Week in Review 
For the week 1/8/2007 - 1/12/2007
Brian Trumbore
President/Editor, StocksandNews.com

The Iraq Debate

This was an important week in the ongoing history of the decade that is being presented in this column. Today I note all sides of the debate on President Bush's "surge" in Iraq.

Editorial / London Times

"George W. Bush's address last night has been portrayed as signaling a 'surge' in America's military activities in Iraq. But 'surge' rather exaggerates what might be better thought of as a shift in resources. An extra 21,500 troops will be concentrated in Baghdad, where the worst Shia-Sunni violence has occurred, and in Anbar province, which has been the center of the so-called insurgency. This represents, though, an increase of a modest 15% in American force levels. It is, however, implicit recognition that more soldiers should have been sent some time ago?.

"In military terms, therefore, this is not a radical initiative. It could be argued that, ideally, even more troops should be sent, but it does not seem to be practical to move a much higher number into Iraq quickly. It is better to begin to make an impact in Baghdad swiftly, deploying men who have experience of the region, rather than to wait for more units with little knowledge of the Middle East to become available?.

"The new U.S. commitment is contingent on the administration in Baghdad improving its performance. The measures that are expected include a drive against the Shia militias that have mushroomed in the capital, reaching an accord on the distribution of oil revenues between the Shia, Sunni and Kurdish communities, and easing some of the restrictions imposed on those who were once part of the Baath party. This is at least as much a political as a military package. It will need to be implemented as such if it is to achieve the success that should be hoped for it.

"In reality, there is no credible alternative. The Iraq Study Group proved rather better at setting out the many problems that exist in Iraq than in offering precise solutions. Its recommendation that the White House co-opt Iran and Syria as its allies in Iraq does not look remotely plausible. The idea that suddenly withdrawing American soldiers from the country would convince Shia and Sunni hardliners to be more charitable to one another is equally improbable. Mr. Bush's domestic foes, notably Nancy Pelosi?. and the increasingly surreal Edward Kennedy, would simply abandon Iraq and be done with it.

"This is not a course that the United States can afford to take. Mr. Bush's decision involves serious risks and it is inevitable that more American soldiers will die as a result of being sent to dangerous sections of Baghdad. Nor is this destined to be a wildly popular announcement at home. It is right, nevertheless, to make one more effort to create the sort of Iraq that its people deserve and the vast majority of its citizens aspire to. These are the appropriate means to what is a noble end."

Editorial / Financial Times

"George W. Bush's new direction in Iraq is certainly not a strategy for victory, whatever that word, which is used ever more desperately by the U.S. president, now means. It may be one last heave. It may be a cover for U.S. withdrawal. But two things are quite clear.

"Right now, Mr. Bush has the support of no more than one in four Americans for this so-called surge of an extra 20,000 or so troops. Very soon, as the already indecipherable ethnic and sectarian patchwork of Iraq is pulled further and even more bloodily to pieces, he will have none.

"Second, this policy will not succeed in fixing an Iraq traumatized by tyranny and war and then broken by invasion and occupation. But it may end with the U.S. 'surging' into Iran - and taking the Middle East to a new level of mayhem that will spill into nearby regions and western capitals.

"Mr. Bush's body language in the speech bespoke a chastened man. Yet, caught in a willfully spun web of delusion and denial, he seems still unable to comprehend the depths of the debacle he has caused in Iraq?.

"The contradiction at the heart of the U.S. approach is this: after casually overturning the Sunni order in Iraq and empowering the Shia in an Arab heartland country for the first time in nearly a millennium, Washington took fright at the way this had enlarged the power of the Shia Islamist regime in Iran. Now, while dependent on Tehran-aligned forces in Baghdad, and unable to dismantle the Sunni Jihadistan it has created in western Iraq, the U.S. is trying to put together an Arab Sunni alliance against Iran. This is a fiasco with the fuel to combust into a region-wide conflagration.

"The only feasible way forward is the approach of the bipartisan Baker-Hamilton commission - which the new U.S. Congress should embrace and insist on.

"This would make support for the Iraqi government and army conditional on their real effort to promote national reconciliation, which would in turn, as it progressed, be rewarded with billions of dollars in long-term aid from the U.S. and Iraq's neighbors. This external support - from Turkey to Saudi Arabia and Iran to Syria - would be built up within a wide-ranging diplomatic offensive in the region that would include Tehran and Damascus. Mr. Bush is instead threatening to expand the war.

" 'Iran is providing material support for attacks on American troops' he said on Wednesday. 'We will disrupt the attacks on our forces. We will interrupt the flow of support from Iran and Syria.' The Iraq surge is beginning to look like the Vietnam escalation, spilling over into Iran and Syria the way that one did into Cambodia and Laos.

"Mr. Bush is right to argue that defeat in Iraq would be very serious. He is wrong in failing to recognize defeat is what he is staring at - and that this approach will help guarantee it."

Senator Chuck Hagel (R-NE):

"I think this speech given last night by this president represents the most dangerous foreign policy blunder in this country since Vietnam if it's carried out."

Editorial / Wall Street Journal

"Mr. Bush's words offered the hope that the new plan won't simply mean employing more troops to carry out a strategy that hasn't been working. Though widely described in the press as a troop 'surge' or even 'escalation,' the number of additional soldiers being sent to Iraq is significant but not overwhelming. The real difference will be how America uses its troops in Iraq. But in simplest terms, Mr. Bush seems finally to have decided that the way to defeat the insurgency is to protect the population, especially in Baghdad.

