Educate Yourself

Week in Review
For the week 1/29/2007 - 2/2/2007
Brian Trumbore
President/Editor, StocksandNews.com

The editorial board of the Wall Street Journal met with President Bush this week. Following is an excerpt.

WSJ: Was there a moment in the war when you said we have to make a major change in the way we're doing things in Iraq?
GWB: Yes, there was.
WSJ: When was that?
GWB: September/October.
WSJ: Why?
GWB: Violence. It looked like it was uncontrollable. A young democracy is not going to survive if its capital city is in sectarian violence. I thought for example after the Samarra bombing that we were going to be fine. I thought the Shias had looked into the abyss of a civil war and pulled back. We thought they had, and they didn't.

Incredible. I spelled out last week how clueless President Bush was over three years ago and now he says he thought that after the bombing of the Golden Mosque at Samarra we'd be alright?

Here is what I wrote in this space last 2/25/06 following the destruction of one of Shia Islam's holiest sites:

"(The) bombing of the Golden Mosque was akin in many respects to bombing St. Peter's Basilica. Whoever did it (most likely al Qaeda) perpetrated a crime of enormous magnitude and the shockwaves will reverberate for years?.

"There is a 'balance of terror' today between the Sunni and Shia protagonists. More and more Sunni Arabs know that their old dominion is lost, and that they had better take the offer on the table - a share of the oil revenues, the promise that the constitution could be amended and reviewed, access to political power and spoils in return for reining in the violence and banishing the Arab jihadists. The Shia, too, may have to come to a time of reckoning. Their old tormentor was sent to the gallows, and a kinsman of theirs did the deed with the seal of the state. From the poor Shia slums of Baghdad, young avengers answered the Sunni campaign of terror with brutal terror of their own. The old notion - once dear to the Sunnis, and to the Shia a nagging source of fear and shame - that the Sunnis of Iraq were a martial race while the Shia were marked for lamentations and political quiescence has been broken for good." [Washington Post]

Right now, however, with the troop surge moving forward regardless of what Congress says (I'm uninspired by the debate, incidentally), the bigger immediate story is Iran as the UN Security Council's 60-day deadline for Tehran to suspend its uranium enrichment program draws to a close [Feb. 20-23].

I thought long ago Iran would announce sometime between Feb. 11 and 20 that it had upgraded its centrifuge operation. I was basing that judgment on the anniversary of the Islamic Revolution, Feb. 11. It now appears President Ahmadinejad is preparing to make the announcement on installing a new assembly of 3,000 centrifuges sometime next week instead.

"Enemies of the Iranian nation?must know that their wrongful beliefs will be revealed once again during Feb. 11 rallies by the great Iranian nation."

The president then conceded that Supreme Leader Ayatollah Ali Khamenei has the ultimate authority on the issue of the nuclear program.

"The general policies of the system are made by the Exalted Supreme Leader," said Ahmadinejad "and the government is required to carry them out."

Earlier, President Bush told National Public Radio "If Iran escalates its military action in Iraq to the detriment of our troops and/or innocent Iraqi people, we will respond firmly." Bush later said "I have no intent upon going into Iran."

Secretary of State Condoleezza Rice keeps saying there will be no direct discussions with Iran unless it suspends the weapons program, but Europe is cracking on the issue of enforcing stricter sanctions should Tehran keep processing beyond the deadline.

Europe continues to conduct extensive business with the regime and due to the risky nature of it, European governments guarantee the loans needed. So according to the International Union of Credit and Investment Insurers, the largest providers of such credits in Europe in 2005 were Italy, at $6.2 billion; Germany, at $5.4 billion; and France, at $1.4 billion.

Inside Iran, however, efforts to contain Ahmadinejad appear to be gaining, witness his own recognition of Khamenei's authority. Today there is also increasing talk of new alliances.

"At the strategic level, Washington is lining up regional allies - Sunni Arab states - to face off with Iran. But in Iraq, the administration continues to tilt toward Shia parties - hoping that Iran can be excluded from a decisive role in Baghdad?.

"For their part, our Sunni Arab 'allies' support the Sunni insurgents and dread the prospect of a Shia-dominated democratic government or a partition of Iraq.

"And now, in the worst American tradition, we're in danger of grabbing at short-term gains at an exorbitant strategic price: Defaulting to our old habit of backing hard-line regimes, we've dropped all pressure on the Saudis and Egyptians to reform their political systems.

