Week in Review 
For the week 2/19/2007 - 2/23/2007
Brian Trumbore
President/Editor, StocksandNews.com

Iran's Pursuit

No surprise in the passing of the UN Security Council deadline for Iran to suspend its uranium enrichment program and the realization Iran is inching ever closer to changing the dynamics of the Middle East forever. The International Atomic Energy Agency concluded in its UN-mandated investigation that Iran is close to installing a 3,000 centrifuge operation in Natanz that would be more than sufficient to produce enough weapons- grade material for a bomb or two a year. Beyond that, if Iran were to then step it up to 54,000 centrifuges, the ultimate goal, you'd be talking full-scale industrial production. The problem is that for those trying to control the situation, the leap from 3,000 to 54,000 is nowhere near as complicated as that from 300 to 3,000.

What I've been arguing for years was also part of the disturbing report; the IAEA really has no clue about other operations Iran might have around the country because Iran refuses to cooperate with the world community.

President Mahmoud Ahmadinejad said "The enemy is making a big mistake if it thinks it can thwart the will of the Iranian nation to achieve the peaceful use of nuclear technology."

But it's about far more than that, obviously, and now that Iran has defied the UN, what next? On Monday, the U.S., Britain, France, Germany, Russia and China are to get together to discuss further sanctions and there is little reason to expect much cooperation between the parties. Russia and China, in particular, have their own economic interests to protect (as do Germany and France, to a lesser extent) and while Russia is currently miffed at Iran's failure to keep up on its payments for Russia's work on the Bushehr nuclear facility, according to the Kremlin, I'd be shocked if Russia did much more than pay any new restrictions lip service. As for China, with them it's about desperately needed oil.

But while the pursuit of a bomb is a matter of national pride to many Iranians, there is continuing uncertainty about the ability of Ahmadinejad to hang onto power. For starters, the government has to do something to limit the increasing consumption, domestically, of Iran's chief export?its oil. But to do that would require drastically hiking the price of now heavily subsidized gasoline and this would lead to major civil unrest.

At the same time, I noted a few weeks ago the comments of rival Hashemi Rafsanjani on the privatization front, Rafsanjani being a pragmatist in this area. Interestingly, Supreme Leader Ayatollah Ali Khamenei echoed these thoughts on Monday.

From the Tehran Times:

"The Leader called efforts to realize the privatization policies a kind of jihad, saying if officials make serious efforts, the encouraging effect of the privatization plan can be felt in two or three years."

" 'The onus is on the three branches of government and all other bodies to carry out the changes,' he noted.

"He also said that the economic developments since the victory of the Islamic Revolution in 1979 have not matched the deep sociopolitical developments in the country.

" 'Of course, important measures have been taken in the economic area, but we should have presented a successful economic model to the world by increasing per capita income and gross national product, eliminating poverty, and establishing justice. We should have proven to the world the capability of the country to boost economic development and establish justice.'

"Ayatollah Khamenei said that increasing national wealth and establishing social justice are the main principles of an Islamic economy, adding that every economic approach that would help realize these two objective is 'acceptable.'"

Khamenei, the ultimate decision maker, certainly knows it's Rafsanjani (or a younger version), not Ahmadinejad, who should lead the charge into the modern world. There has been an opening for dialogue for years and the Bush administration has blown it.

There was never a reason for the likes of an Ahmadinejad to come into power in the first place, yet there he is, poisoning the air.

But while it may be too late to prevent Iran from getting the bomb, or reaching a point of no return in the weapons process, it is not too late to prevent war.

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The war in Iraq has taken another deadly turn with the introduction of chlorine bombs, which you have to understand makes it more apparent than ever that an actual dirty bomb will soon be exploded. At least it's clear to this scribe. And if you're a Sunni terrorist, where would you explode it? Basra, soon to be largely abandoned by the British and a prime focal point of Iran's Shia-led efforts for influence.

It would also appear the U.S. military made a critical error in arresting the son of Abdul Aziz al-Hakim, the powerful Shiite political leader, as he crossed into Iraq from Iran. This is a developing story in terms of the consequences as the son was held for 12 hours before being released and Amar al-Hakim is talking of how he was 'roughed up,' thus inflaming tensions. It threatens to be a public relations nightmare.

Meanwhile, an issue I raised recently, Turkey's concern over a coming referendum on the city of Kirkuk and whose control it should fall under is not going away. Turkey voiced its displeasure over the prospects once again and Ankara will not sit idly by while Kirkuk goes over to the Kurds as part of their quasi-independent state.