"For the past couple of years, every visitor to the Iraqi capital has been struck by the near invisibility of American troops on the city's streets. Sure, there were a few in the Green Zone, and lots out by the airport and a bit north at the airbase in Balad. But instead of using them to provide order, Generals George Casey and John Abizaid limited them largely to search and destroy missions while waiting for Iraqi forces to step up to the task of protecting civilian neighborhoods. There were reasonable arguments to be made for this strategy at the beginning - it might have prevented Iraqi resentment of U.S. occupation - but it couldn't survive the onslaught of Abu Musab al-Zarqawi's car bombs and the reaction of the Shiite militias.

"The new plan grew out of ideas presented by Iraqi Prime Minister Nouri al-Maliki when he met Mr. Bush in Jordan last year. And under it, U.S. forces are slated to become more visible in the Iraqi capital than they have since the invasion in 2003?.

"Iraqis will take the lead in security operations, as they have in recent days in anti-insurgent fighting along Haifa Street. But there seems to be agreement on both sides that the Iraqis will perform with more confidence if they have close American support?.

"Iraqi leadership will also be important to the new strategy, as the president noted last night. Mr. Maliki will have to show that Shiite criminals will be dealt with just as Sunni terrorists are. That means no more special treatment for the thugs of Sadr City. Rapid completion of a new oil law that guarantees equitable revenue distribution would also ease Sunni fears that they are going to lose out in the new Iraq. But we continue to believe that the best way to help Mr. Maliki accomplish these goals is not overt American pressure but consistent and overt American support?.

"With the new strategy, new forces and new generals President Bush is putting in place, we have a fighting chance to create a virtuous circle whereby better security leads to more anti- insurgent cooperation from the public - which in turn leads to still better security. If Congressional Democrats have better suggestions, we'd love to hear them. But the one 'strategy' that simply isn't credible is the idea that anybody's interests would be served by a hasty U.S. exit from Iraq."

Editorial / New York Times

"President Bush told Americans last night that failure in Iraq would be a disaster. The disaster is Mr. Bush's war, and he has already failed. Last night was his chance to stop offering more fog and be honest with the nation, and he did not take it.

"Americans needed to hear a clear plan to extricate United States troops from the disaster that Mr. Bush created. What they got was more gauzy talk of victory in the war on terrorism and of creating a 'young democracy' in Iraq. In other words, a way for this president to run out the clock and leave his mess for the next one.

"Mr. Bush did acknowledge that some of his previous tactics had failed. But even then, the president sounded as if he were an accidental tourist in Iraq. He described the failure of last year's effort to pacify Baghdad as if the White House and the Pentagon bore no responsibility.

"In any case, Mr. Bush's excuses were tragically inadequate. The nation needs an eyes-wide-open recognition that the only goal left is to get the U.S. military out of this civil war in a way that could minimize the slaughter of Iraqis and reduce the chances that the chaos Mr. Bush unleashed will engulf Iraq's neighbors?.

"We have argued that the United States has a moral obligation to stay in Iraq as long as there is a chance to mitigate the damage that a quick withdrawal might cause. We have called for an effort to secure Baghdad, but as part of the sort of comprehensive political solution utterly lacking in Mr. Bush's speech. This war has reached the point that merely prolonging it could make a bad ending even worse. Without a real plan to bring it to a close, there is no point in talking about jobs programs and military offensives. There is nothing ahead but even greater disaster in Iraq."

Editorial / Washington Post

"President Bush is right to recognize that U.S. strategy in Iraq is not working and to seek a different policy. He is right to insist that the United States cannot afford to abandon the mission and to reject calls for an early withdrawal. But the new plan for the war Mr. Bush outlined last night is very risky. It envisions new missions and dangers for U.S. troops and counts on unprecedented military and political steps by the Iraqi government. The plan is likely to cause a spike in U.S. casualties, while the chances that it will stabilize Iraq are far lower. Moreover, Mr. Bush appears prepared to embrace this approach despite strong opposition from Congress and the public - setting up a conflict that in itself could hurt the war effort?.

"Mr. Bush decided against the consensus strategy favored by the Iraq Study Group because he believed it would not prevent sectarian war from escalating. That may be right. But the president's policy poses a different danger: that Iraqi troops and Iraqi leaders won't deliver on the steps expected of them during what must be a relatively short time, even as American soldiers fight to secure Baghdad - and, almost certainly, die in larger numbers than before. It also means launching a mission that - until now, at least - has not had the domestic support that should accompany the commitment of troops to battle.

"If the United States is not to abandon Iraq to its enemies, the U.S. mission needs to be sustainable, in both military and political terms, over the years it may take Iraqis to stabilize their country. Mr. Bush is betting that a boost in U.S. troops and aid can accelerate that process. If he is wrong, a continued American presence in Iraq may become untenable. The president must do more to persuade the country that the sacrifice he is asking of American soldiers is necessary. And if Iraqis do not deliver on their own commitments in the coming weeks, he must reconsider his strategy - and suspend the U.S. reinforcements."

Editorial / New York Post

"Bush was brutally honest: 'There is no magic formula for success in Iraq,' he warned. 'We must expect more Iraqi and American casualties.' Indeed, 'Our enemies in Iraq will make every effort to ensure that our television screens are filled with images of death and suffering.'

"But the likely alternative - a politically driven U.S. bug-out from the central front in the global War on Terror - is too fraught with danger to contemplate.

"So it must succeed - or at least be given a fair chance to succeed by the new Democratic Congress. Iraq's future is far from all that's at stake. So too is the effort against Islamic terror in general - and against Iranian imperialism in particular.

"Other Arab governments in the Middle East realize this - and, wisely, are coming to believe that a military showdown with Tehran is inevitable?.