"Want to recruit more terrorists for another 9/11? Give Sunni Arab regimes a renewed blank check to shut down all opposition.

"True, Shia terrorists have attacked us in the Middle East. But the Sunni terrorists attack us globally - and on our own soil. Shia extremists think regionally, while Sunni fanatics have universal ambitions.

"Yes, Iran is the immediate strategic problem - but it's a far more complex matter than the kiss-the-Saudis'-sandals crowd accepts. A violent rogue with a nuclear-weapons program, Iran backs terrorists in Iraq, Lebanon and Afghanistan.

"We're in a race against time. The Iranian people have tried religious rule - now they're sick and tired of it. They want to move on. President Mahmoud Ahmadinejad's allies lost the last round of elections and the mullahs are getting nervous about his excesses. Iranians want change, but don't know how to get it - and we can't impose it.

"Could the Khomeinist regime fall before apocalyptic ayatollahs get the bomb? There's no more pressing strategic question?.

"(We) have to make our bet. So here are the fundamental questions the administration has to ask itself before pushing the chips across the table:

"By reinvigorating our 'alliance' with Saudi Arabia and other repressive Sunni states, are we just setting ourselves up for another round of 'let's you and him fight,' with American blood defending Arab oil wealth? Are we still the Saudi royal family's whores? ....

"Only one thing is certain: A return to yesteryear's destructive policies and faulty alliances won't solve our long-term problems."

"The question is why does the Bush administration refuse to talk to Iran? Tehran has made tentative approaches on numerous occasions and has been constantly rebuffed?.

"If Iran is perceived as a threat then surely the best deterrent would be to bring it into the international fold. Put simply, friends don't normally bomb one another and economic partners have nothing to gain from doing so?.

"According to Dick Cheney the aircraft carriers, strike forces and nuclear submarines dispatched to the neighborhood are there to send 'a very strong signal to everybody in the region that the United States is here to stay, that we clearly have significant capabilities, and that we are working with friends and allies as well as the international organizations to deal with the Iranian threat.'

"Wait a minute! Iran hasn't threatened the U.S. and even if it wanted to it doesn't have the capability to rain missiles on New York or Los Angeles.

"Moreover, (according to some), Iran is years away from enriching uranium to specifications and quantities needed for nuclear bombs and there is no evidence to suggest its ambitions lie in that direction?.

"If the White House wanted to defuse the situation it could do so at any time by sending Secretary of State Condoleezza Rice to Tehran with offers of economic cooperation and security guarantees.

"In response, Tehran would undertake to lift its hand from Iraq and suspend uranium enrichment. It may really be that simple.

"If Iran were to reject such overtures then at least the White House could say it pulled out all the stops for diplomacy's sake and return to banging the drums."

I don't necessarily agree with Ms. Heard's thoughts on the weapons front, but how can you disagree with the conclusion?

It was a week filled with data and a Fed meeting and the preponderance of it was positive. The first preliminary reading on the gross domestic product for the fourth quarter came in at 3.5%, far better than the 2.6% and 2.0% pace of the previous two. I have to admit this was far stronger than I thought it would be, given the still punk housing and auto sectors and a so-so Christmas shopping season, but employment remains strong and as one report had it, we continue to spend more than we earn. In fact the personal savings rate for the past year was negative 1%, the lowest since the Great Depression. Now some argue this doesn't matter because at the same time the average American's net worth is increasing due to rising investment portfolios and housing values (until recently). I don't discount that, but paycheck to paycheck we're increasingly in the red and if and when the economy finally seizes up, that's when we see consumer spending fall off a cliff.

There was some poor news on the construction and manufacturing front as two leading indicators of the latter fell below the 50.0 growth/recession level for the second time in three months, normally a harbinger of tougher times ahead, while construction spending was down in December.

But one big driver of our economy is exports and here the global boom continues with few rough patches.

And there is no inflation. The Federal Reserve met for the first time this year and in holding the line on interest rates yet again, opined that growth is solid and there are "some tentative signs of stabilization" for the housing market. As for its number one job, the Fed offered "readings on core inflation have improved modestly in recent months," but then it always has to add "some inflation risks remain" just to remind us all who's still sheriff.

