ethnic division, economic chaos and a failed political system. But did his response end up weakening Russia's democratic prospects?

"His first and most dramatic step - agreeing with the president of Ukraine and leaders of other Soviet republics to dissolve the Union - still gives Russians nostalgic pangs. Even so, history's verdict is likely to be that it was Yeltsin's most important achievement and a piece of simple good fortune for his country. By disbanding the empire, Russia freed itself from a gigantic burden on its national energies. It shed responsibility for countless problems that it could not possibly have managed well, and it reduced the risk that popular politics would turn into a Milosevic-style dictatorship.

"By not trying to prevent Baltic or Ukrainian independence, by not being the arbiter of war between Armenia and Azerbaijan, by staying on the sidelines of other conflicts, Yeltsin greatly reduced Russia's involvement in post-Soviet violence. His success can be measured in part by looking at those cases in which Russia did not fully turn its back on empire. It propped up separatist enclaves inside Georgia and Moldova and sought to crush radical separatism in Chechnya. The results were predictable: quasi-criminal satrapies, military brutality, deeper ethnic hostility. Had the Soviet Union been kept intact, we'd have seen this pattern everywhere."

Other aspects of the Yeltsin years will be dealt with less charitably, such as his "shock therapy" for the economy.

Somalia: I really don't know what to think about the chaos here. Neither Ethiopia nor the UN-recognized government in Somalia is run by good guys, and of course the Islamists, who fled Mogadishu as Ethiopia's military moved in, harbor al-Qaeda. But this week's mini-war can't possibly have made things any better and it's not as if U.S. troops, with not so good memories of this place, will get involved.

"For the Bush administration there was both good and bad news in these developments. The Islamic Courts movement poses a potentially serious security threat to the United States: Its leadership includes a U.S.-designated terrorist, and it is known to be harboring al-Qaeda militants, including several who helped carry out the 1998 bombings of U.S. embassies in Kenya and Tanzania?.

"Ethiopia's actions, however, are problematic. The country's autocratic government and a slight majority of its population are Christian; this has fueled resistance to its intervention from Somalis and Muslim governments that might not otherwise support the fundamentalist Courts. According to U.S. and UN reports, millions of dollars in funding and arms have flowed to the Islamists from Saudi Arabia, Egypt and other Arab states, while neighboring Eritrea, a bitter adversary of Ethiopia, has deployed its own troops?.

"Maybe the Ethiopian forces will crush the Islamists and their al- Qaeda allies and thereby rescue the United States from its predicament. More likely, the administration will have to prepare for much more active U.S. engagement in what is emerging as a hot new front in the war on terrorism."

China: Defense spending will exceed $36 billion this year, as the communists modernize the 2.3 million strong People's Liberation Army. Spending on average has grown 9% a year over the past decade. But while a government white paper said the buildup was defensive in nature, and that "China will not engage in any arms race or pose a military threat to any other country," the facts say otherwise. In particular, China continues to rush ahead with plans for an offensive naval capability, let alone further development of its abilities to invade Taiwan, if ordered.

Brazil: Goin' to Rio for New Year's? You really want to? On Wednesday a wave of gang attacks killed at least 18, including one incident where seven passengers on a bus were burned to death after gunmen attacked and torched it. Authorities say the attacks were planned by gang leaders already in prison who wanted to send a signal to the new state governor being sworn in January 1. At least 12 police stations were attacked with grenades and automatic fire. Lovely.

Zimbabwe: I wouldn't go here either. Over 16,000 were arrested and their shacks demolished as the government of Robert Mugabe targeted settlements that have sprung up around mining fields. Due to the incredible poverty here, tens of thousands have turned to mining after the collapse in agriculture. The BBC reports that "people dig or pan for gold or diamonds, risking their lives in shallow mines which frequently collapse." During the raids, officers supposedly recovered 500,000 kg of gold and 5,000 diamonds. So, are you sure you know where your diamond came from? [The suspects were all released after paying a bribe.]

Gold closed at $638?$519 on 12/31/05
Oil, $61.05?$61.04 on 12/31/05?All that worrying over a lousy penny.

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