"Failure in Iraq will only embolden the mullahs in Tehran - who have rapidly become the region's Public Enemy No. 1?.Arab governments are convinced that Iran is banking on a forced U.S. withdrawal from Iraq - and has drawn up plans to effectively take over its western neighbor once that happens.

"At the same time, Tehran - via Hizbullah terrorists - has been strengthening its hold on both Lebanon and Syria. It also has been training a new brigade of Palestinian terrorists through Hamas?.

"If the president was serving notice that Iran has good reason to fear the consequences of its nuclear ambitions and regional mischief-making, then this is a plan with a future."

As for your editor, you should know by now where I stand. I support the president, in this our last chance. My thoughts basically echo those of the London Times, in particular.

But I have to add I have a tremendous amount of respect for Sen. Chuck Hagel and in a perfect world, Vietnam War vets Hagel and John McCain would tour the country, conducting a civilized debate to truly educate the American people rather than much of the drivel, bombast and poison that is prevalent on our airwaves.

This is a sad time for our country and downright depressing; not just because we are losing the war in Iraq, but because we have been stuck with a president who has not risen to the challenge the way most Americans had hoped.

Yet I'm amazed how even after 9/11, and the continuing rantings of the Islamists, including from the president of an increasingly menacing Iran, that so many in this nation still don't get it. President Bush on one hand does, but it's the execution and strategic thinking that has been sorely lacking, and as Bush himself is finally understanding he has been let down by a general corps that has failed to distinguish itself, as well as a former defense secretary who today resides in the trash bin of history.

In Saturday's Washington Post, Sen. McCain is quoted as saying that the way the war has been handled "will go down as one of the worst" mistakes in the history of the American military.

"One of the most frustrating things that's ever happened in my political life," he said, "is watching this train wreck."

The Congressional hearings and the debate are both healthy and critically important. Our nation not only has to decide how many months we give this last operation in Iraq without any visible success, but what to do with Iran as it plows ahead with its nuclear weapons program. No doubt, there are a ton of other hot spots to concern ourselves with, such as North Korea, and heaven help us if one of these other challenges blows this year, but attention must be directed to the mullahs.

This week, Supreme Leader Ayatollah Ali Khamenei, who does not appear to be near death as more than one strategist has put it recently, rejected UN sanctions on Iran's program.

"The Iranian nation undoubtedly will not refrain from their right [to nuclear energy] and the country's officials do not have the right to refrain from the nation's rights?.

"If the Americans, British, and one or more Arab countries sit down and discuss Iran's nuclear energy to see whether or not to allow it or approve it or relieve Israel's concerns in this regard, this would be a political mistake" by Islamic governments. "The Islamic countries' statesmen, especially those in the region, should know that Islam's glory and the Islamic republic's power are a support for them."

Addressing British Prime Minister Tony Blair's call for "moderate" Arab states to form an alliance against the Islamic Republic's alleged support of extremism, Khamanei said:

"This alliance, with the cooperation of two dirty and sinister governments, is against a nation that Islam is proud of - a nation that has sacrificed a lot. Therefore Arab countries must be careful about this dangerous trap." [Middle East Times]

A senior Iranian military officer said this week that Iran wouldn't hesitate to use the 'oil weapon' in the standoff.

"With Iran's authority over the Strait of Hormuz, the passageway to more than 40% of the world's energy, we have become so strong that the world's economic and energy security are in the hands of Iran. We can exert pressure on the U.S. and British economies as much as we ourselves are put under pressure." [Middle East Times]

Meanwhile, President Bush has taken the right step in moving another carrier group into the Gulf, and he's aggressively moving against Iranian cells in Iraq.

But to end on a mildly optimistic note, I've said it's vitally important to read all sides, especially the musings of our enemies. So it was with interest that I came across this exceedingly moderate editorial in the Tehran Times a few days ago.

"UN Resolution 1737 was the first resolution passed against Iran since the 1979 Islamic Revolution?.

"The fact that the negotiations among the 5+1 group members - the five permanent members of the UN Security Council plus Germany - were drawn out showed that it was not easy to reach a consensus against Tehran, but due to its step-by-step mechanism, the resolution can pose serious political and economic threats to Iran in the future.

"Iranian officials have no doubt that it is an oppressive move against the country, but they should deal with it with wisdom and foresight.

"The resolution also requires the establishment of a special committee to follow up the sanctions against Iran's nuclear program.

"The nature and responsibilities of this committee are similar to the Iraq Sanctions Committee, recalling the West's treatment of the Iraq issue, whereas Iran is in no way comparable to Iraq under Saddam Hussein.

"Although the anti-Iran resolution imposes sanctions on Iran's nuclear and missile programs, it also has the potential to hinder the Islamic Republic's relations with the international community under the pretexts of sanctions, extensive control, and limitation of Iran's political and economic ties.

"The resolution requires Iran to suspend uranium enrichment- related and reprocessing activities 'without further delay,' but Iranian officials have repeatedly rejected the demand. This shows that efforts to find a compromise have reached an impasse.

"Meanwhile, the resolution has implicitly set the suspension of enrichment as a precondition for the resumption of nuclear talks.

"In addition, all UN member states are required to implement the resolution, which means it can damage Iran's relations with its neighbors, which could lead to increased tension and crises in the region.

"In light of the fact that the resolution is part of a long-term anti- Iran plot hatched by the West, which Expediency Council Chairman Akbar Hashemi Rafsanjani has called 'dangerous,' it is essential that Iran formulate a well thought out strategy to counter the resolution.

"The adoption of Resolution 1737 has put Iran in a more difficult situation and restricted its options. Thus, the responsibility of Iran's diplomatic apparatus has become even heavier.