Sure, there may be some rise in food prices owing to incredibly stupid governmental policies, as well as the weather, but overall I've argued inflation hasn't been an issue for years now and that remains the case.

Back to housing, I said I'd give you all a break for a week or two and I'll stick to that; except to say while the Fed talks of stabilization, officials at S&P, in examining their latest data, see "no signs we're bottoming out." The issues in the sub-prime mortgage market certainly aren't going away any time soon, while Josh P. passed along data from the Census Bureau that notes the vacancy rate for owned units jumped to a record 2.7% from 2.0% a year earlier. To put that in perspective, from 1965 to 2005 the homeowner vacancy rate had never been above 2%. At least crack dealers have a wide selection of homes from which to operate.

And just a word about China's stock market bubble, which is tied to the ongoing bubble in their economy. Recall that the main Shanghai Composite rose 130% last year and now online trading accounts are opening at a rate of 90,000 a day, or 35 times the pace of '06. Traders are using home loans and credit cards, and money is flooding into mutual funds. Trading volume in January exceeded all of 2005 and was already 1/3rd the pace of '06. The market equivalent of the S&P 500 is valued at 36 times earnings. Twice this past week the Shanghai Composite declined at least 4% as volatility picks up. All of these are signs of a major top.

It's like a tremor before the big quake and the government is scared to death. The vice-chairman of the National People's Congress said "There is a bubble going on. Investors should be concerned about the risks." Can you imagine an American political figure saying that? "Every investor thinks they can win," Cheng Siwei told the Financial Times. "But many will end up losing."

Of course the danger is the market totally tanks, as it has in the past, only this time far more middle class Chinese will get hurt and you have this issue of rising expectations due to the boom years. Disappointment can lead to unrest if investment and government spending dry up simultaneously.

Lastly, some words on crude oil, energy policy and ethanol. Since bottoming at $49.90 on Jan. 18, oil has staged a stirring rally to above $59 and it's due in large measure to a return of winter, as in the last three weeks the Midwest and Northeast, in particular, have seen generally below normal temps as El Nino weakened and the jet stream resumed it's normal path. The inventory picture isn't even that bad, with higher builds and lower drawdowns than expected. But if you tell me the economy is growing at a 3.5% clip, and just about everywhere else in the world is still chugging along, I'd tell you demand for crude, even with our new emphasis on conservation, isn't about to dry up.

Which brings me to President Bush's energy policy and the dumb idea of the decade, corn-based ethanol (as opposed to the hoped for cellulosic kind).

The Wall Street Journal put it best when it said we are entering a new era of Big Corn, with ethanol the "moonshine of the energy world."

Currently, as much as 20% of the U.S. corn crop is devoted to ethanol and this percentage is skyrocketing. But to hit President Bush's target for ethanol use by 2017 as he spelled out in the State of the Union would require the entire U.S. corn harvest.

Right now, thanks to a 51-cent-a-gallon tax credit for ethanol, this ill-conceived policy is costing U.S. taxpayers $2.6 billion a year (one study puts it at $6 billion) and as more and more of the overrated fuel is produced the burden on Joe and Jill Six-pack will increase in kind.

And for all of my fellow Republicans who tout free trade, explain to me why we have a 54 cent tariff against imported ethanol if we want to hike the volume up as much as we do.

Brazil is the only other nation with as large a focus on the stuff, but Brazil's is largely sugar-based (a fact way too many opinion writers are missing, by the way) and as Brazilian experts note corn-based ethanol is far less efficient.

Of course the flip-side of ethanol-blended gasoline is that for every farmer that is profiting as corn goes from $2 a bushel to $4 and higher, there is another who is getting slaughtered by rising feed costs, like my friends the Bakers in Oklahoma who raise dairy cows and hogs. And it's not just here, but on Thursday, 75,000 marched in Mexico City because corn prices have doubled there as well and the staple of the Mexican diet, the tortilla, now accounts for a staggering 1/3rd of the earnings for those being paid the minimum wage ($4 per day).

Tyson CEO Dick Bond said "The dramatic rise in corn prices has become a major issue for us and others in the food industry. Companies will be forced to pass along rising costs to their customers, meaning consumers will pay significantly more for food. If left unaddressed, the bigger long-term issue will be the availability of U.S. and global grain for protein and other foods. We fully support efforts toward renewable energy; however, as the food versus fuel debate unfolds, we must carefully consider the negative and unintended consequences of over-using grains."