"The Iranian government should thoroughly analyze the resolution and take appropriate measures as soon as possible."

People forget that Iran, despite a major clampdown on the media over the past few years, still has independent voices. I take the above editorial as a sign that some in the leadership want to talk. As I've said over the years, Rafsanjani is the man to sit down with?.with eyes wide open. I can think of no one better to be our spokesman for this special mission than Colin Powell.

But regardless of your own position, you have to recognize time is running out. Iranian President Ahmadinejad has told anyone who will listen on more than one occasion that Iran is preparing to show the world between Feb. 11 and Feb. 20 just how far Iran's nuclear program has progressed. We should take him at his word, and not be surprised by anything that is revealed.

---

Wall Street

Buy buy buy! Heck, even I bought a slew of things this week, though that's more because I was down to two equity holdings and in my long-term account just one. I bought a little solar, a water play, started to nibble at energy for the first time in 18 months, even got back into my carbon fiber stock (though at less than 10% of what I owned before because the litigation issue is still unresolved). Overall, lest you think I'm not following my own advice, I'm now roughly at the 20% exposure to stocks that I've been touting all along?.and falling short performance-wise as a result.

This week's prime catalyst for the renewed rally, at least early on, was the continuing collapse in oil prices to below $52 at one point before finishing the week near $53, the lowest levels since May 2005. No mystery why?it's been warm out there, and as I look at the temperatures in Europe daily, on Friday it was in the 40s in Moscow and in the 50s in normally cold cities such as Warsaw and Vienna. Which means one thing. This junior weatherman is picturing a ton of cold energy that is building up where Santa's work shop is and at some point, even if for just a few days this winter, it is going to rush down and remind us here in the northeast that there are truly four seasons, not just three, at which point the energy group will rally.

But while the market is sanguine on oil and touting not just inventory buildups but also OPEC disarray, these are the same folks who were giving OPEC credit just about a month ago for sticking to some of its production cuts; while at the same time stronger growth, worldwide, would translate into more demand for energy. This week, for example, China announced it imported 14.5% more crude in 2006 than in 2005. The China story isn't showing any real signs of slowing just yet, India is going full tilt, Europe is OK and now some are saying the U.S. economy is getting its second wind. Ergo, I just thought this week was a decent time to buy a little oil and gas, myself.

More broadly, though, there was some good news on the economic front, such as a solid retail sales figure for December, stronger than expected, and trade data that showed soaring exports, so everyone is rushing to revise their forecasts for growth in the fourth quarter, now expected to be in the 3% range rather than 2%.

But I'm still looking at another leg down in real estate and a moribund economy for the full year. You also know from the opening discussion that we have more than a few things to worry about on the geopolitical front, not that investors seem to give a damn about that anymore.

The Center for Housing Policy conducted a study on one of my favorite topics, affordability, and a spokesperson for the group concluded "American workers are really not gaining ground and they're so far behind in the first place" when it comes to home ownership. Barbara Lipman said "The real story is what happened to salaries. Lower-paid occupations, such as in retail or home healthcare, their salaries went up only about 3%."

The study found an annual income of nearly $85,000 was needed to afford the median-priced U.S. home. In the New York metropolitan area, a $500,000 median-priced home required a $171,000 annual salary. In San Francisco, a $759,000 median home required income of $260,000. In Chicago, a median-priced home cost $254,000, requiring $87,000.

Meanwhile, homebuilder D.R. Horton saw orders fall 23% with a 33% cancellation rate in the latest quarter. The company offered in a statement:

"Although our cancellation rate decreased in the first quarter of fiscal 2007 compared to the fourth quarter of fiscal 2006, we continue to experience higher-than-normal cancellation rates and an increased use of sales incentives in many of our markets."

So those who said last month that real estate had bottomed may want to readjust their thinking. I haven't had to.

But over the coming weeks the focus will once again turn to earnings, with Alcoa kicking things off this week with a solid report for the fourth quarter that lent some support to a commodities sector that has been taking it on the chin, to say the least. If the fourth quarter was really as strong as everyone seems to think it was, then maybe we eke out a final double-digit gain in earnings. I'm not 'short' the market so I hope this is the case. Just understand that the Federal Reserve certainly doesn't appear likely to cut the funds rate anytime soon, and more than one Fed governor continues to talk of inflation pressures. I don't see them, or as General Anthony McAuliffe replied to the Germans who sought his surrender at the Battle of the Bulge, "Nuts!"

Street Bytes

--The Dow Jones hit a new all-time high, finishing the week at 12566, up 1.3%. The S&P 500, up 1.5% to 1430, and Nasdaq, up 2.8% to 2502, are at new six-year highs. This despite the fact there were some high-profile profit warnings from Advanced Micro and German business software giant SAP.

--U.S. Treasury Yields

6-mo. 5.14% 2-yr. 4.88% 10-yr. 4.77% 30-yr. 4.86%

Yields continued to rise as the feeling grows the Federal Reserve will be under zero pressure to cut the federal funds rate.

--The U.S. trade deficit with China reached another all-time high, $214 billion in November, shattering the previous annual high of $202 billion. And that's with one month to go, sports fans.

But U.S. exports to all of America's trading partners surged to their own record, which is why many were ratcheting up their growth forecasts.

Back to China, though, with the Democrats now in charge the protectionist calls are growing.

--Toyota, facing trade pressures of its own these days, is working on a plan to build as many as five new plants in North America in the next 10 years, which would give it 12 in the region. It's estimated the five would create 10,000 jobs.