But here's the payoff. One day, "cellulosic" fuels, that use stuff like switch grass and farm waste to make ethanol, not food commodities, could be viable and that would be a clean alternative.

Today's ethanol isn't. It is not as clean as it's made out to be. Aside from the fact it can corrode engines on older cars, boat owners are finding it is destroying their engines, as Trader George was telling me. That alone should tell you the stuff isn't good, at least in its current form. In fact, to have the size ethanol industry some are calling for would require a massive investment in new infrastructure, including for new, corrosion-resistant pipelines.

Plus ethanol is simply less efficient than gasoline, which means you need more gas to drive the same amount of miles. That kind of defeats the purpose of becoming independent of Middle Eastern sources of oil, doesn't it?

About the only positive in this whole debate, as farm broadcaster Ken Root points out in a column for High Plains Journal, is that the migration out of many of the farm states, including Iowa, has ceased.

"In the coming years, rural America is going to be treated well by government. It is the rising star in our economy. The landscape is wide open for growth, much of it tied to renewable energy. There will be boondoggles and there will be investments that don't pan out. There will be families that will bring back another generation to join in the family business and there will be new industries that we haven't even thought about yet.

"Rural America deserves this chance. With the advent of the Internet, improved roads and the ubiquitous shopping mall, the quality of life has risen to a level that some call superior to urban living?.

"But the key to success, as it always has been, will be old fashioned capitalism and hard work."

I can't disagree with any of this, it's just that corn-based ethanol is one of the boondoggles.

--The Dow Jones hit another new record high, 12673, before losing a little on Friday. For the week the Dow was up 1.3% to 12653, the S&P 500 gained 1.8% to a new six-year high, 1448 (less than 80 points shy of its record mark) and Nasdaq added 1.7% to 2475.

Rates headed higher following the strong GDP report that basically wiped out any hope for a Fed cut the first half of the year, but then we had the not so good readings on manufacturing, along with the Fed's announcement and a slew of tame inflation readings so bonds rallied back to register small gains on the week. Friday's employment report for January, though solid, had little impact and with the usual revisions for prior months, the average jobs gain for Nov.-Jan. was 170,000. The unemployment rate, though, ticked up to 4.6%.

--Exxon Mobil reported the largest annual profit in the history of the world, $39.5 billion for 2006, though on an inflation-adjusted basis Rome Waterworks would come in substantially higher, I imagine. One thing that isn't being mentioned though is that as earnings for the energy sector peak and head down, assuming oil prices don't zoom back to $70 or $80, that means less tax revenues for Uncle Sam. Remember, it's been Big Oil that more than anything else has closed the budget gap. Those incremental receipts will be harder to come by in the future.

Separately, Royal Dutch Shell and Repsol of Spain have entered into an agreement with Iran to continue work on a large field that will eventually be converted to liquid natural gas; a big blow to the White House which says the agreement could trigger sanctions under a 1996 U.S. law that imposes them on companies that invest more than $20 million in Iran's energy sector. Previously, PetroChina signed a deal with Iran's national gas exports company. Iran holds the world's second largest gas reserves next to Russia.

Then you have the reports that Iran and Russia may try to create an OPEC-like organization for gas, this after I've been writing of Europe's concerns over a Russia-Algeria alliance that would control 35% of Europe's natural gas needs. Russian President Vladimir Putin labeled a gas OPEC "an interesting idea" after Iran's Ayatollah Khamenei called for it. Together Russia and Iran control over 40% of the world's known reserves.

And then there's the ongoing topic of Mexico's largest oil field, Cantarell; a subject I broached last week with the Journal following up a few days later. Cantarell's daily output fell to 1.5 million barrels in December compared to 2 million last January, a staggering decline. Mexico's exports are falling precipitously as well, a huge blow to its economy since oil exports account for 37% of government revenues.

--Ford's auto sales dropped 19% in January while General Motors' declined 17%. But DaimlerChrsyler registered a 3% increase and Toyota picked up 9.5%, its 20th consecutive monthly gain.

Ford and GM are in the midst of slashing the workforce by 70,000 workers and closing a combined 28 plants and facilities in North America over the coming decade.

--According to the International Chamber of Commerce, far and away the two worst offenders against intellectual property rights are Russia and China. Rampant piracy is the main reason Russia's bid to join the World Trade Organization continues to be blocked.

--India's debt rating was raised to investment grade by Standard & Poor's, a big deal that can help spur further foreign direct investment. India still attracts less than a tenth of what China does even as growth has averaged over 8% the past four years. The number of households earning an annual income of at least $10,000 is rising more than 20% a year, according to McKinsey & Co.

--After being overly concerned about bird flu a few years back, you've probably noticed I've barely mentioned it since; but no doubt it's still simmering as this week Nigeria reported its first human death from the deadly virus and there were further incidents in Eastern Europe, particularly Hungary.

Thomson Financial recently did a survey of institutional investors and their number one concern wasn't terrorism but bird flu. While I still believe it's a risk, I can't get hyped up about it anymore until we see the first real outbreak outside of some clusters in Indonesia. That's why perhaps the Nigeria case is significant.

--In announcing another quarter of stronger than expected results, Google's net income topped $1 billion and according to ComScore Networks the company improved its lead in the Web search game by capturing at least half the market. One forecast also predicts Google may take 28% of the total U.S. Web advertising market in 2007 vs. 17% for Yahoo. All spending on Internet ads in the U.S. may hit $21 billion this year according to Merrill Lynch.

Shares in Google fell some after the report, however, as it didn't beat the 'whisper' numbers for even better results. My point has always been that while Google's CEO talks about the number of consumer clicks on its ads rising 61% from a year ago, the whole game of advertising on the Web is going to be exposed for the sham it is. Not just click-fraud but the worthlessness of it all.

I do have to admit, though, I finally clicked on some Google ads this week tied to a search for a Celsius to Fahrenheit converter and all three I clicked on didn't help me one bit, let alone I don't know what possible product they were selling. Otherwise, I have zero reason to click on ads and I never see myself as too different from the mainstream in this regard.

But obviously some people do, or the likes of Google and Yahoo wouldn't be raking in the revenues they do. One day advertisers will finally catch on.

--Amazon continues to do a great job on the revenue front, but its profits shrunk 51% in the fourth quarter over 2005's pace due to its cost structure.

--Michael Dell finally canned CEO Kevin Rollins and put himself back in control after Dell's share price had fallen 31% under Rollins' watch and Dell had seen its market share shrink at the expense of Hewlett-Packard's resurgence. While I've always liked Michael Dell, the product just isn't as good as it used to be, witness my struggles with it over the past few years. I do hope he's successful in turning the ship around, but after an initial flurry of excitement, Wall Street's response was to take Dell shares down further.

"Empires come and go. Economic systems come and go. There is no heavenly guarantee that capitalism will last forever as we know it.

"It's built on man's notion that he can trust his neighbor with his money, and that if the neighbor misbehaves, the law will chase him and catch him, and that the ladder of law has no top and bottom, that even the nobles get properly handled once they have been caught. "If that trust disappears - if the system is no longer a system for the ordinary citizen but only for the tough guys - how much longer can the miracle last?

"Each day's newspaper, it seems, brings more tidings of unrestrained selfishness and self-dealing and rafts of powerful people saying it's good for us to be robbed if only we truly understood the system.

"The problem is, we're getting to understand it all too well. And there is no one in Washington - absolutely no one - to help."

--Bill Gates told leaders at the World Economic Forum in Davos, Switzerland that "I'm stunned how people aren't seeing that with TV, in five years time, people will laugh at what we've had," noting the rise of high-speed Internet and the popularity of video sites like YouTube. In the years ahead, we'll abandon conventional broadcast television, with its fixed program slots and advertisements, he added. "Certain things like elections or the Olympics really point out how TV is terrible. You have to wait for the guy to talk about the thing you care about or you miss the event and want to go back and see it. Internet presentation of these things is vastly superior."

Actually, some of us are continually amazed at how we survived without real time box scores for baseball, basketball and football. It wasn't too long ago, after all, that many of us were calling SportsPhone every ten minutes for updates on our favorite college team. But I digress.

--Reporters Without Borders said China is spearheading an increasingly sophisticated movement by repressive regimes to restrict the Internet. According to the group, there are 52 cyber- dissidents currently in jail in China, while there are only about 10 other people around the rest of the world in prison for posting criticisms of government online. The group is concerned other nations will mimic China's techniques and impose Beijing's censorship and surveillance methods on its own people.