Toyota's North American capacity last year was 1.5 million vehicles and it brought in another 1.2 million from Japan to meet demand. [Bloomberg News]

--What a week for Apple Computer. CEO Steve Jobs announced the latest 'must have,' the iPod mobile phone (iPhone), as well as an Apple TV set-top box, at Macworld.

"Today Apple is going to reinvent the phone," he said. Aarghhh!

Of course some of us looked at the $499 price tag and thought, 'eh.' But it will come down, as does most everything in life, come to think of it.

Jobs also announced Apple Computer would henceforth be named "Apple," as in "How do you like them Apples?"

But while the iPhone product launch was highly-anticipated, shares in Apple nonetheless skyrocketed from $84 to an all-time mark of $97 before backing off a bit. Seems that Cisco Systems had already trademarked the iPhone moniker back in 2000 and even placed it on an Internet phone called "iPhone" that uses Voice over Internet Protocol, or VoIP. Cisco's version was launched just three weeks ago.

Evidently the two companies have been negotiating for years about a possible licensing agreement but now Apple is saying the whole dispute is "silly." In other words, 'Get the heck out of my way, router-boy.'

Well I have to admit I'm kind of siding with Cisco on this one. Plus I'm still far from sold that Steve Jobs's role in Apple's options scandal is a minor issue.

From Friday's Wall Street Journal, as reported by Steve Stecklow and Nick Wingfield.

"Federal authorities are actively investigating a backdated stock- option grant awarded to Steve Jobs?.that carried a false October 2001 date?.

"The false dating increased the value of the grant to Mr. Jobs, and resulted in a retroactive $20 million charge to Apple's earnings when it was discovered by a special internal investigation?.

"In a March 2002 proxy statement, Apple told its shareholders - wrongly - that the 2001 grant to Mr. Jobs was made at fair market value on the date of grant. On Aug. 8, 2002, Mr. Jobs personally signed a routine disclosure statement to the SEC bearing the false price, and false date of Oct. 19, 2001, for the grant. Apple has said the grant wasn't finalized until December of that year, when Apple's share price was higher?.

"Apple has disclosed that Mr. Jobs recommended 'favorable' dates for some options awards, although people familiar with the matter say he didn't pick any dates for grants that he received?.

"Apple has said that its board 'originally approved' the grant date in October 2001 on Aug. 29 of that year when the stock was trading at $17.83. But according to a person familiar with the situation, Mr. Jobs wasn't satisfied with the terms of the grant in August and negotiations continued for months. Apple has said the grant was finally authorized by the board on Dec. 18, 2001.

"On that date, the stock was trading for $20.01. The grant, however, was backdated to Oct. 19, when the share price was $18.30."

No doubt, the backdating of stock options is not always illegal, at least by the letter of the law, but for crying out loud, in case after case that we've seen either the boards or the executives themselves failed to disclose it properly and when that is the case, it's fraud, pure and simple.

But, again, arrogance doesn't always equal illegality. That said, as Alan Sipress wrote in a page one story for the Washington Post, "Some investor advocates call (Apple's) explanation disingenuous" when it comes to Jobs's involvement.

"You are torturing the English language to say he did not benefit from the options," said Patrick McGurn, executive vice president of Institutional Shareholder Services.

I know it's confusing, but it's clear this story is not about to go away, even as Jobs hopes we all forget about it and focus instead on the iPhone. I suspect the end result will be Jobs paying a very hefty fine and perhaps suspended from working at Apple for a year.

--The bribery scandal at Germany's Siemens continued to grow as the former CFO was formally named as a suspect. The current CEO, meanwhile, warned the probe threatened the conglomerate's very existence, as investigators focused on the telecom division and $hundreds of millions in bribes to countries such as Nigeria.

--I am a 'peak oil' adherent and while crude's recent swoon is great news on a number of levels (for every $1 drop in crude prices, American Airlines saves $80 million), longer-term I still say the supply picture looks increasingly bleak until energy alternatives are developed more fully. Over the years I've used Norway as an example and so I note this item from last weekend's Journal.

"Norwegian oil and petroleum-liquids production is expected to decline about 7% this year, while natural-gas flows should continue to set production records, the Norwegian Petroleum Directorate said?.The report blamed delays in starting new fields and a shortage of offshore drillings rigs. 'The development shows that oil production is declining and that investments and costs are increasing,' noted the country's oil minister."

My friends at Strategic Energy Research say that as much as half the recoverable reserves in the North Sea have already been harvested and "decline rates will therefore increase." Also, "The lack of Offshore rig availability and rising Oil Service costs will continue to impact drilling and production economics." [On the plus side, for consumers that is, the higher natural gas production noted in the same story translates into lower prices in the UK, in particular.]

--Northwest Airlines emerged as a potential suitor for Delta, even as US Airways boosted its hostile offer by 25%.

--Interesting bit from UBS' equity strategy group.

"During the past few months there has been extensive commentary about two economic themes:

(1) Wage stagnation and rising inequality - While the rich get richer in a globalizing economy, the income of the average consumer is stagnating.

(2) Alternative energy - An alternative to cheap energy is needed to fight global warming and achieve energy independence from unstable foreign regimes.

"These two topics, like corn and soybeans, are usually placed in separate conceptual silos, but we think this is a mistake. The issues are closely linked because if the U.S. eschews cheap energy in favor of more expensive alternative energy, that policy - though arguably justifiable on environmental and geopolitical grounds - will contribute to wage stagnation. Therefore policies favoring alternative energy would be bearish for the consumer sector and bullish for firms that either build the alternative energy infrastructure (consisting of solar, wind, ethanol, nuclear, etc.) or that retool the economy to make it more energy efficient.