Israel: The U.S. State Department issued a report finding that Israel violated U.S.-Israeli arms agreements with its use of cluster bombs during the war in Lebanon last summer. Cluster bombs are to be used only in combat with organized Arab armies and clearly defined military targets. UN humanitarian chief Jan Egeland offered "What's shocking and completely immoral is 90% of the cluster bomb strikes occurred in the last 72 hours of the conflict, when we knew there would be a resolution." [People are being maimed and killed every day in Lebanon when they inadvertently set off the unexploded bomblets.]

"The same U.S. administration that was so publicly enamored with Lebanon's Democratic Spring in 2005 may soon demonstrate yet again that it is colluding in the murder of Lebanese civilians?.every indication suggests that the U.S. will not take a firm stand against a crime that has killed or maimed nearly 200 Lebanese civilians (post-war).

"There ought to be no need to even question whether Israel's well-documented use of the weapons was unlawful and morally reprehensible. Nearly half of the weapons failed to explode on impact, and an estimated 1 million bomblets still litter streets, homes and orchards in South Lebanon?.

"Yet Israeli officials openly admit that while they expect a mild and private chiding from the U.S. government over the use of the weapons, they do not foresee a harsh public response. They, like all people from the region, are aware that the U.S. tends to blindly back Israel's practices - no matter how barbaric or inhumane?.

"This is not to say that the U.S. administration has done nothing to help Lebanon. It recently promised the country a hefty financial aid package of $770 million at the Paris III donors conference. [Ed. But only $5.5 million of this was for clearing mines and cluster bombs.]?.

"The current U.S. administration has often professed its support for Lebanon, but President George W. Bush lacks the moral fortitude of his predecessor Ronald Reagan, who in 1982 banned the sale of cluster munitions to Israel for six years after a congressional investigation found that the Israeli military had misused the weapons during its war on Lebanon that year.

"What Lebanon needs from the U.S. more than financial backing or empty words of friendship is genuine political support. The Bush administration has had numerous opportunities to demonstrate goodwill toward Lebanon by taking a firm stand on issues such as daily Israeli overflights of Lebanon and the status of Shebaa Farms, or by assisting - instead of blocking - efforts to secure a cease-fire during the summer conflict. The issue of cluster bombs represents yet another one of those opportunities that Bush and his administration will likely miss."

North Korea: Six-party talks on Pyongyang's nuclear weapons program are slated to resume Feb. 8. Kim Jong-il wants financial restrictions lifted, including unfreezing $24 million in a Macau bank that the U.S. contends was used to launder counterfeit $100 bills. But, again, it's all about China and how much pressure they will place on the North.

For a different view, Robert Carlin, a former State Department analyst, and John Lewis, a professor at Stanford, offered an interesting take in an op-ed for the Washington Post.

"If the United States has leverage, it is not in its ability to supply fuel oil or grain or paper promises of nonhostility. The leverage rests in Washington's ability to convince Pyongyang of its commitment to coexist with the Democratic People's Republic of Korea, accept its system and leadership, and make room for the DPRK in an American vision of the future of Northeast Asia. Quite simply, the North Koreans believe they could be useful to the United States in a longer, larger balance-of-power game against China and Japan. The Chinese know this and say so in private."

Perhaps, but to say North Korea could be useful vis a vis Washington's relationship with Tokyo makes little sense.

China / Japan: Meanwhile, Japanese Prime Minister Shinzo Abe, whose approval rating has plummeted in his first four months in office due to new scandals over alleged misuse of party funds and bid-rigging in the construction industry, a big donor for his LDP, lashed out at China for its recent anti-satellite test, saying it broke international law.

A Chinese foreign ministry spokesman responded "We have already stated our position. Since so many other countries are concerned about the peaceful uses of outer space and oppose the weaponization of space and an arms race, we call on them to make common efforts with us to realize this goal." Can you say disingenuous?

Then there's this from Canada's former Secretary of State for the Asia-Pacific region, David Kilgour, who along with a human rights lawyer released a report this week on how China's military has indeed been harvesting organs from prison inmates as rumored, mostly Falun Gong practitioners for large scale transplants.

The Canadians interviewed Canadian hospital staff who subsequently cared for hundreds of patients after they underwent suspect transplant surgeries in China and Mr. Kilgour told a press conference "The involvement of the People's Liberation Army in these transplants is widespread. Recipients often tell us that even when they receive transplants at civilian hospitals, those conducting the operation are military personnel."