"We believe this may well be a major investment theme for the next decade."

--On a related topic, European Union leaders are proposing a 20% cut in EU emissions by 2020 compared with 1990 levels as European Commission President Jose Manuel Barroso called on President Bush to join the fight against global warming.

For his part Bush will be stressing energy as a central theme in his State of the Union address, but what kind of immediate impact his initiatives will have could be muted by his lack of credibility these days.

--And then there's ethanol; no doubt a big part of the president's upcoming speech. California Governor Arnold Schwarzenegger is plowing ahead with his own program, ordering a cut of "at least 10%" in the carbon content of motor-vehicle fuels by 2020 which benefits ethanol.

But as ethanol use rises, odds are food prices will as well as the demand for corn continues to soar. Michael Swanson, an economist at Wells Fargo, told the Journal's John Fialka that many producers "are already lowering the number of young chicks they raise and are fattening cattle less because of soaring corn costs, trends that Mr. Swanson predicted will soon raise retail meat prices."

And while this isn't a new story, policy makers better take into consideration issues like drought when mandating ethanol use. Or as the above UBS report concludes, the middle- and lower- class will be increasingly squeezed in yet another area.

--Next to Giants Stadium in the New Jersey Meadowlands is a new project called Xanadu, which is going to be a massive shopping mall, and eventually a new stadium for the Giants and Jets.

The developer of Xanadu is an outfit called Mills Corp., owner of 38 shopping malls across America, and this week Mills announced it might be forced into bankruptcy due to executive misconduct and accounting errors.

Now these kinds of stories happen all the time, I think you'd agree, but what caught my eye was the fact Goldman Sachs Mortgage Co. has a $1.1 billion loan out to Mills that was originally due Dec. 31, 2006. Last month, according to Bloomberg News, Mills received an extension.

Assuming Mills eventually meets its obligations, I still just wanted to point out the various arrangements that are out there, as we stroll along, zip-pi-ty-do-daaaaing away. When the music finally stops, grab a chair.

--In the meantime, enjoy. New York City's tax revenues will be $250 million higher in the current fiscal year than initially projected, according to the Independent Budget Office, thanks to Wall Street's boom. Mayor Michael Bloomberg's budget may show a total surplus of $2.1 billion, though he'll need this because the 2008 shortfall is currently estimated to be $3.6 billion.

--New York tax authorities are going after former NYSE chairman Dick Grasso for allegedly dodging New York City taxes in 2002 and 2003; Grasso having failed to file returns for those years because he claims his main residence was on Long Island, not in Manhattan. The New York Post has previously reported that Grasso has five separate homes?and 14 cars! This boils down to proving he was out of the Big Apple 183 days. When last seen, Grasso was rummaging through shoeboxes full of receipts.

--I really had no idea how poorly Sprint Nextel Corp. was doing until the company announced this week it was laying off 5,000 after losing 300,000 monthly subscribers in the fourth quarter. And they can include me in the first quarter, as I consolidate some phones I never use in the first place.

--After cashing in 9 million shares valued at $3.7 billion last year, 16 Google insiders will owe the state of California as much as $380 million in taxes, enough to cover the salaries of more than 3,000 state workers.

--The estimated 10-year cost of the dividend tax credit is $125.7 billion. I'm all for an extension of the Bush tax cuts when it comes to the income tax rates, but I've argued all along that the dividend tax cut is nothing but a total sop to the rich and for the life of me, from a purely political junkie standpoint, I can't understand why the Democrats don't focus on this. And why is it a sop to the rich? Because middle- and lower-income investors are already at an ordinary tax rate that is essentially at the dividend rate, if they own any dividend paying investments to begin with.

--Ben Stein, in an op-ed for The New York Times:

"The amazing thing is that intelligent people are taking it seriously, this matter of rolling back corporate controls [ed. Sarbanes-Oxley] to make life even easier for misbehaving corporate wheeler-dealer types. What's more amazing is that anyone is even thinking of rolling back corporate controls to make life richer for Wall Street.

"The Street just finished paying out tens of billions in bonuses - even as the Army and Marines are so starved for money that untrained soldiers are sent to Iraq because there is not enough equipment to properly train them first.

"There is an acute shortage of Ferraris because of those bonuses, and there is a long waiting list for Lurssen yachts. But somehow, we are supposed to feel bad for Wall Street and for the class that has wrought so much mischief at the corporate helm, most recently with backdating.

"But no committee of powerful corporate leaders and academicians are at work computing the moral and mortal costs of starving the Army and Marines of the equipment and training they need to do their jobs with minimal loss of life. What a world - where smart people worry about helping those suffering from a shortage of Ferraris, but hardly anyone outside the Pentagon notices the shortage of lifesaving equipment for the soldiers fighting our wars.

"Where is the outcry? Where is the rage? It's not a partisan thing. The Democrats are just as complaisant about this as the Republicans. Have the leaders of both parties and the boys at the research groups been so thoroughly blinded - or corrupted - by the plutocrats that no one will say 'boo' about it?

"I guess so. My letters tell me that there are a lot of angry people out there, and some of them have children in Iraq and wonder why all this looting is allowed while their sons and daughters are at war for a law-abiding and just America.

"I'm no longer sure what to tell them, except that it's all about money, and if you don't get it, you don't get it. And it's deeply sad."

--Brian Grow had a telling piece on former Home Depot CEO Bob Nardelli in the Jan. 15, 2007, edition of BusinessWeek. To wit:

"(With) the stock price stuck at just over 40, roughly the same as when Nardelli arrived six years ago, he could no longer rely on other sterile metrics to assuage the quivering anger his arrogance provoked within every one of his key constituencies: employees, customers, and shareholders."

Comparing former GE senior executives Nardelli and James McNerney, the latter of 3M and Boeing?BW's Diane Brady wrote:

"Consider how the former GE rivals approached their new jobs. Nardelli arrived at Home Depot full of bombast, standing up at one meeting to say 'you guys don't know how to run a f---ing business,' according to a former senior executive at Home Depot. In contrast, McNerney spent his first six months at Boeing talking to employees to better understand the businesses. He didn't yell or publicly humiliate anyone."

"With likeability a buzzword among CEO headhunters, it can make all the difference. Nardelli clearly cared about Home Depot. When it came to measures like profitability, his push was paying off. What he neglected was the touchy-feely stuff: the enthusiasm of his people, a sense of humility before his board, the care and feeding of his shareholders. It all seems so soft and irrelevant, until the injured egos decide to fight back."

Amen, Ms. Brady. This particular story struck a chord with me as I thought back on my Wall Street career and the terrific bosses I had, most of whom I keep in touch with to this day.

--Thank goodness I didn't have to work for former Putnam Investments CEO Larry Lasser. Boy, he had a reputation as a real pain in the butt; Mr. Arrogance. Lasser was shown the door in 2003 amid a trading scandal, but the SEC just penalized him for separate allegations concerning Putnam's "pay-to-play" arrangements with brokerage firms, a practice I was all too familiar with when I was in the industry.

But Lasser was forced to pay just $75,000 for failing to tell Putnam funds' independent trustees about the arrangements, while he exited in 2003 with a $78 million payment. From what I know of the man, he probably flipped off the SEC when they turned their backs to him.

--The mutual fund industry can not be happy with the Journal's drastically reduced fund coverage in its new, lighter format. For some large fund groups, about 80% of its entries have been eliminated from the daily price tables; not exactly great for marketing. Exchange-traded funds, on the other hand, now have a higher visibility.

--The value of all stocks, bonds and other financial assets in the world hit $140 trillion, according to McKinsey & Co. The U.S. is 33% of it, $47 trillion, while the Euro area accounts for $26.5 trillion and Japan $17.3 trillion.

--As a result of the war between Israel and Hizbullah last summer, Lebanon's tourism fell 35% in 2006 over 2005; a huge blow.

--When Howard Stern signed on with Sirius Satellite Radio in October 2004, his contract stipulated that if he exceeded a target of 3.5 million subscribers by a further 2 million, two years later, he would receive a hefty bonus. Sirius ended 2006 with just over 6 million subscribers and Stern took down $80+ million as a result. A deal is a deal.

--Super Bowl tickets have a face value of around $700, but you can buy them on Web sites like StubHub.com for a mere $2,500. And seeing as there are a lot of folks these days who would pay that much for the Big Game, or other major events, I guess it shouldn't be much of a surprise that StubHub was acquired by eBay for $300 million. The secondary market for tickets online is said to be more than $1 billion annually. Just about four years ago, StubHub turned down eBay's offer of $20 million. You've gotta love stories like that?.especially if you are the two Stanford classmates who thought up the idea in the first place and today collectively own about a third of the company.

--The House passed a minimum wage bill that increases the hourly wage from $5.15 to $7.25 over two years. Now it moves on to the Senate. Even with the boost, none of the folks impacted will be buying Super Bowl tickets, that's for sure.

Foreign Affairs

Israel: The London Times ran the non-story/story that Israel was preparing an attack on Iran's three key nuclear facilities. I should hope they are practicing such a move, but as I've said the past few weeks, Israel's government is in such disarray I can't imagine anything is imminent. [Unless Iran does more next month than I think they will do.]

Israeli Prime Minister Olmert spent three days in China this week, in an attempt to get its leaders to come down hard on Tehran, but China is far more concerned about keeping the oil flowing these days than any nuke threat it faces from Iran. Premier Wen Jiabao did tell Olmert, however, that his government fully backs the sanctions now in place on the financial end?and there are signs that in the case of both Iran and North Korea, the sanctions are beginning to bite, witness the above cited editorial in the Tehran Times.

Venezuela: Frankly, I don't understand what all the hoopla was about this week, nor why the Caracas stock market tanked 19% on Tuesday following President Hugo Chavez's announcement he was nationalizing the electricity and telecom industries. What did investors expect? This is Hugo Chavez, socialist champion. What has history taught us? This is often what socialists do, especially unenlightened proponents such as the mentally deficient president.

Of course the Venezuelan equity market has been nuts to begin with, and beyond all rational explanation. The two days before Chavez's announcement the key Caracas index rose 7% and 4%. Last year it was up over 150%. Congratulations if you played this, but I for one never considered investing in it for a second because it is a broken country. Today the issue is whether or not Chavez will offer fair compensation to the likes of Verizon, which otherwise stands to lose $hundreds of millions for its 28% stake in the largest telecom here. Chavez has to understand that if he doesn't, the U.S. can freeze state-owned Citgo's assets in the states.

But as Chavez moves his nation to "21st-century socialism," and as he shuts down the television network most critical of his regime, investors and political strategists continue to miss the broader point.

Iran is increasing its influence in Venezuela, and through it other countries on the continent with similar leanings, such as Nicaragua.

And guess who's coming to dinner this weekend? Why if it isn't President Ahmadinejad himself. For a while now I've warned you of the obvious dangers here. It's one thing for Iran to have terrorist bases in Iraq, Iran or Somalia. It's quite another to have 'world-class terrorists' located a few hours flight from our shores.