Russia: Vladimir Putin held his annual news conference and for 3 ? hours fielded questions from the international press. Aside from the above-mentioned feeling that a gas OPEC was "an interesting idea" and that Russia was not using energy as a weapon, he blasted U.S. plans for moving forward with missile defense sites in former Soviet states such as the Czech Republic and Poland, refuting Washington's claims that the defense is aimed at intercepting possible attacks from Iran and North Korea.

"We consider such claims unfounded, and, naturally, that directly concerns us and will cause a relevant reaction," suggesting Russia will continue to develop weapons meant to counter the existing strategic imbalance.

"(The) Russian 'shoe-banging' about the missile defense in Europe remains shockingly hypocritical - when you consider all the 'destabilizing' activity Moscow has willfully engaged in at the expense of America's security.

"How about Russia's delivery of $1 billion in super-advanced Tor-M1 air-defense missiles to Iran, encouraging Tehran's belligerence - and bolstering its confidence - as the world seeks to rein in its nuclear program?

"Did Moscow really believe building Iran's first nuclear reactor at Bushehr (starting in the 1990s) - would stabilize the Middle East? And what of its $1 billion in arms contracts with Syria?

"How about the irascible North Koreas? Pyongyang's ballistic missile and nuclear weapons programs got their start from - you guessed it - the Kremlin.

"The Russians carp about the Poles and the Czechs but seem conveniently to forget about Venezuela in our neighborhood. Moscow inked $3 billion in arms deals with Castro-wannabe Hugo Chavez for advanced fighters, helicopters and other weapons.

"And China? Someday, China - using advanced Russian weapons - might cross swords with the United States over Taiwan's future. Moscow sells billions in arms to Beijing, and recently agreed to cooperate with the Chinese space program.

"The point here is that Moscow wants it both ways. Russia is now the world's biggest arms merchant to the developing world. In some cases, these sales seriously undermine American interests and security - and threaten U.S. forces.

"Yet Russia wants us to forgo deploying a defensive missile system that will protect us and our allies from two countries - Iran and North Korea - Russia had a hand in arming? That's downright outrageous."

On the issue of the upcoming presidential election in March 2008, Putin said "I reserve the right to express my preferences. But I will do it only once the election campaign starts." In Russia, candidates can't kick off their official campaigns until 30 days before the vote. [One reason to love the place, eh?] The frontrunners continue to be the two he promoted to first deputy prime ministers in late 2005, Dmitry Medvedev and Sergei Ivanov.

Then there is the case of former KGB officer Alexander Litvinenko. Putin said only the courts and investigators could determine who was responsible for his murder. Then he belittled Litvinenko's status, saying "He was not privy to any secrets." [Like the issue of the apartment bombings back in 1999, Vladimir?]

"(Scotland Yard now) believes it has cracked the case. According to reports in several of Britain's leading newspapers, the police have concluded that two former KGB agents who met Mr. Litvinenko at a hotel on Nov. 1 are prime suspects in his death?.

"Given the seriousness of the crime, a vigorous prosecution of the Russians might be expected. Only they have a powerful protector: Mr. Putin's own government, which, while denying any culpability in Mr. Litvinenko's killing, is nevertheless blocking British access to (suspects) Lugovoy and Kovtun. During a visit to Moscow in December, British detectives were not allowed to directly question the two men, who were then staying in hospitals. Russian officials then opened their own 'investigation' and drew up a long list of Putin enemies in London - from Chechen rebels to former executives of the Yukos oil company. No evidence connects anyone on the Russian list to the murder, but Moscow said it will not allow Scotland Yard access to the real suspects unless it can interrogate its targets in Britain.

"There's no proof yet that Mr. Putin ordered or approved the London dirty bomb, but the questions for him keep multiplying: Why, if the Russian authorities are innocent, do they deny access to Mr. Lugovoy and Mr. Kovtun? Why do they continue to blame enemies of Mr. Putin without offering any evidence? What explains the leakage of a dangerous quantity of polonium which is produced and held almost exclusively in Russia? And why, as a Polish newspaper documented last week, were pictures of Mr. Litvinenko being employed for target practice last November at a training center used by elite Russian special forces? The director of the center, a founder of a special operations unit, was accused by Mr. Litvinenko of being a KGB agent whose facility prepared contract killers."