[Ahmadinejad is also going to visit Chavez's new friend for play dates, Nicaragua's socialist leader Daniel Ortega, who is back in power for the first time since 1990. Ortega has vowed, however, to have a balanced approach when it comes to relations with the United States and to respect private property.]

Somalia: Just another example of the adage 'wait 24 hours.' First, we were told the U.S., with aid from Ethiopia and Somali forces aligned with Washington, attacked some al-Qaeda hideouts following the ouster of the Islamist Courts government in Mogadishu. Good, I mused, especially upon learning along with the rest of you that at least one of three key al-Qaeda leaders in Africa, a mastermind of the 1998 embassy bombings in Kenya and Tanzania, had been among the victims. The new transitional president, veteran warlord Yusuf, said the right thing. "The U.S. has a right to bombard terrorist suspects who attacked its embassies."

But a few days later, as the streets of Mogadishu and elsewhere in Somalia became increasingly disenchanted with the U.S. airstrikes, as well as the lingering presence of their long-time enemy, Ethiopia, we find out that none of the al-Qaeda targets had been killed. [A 'senior U.S. official' told the media.] At least on Friday many of the warlords announced their forces would join a new Somali army.

Russia / Belarus: For the first time on the energy security issue, I side with Russia for playing hardball with one-time ally Belarus and its dictator president Alexander Lukashenko. Lukashenko has been dependent on about $4 billion annually in energy subsidies and he had a good thing going with Gazprom and its predecessors charging Belarus significantly below market rates for natural gas.

So recall that Russia and Belarus reached an agreement on New Year's to gradually hike the price to more realistic levels, but then Lukashenko decided this wasn't good enough so he slapped a tariff on Russian crude oil transiting Belarus' pipeline that extends into Europe; one that provides the continent with 10% of its oil needs. [44% of all European oil imports come from Russia one way or another.]

But, alas, when it was apparent Lukashenko was messing with the wrong people, and was perhaps in danger of receiving a polonium-210 cocktail, he caved to Gazprom, i.e., Vladimir Putin. The bad blood between the two, however, is now forever.

So here's a thought, thinking outside the box. Since Lukashenko now despises Putin for potentially breaking his economy, perhaps he tacks West to irk the Kremlin further. He could start by attempting to improve relations with two of his neighbors, Ukraine and Poland, announce a new round of elections, etc. Maybe become sort of a Pinochet, in other words. He'd still need a taste-tester by his side, however.

[On a related matter, Azerbaijan stuck it to Moscow by announcing it would supply neighbor Georgia with needed gas, thus eliminating the need for Georgia to rely on Gazprom. So we hereby name Azerbaijan StocksandNews "Nation of the Week."]

Pakistan: Outgoing National Intelligence Director John Negroponte, who is moving over to the State Department and duty in Iraq, uttered publicly what we all already knew; Pakistan is in essence harboring al-Qaeda. The significance is in the Bush administration's very public acknowledgment, before a Senate committee, that our friend, President Pervez Musharraf, is not doing enough to aid U.S. efforts to take down the group. Negroponte said:

"We have captured or killed numerous senior al-Qaeda operatives, but al-Qaeda's core elements are resilient. They continue to plot attacks against our homeland and other targets with the objective of inflicting mass casualties," adding "They are cultivating stronger operational connections and relationships that radiate outward from their leaders' secure hide-out in Pakistan."

This is an embarrassment to Musharraf and the Pakistani government went on the defensive in a big way. Just as Iraqi Prime Minister Maliki is running out of time, so is Pakistan's ruler; in his case when it comes to outward U.S. support and $billions in ongoing aid.

Lebanon: Hizbullah-led protests fizzled this week, but Parliament Speaker, and Hizbullah supporter, Nabi Berri warned of a "very dangerous" internal situation as Hizbullah maintained it will bring down the government. Further protests are scheduled this weekend.

China: According to the London Times, Chinese President Hu Jintao is facing increasing opposition within the Communist Party to give up leadership of one of the three posts he currently controls; president, party chief and head of the military. Personally, I'd give up the presidency given China's existing system, but that appears to be the last thing Hu wants to do. It could all come to a head at this coming fall's party gathering.

France: Pundits here are wondering why President Jacques Chirac has been so active on the policy front recently, including his proposal to drastically cut corporate taxes. Could it be the 74-year-old is actually contemplating another run for office, with the first round of elections slated for April 22? If he does it's political suicide with 81% of French voters opposed to him entering the race.

Poland: It's sad what has happened here with the scandal in the Roman Catholic Church over allegations some clergymen had ties to the Communist-era secret police. New Archbishop Stanislaw Wielgus stepped down moments before he was to be installed as it was felt revelations were forthcoming. Another key figure also resigned before the facts were released.

Prime Minister Jaroslaw Kaczynski said the scandal has left Poland facing a "national crisis." But the reason why I say it's sad is because it will darken the image of the Polish church, with future generations undoubtedly not appreciating the role the church played in bringing down Communism as a result of Pope John Paul II's heroic actions.

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Pray for the men and women of our armed forces.

God bless America.

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Gold closed at $609
Oil, $56.31

Returns for the week 1/8-1/12

Dow Jones +1.3% [12566]
S&P 500 +1.5% [1430]
S&P MidCap +2.5%
Russell 2000 +2.4%
Nasdaq +2.8% [2502]

Returns for the period 1/1/07-1/12/07

Dow Jones +0.7%
S&P 500 +0.9%
S&P MidCap +2.0%
Russell 2000 +0.8%
Nasdaq +3.6%

Bulls 55.4
Bears 20.7 [Source: Chartcraft / Investors Intelligence]

Have a great week. I appreciate your support.

Brian Trumbore

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