Britain: Counter-terrorism police here arrested a cell that allegedly was planning to kidnap a British Muslim soldier and behead him live on the Internet. What has authorities equally concerned is somehow this group got access to the names and identities of at least 25 such targets.

"In the cautious national conversation about Britishness that has followed the July 7 bombings, one of the few qualities broadly accepted as integral to the British way of life is tolerance. But tolerance that allows the preaching of poison - and apparently dulls the instinct of parents and elders to intervene in an effort to prevent it - is not worthy of the name. It is simple negligence, as a result of which a society that should still be proud of its diversity is becoming apprehensive about it."

Separately, Prime Minister Tony Blair was interviewed a second time in the scandal involving seats on the House of Lords for campaign donations/loans. Blair is leaving office in disgrace.

France: President Jacques Chirac still hasn't formally said whether or not he will run one last time in this spring's election. In the meantime, Nicolas Sarkozy is pulling away from the increasingly erratic Socialist candidate Segolene Royal with Sarkozy now commanding a 54-46 lead. Even some on the infamous French Left are abandoning Royal.

But Chirac himself kept his name in the news by saying that if Iran were to get the bomb and launch an attack on Israel, Iran would be razed to the ground, adding "I would say that what is dangerous about this situation is not the fact of having a nuclear bomb - having one, maybe a second one a little later, well, that's not very dangerous." This of course flies in the face of the official position held by France, the other permanent members of the UN Security Council and Germany which are pressuring Iran (in various degrees admittedly) to abandon its uranium enrichment.

So Chirac called reporters back and said he thought he had been speaking off the record and thus withdrew his comments. Later he reaffirmed in a statement that "France, along with the international community, cannot accept the prospect of a nuclear- armed Iran."

But Chirac's office also accused the American media of "using any excuse to engage in France-bashing," seeing as how two of the three reporters privy to his first thoughts were the New York Times and the Times-owned International Herald Tribune.

Mexico: One of my predictions for the year was that new President Felipe Calderon would be a pleasant surprise, and in an interview with Bloomberg News at the World Economic Forum he did nothing to dispel my thinking in warning that Latin America is splitting into two economic camps, one embracing a failed past of state control, the other seeking growth with foreign investment.

"Many countries in Latin America have chosen a move toward the past, and among their most harmful decisions are seeking nationalizations, expropriations, state control of the economy and authoritarianism. Mexicans have decided to look to the future and to strengthen democracy, markets and investment?.Several countries in Latin America are acting against foreign investors, but we are thinking all the day, every day, how can we attract more investment to Mexico."

Calderon recognizes he desperately needs investment to buck up his oil industry, per the above on the Cantarell field.

A few days later, Venezuelan President Hugo Chavez replied in a seven-hour! televised speech. "Here comes the president of Mexico saying that Mexico is the hope of the future. I have doubts that being subordinate to the empire and world capitalism is the way for Mexico. He goes to Davos and says investors are coming to the Mexican economy. I hope so, I hope Mexico advances. But it's sad that a head of state, to promote his country, has to criticize other countries."

Well the facts are that in 2005, foreign direct investment into Mexico was $17.8 billion, while for the first nine months of 2006, investors pulled out a net $778 million from Venezuela with a lot more to come. Ten years ago Venezuela added a net $5.9 billion. [Bloomberg News]

Calderon, incidentally, is being praised across-the-board in Washington. As for Chavez, he received his sweeping new powers this week allowing him to rule by decree for the next 18 months.

Thailand: $4 billion was spent on Bangkok's gleaming new airport that opened last year. It has the world's tallest control tower and largest hangar, among other features. But there's a problem. It's sinking into the swamp it was built on and there are so many cracks on the runways and at some of the gates that the old airport could be pressed into service.

Pray for the men and women of our armed forces. This week I was reading a newspaper from Micronesia (I have friends there) and saw the story of an Iraq War casualty, a soldier from Saipan who was the 15th son of Micronesia and the Marianas to die. And so we note their sacrifice along with all the others.

Dow Jones +1.3% [12653]
S&P 500 +1.8% [1448]
S&P MidCap +2.9%
Russell 2000 +2.7%
Nasdaq +1.7% [2475]

*For the record, for those who follow the "January Effect" (as January goes, so goes the year), the S&P 500 was up 1.4% for the month.

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