On the Israeli/Palestinian front, it was another lost week as a meeting between Palestinian President Mahmoud Abbas, Israeli Prime Minister Ehud Olmert and U.S. Secretary of State Condoleezza Rice went nowhere. Prior to the gathering, Abbas had told a U.S. envoy that the "world must deal" with the Mecca agreement and a coalition government including Hamas. The U.S. says this isn't acceptable. That set the tone for the Abbas/Olmert/Rice confab and the ongoing conclusion. Unless the new unity government of Fatah and Hamas explicitly recognizes Israel's right to exist, renounces violence, and honors previous Israeli-Palestinian agreements, the Palestinian people will continue to suffer and sanctions will remain in place.

Editorial / Daily Star (Beirut)

"It is no secret that the Palestinian humanitarian situation has been in freefall since the international community callously decided to punish an entire people for having exercised their democratic rights in the legislative elections of January 2006. The extent of Palestinian suffering has been made more clear this week, though, by the release of the annual report by the United Nations' World Food Program. The comprehensive study describes in sickening detail how hundreds of thousands of people are resorting to increasingly desperate measures because they are being slowly starved.

"Much of the responsibility for this appalling state of affairs lies with the United States and those countries that have acquiesced in its cruel strategy of seeking to bring about a government of Palestinian quislings who will sign away their constituents' collective birthright in exchange for a vague promise of eventual statehood and a few scraps of food. But those governments are not alone in deserving blame for the plight of the Palestinians: Both the long-dominant Fatah party and the hard-line Hamas movement that won last year's elections have exacerbated matters by putting partisan interests ahead of national ones and therefore failing to maintain anything like a united front?.

"It was inevitable that (Yassir Arafat's) departure would open the way for a period of considerable turbulence, and neither President Mahmoud Abbas nor Prime Minister Ismail Haniyya was ever going to fill Arafat's boots. All that they and their colleagues could hope to do was to maintain a semblance of orderliness and keep their eyes on the prize of independence. In this both Fatah and Hamas have been miserable failures.

"To understand how flimsy are the parties' relationships with reality, one need only compare the current ideological debate with the situation on the ground. The issues revolve around recognizing Israel, renouncing armed resistance against Israel, and abiding by previous interim peace accords with Israel. The results have been Palestinians denigrating the legitimacy of other Palestinians, Palestinians making war on other Palestinians, and Palestinians violating truces with other Palestinians. Arafat never looked so good."

Bet you had forgotten about the little rat.

Lastly, I present an editorial from the Daily Star, a moderate publication, on the overall picture in the Middle East and the latest views of the Arab World towards the United States. Much of this is harsh and I do not necessarily endorse the opinions therein, but it's critically important we try to understand where the other side is coming from, especially when we see new opinion polls that show a continuing deterioration, almost across the board, in the level of anti-American feelings.

"Washington's latest salvo in the laughably named and prosecuted 'war on terrorism' provides yet another example of just how profoundly it misunderstands the issues at hand. On Tuesday, the U.S. Treasury announced sanctions against Jihad al- Binaa, a construction company affiliated with Hizbullah. On the surface the tactic means very little since Jihad al-Binaa is unlikely to hold substantial assets in the United States that can be frozen under the sanctions. As a gambit in the battle for hearts and minds that U.S. President George W. Bush joined by declaring his intent to democratize the Middle East, however, the Treasury's move could not be more counterproductive.

"In July 1993, an Israeli military onslaught in South Lebanon demolished or badly damaged more than 4,700 homes; Jihad al- Binaa restored virtually all of them. Three years later, the Israelis went on an even more destructive rampage that completely or partially destroyed about 7,000 residences; Jihad al-Binaa rebuilt or repaired 6,714. This past summer, Lebanon's wrathful neighbor to the south lost all sense of proportion and damaged or destroyed at least 86,000 homes; Jihad al-Binaa sent some 1,000 engineers and 5,000 volunteers to conduct site surveys (although actual rebuilding has been delayed by the current political impasse in Beirut). Leaving aside questions of right and wrong, what can the Bush administration hope to achieve with an empty statement of hostility toward an organization that has done so much good for so many Lebanese who have suffered so much heartache because of so many bombs and shells supplied by the United States?

"Is America ready to take care of all those made homeless by the munitions it has lavished on its troublesome ally? This is an important question for any U.S. policymaker hoping to wean great swathes of Lebanon's population off affection for and/or reliance on Hizbullah, and history is not encouraging about the answer. Successive U.S. governments did absolutely nothing, for example, to end the 1978-2000 occupation of South Lebanon. And far from reining in the Israelis last summer, the current administration actually rushed them extra bombs - and provided them with diplomatic cover so they could extend a vicious offensive that accomplished no important military goals?

"The bottom line is that Jihad al-Binaa provides people in need with useful help. The United States arms the power that makes them needy, pressures the organization that wants to assist them, and provides riot gear to the security forces that are supposed to keep them silent."

The situation in Lebanon is about to explode again. For the first time since the ceasefire in August, the Lebanese military fired at an Israeli fighter jet for violating Lebanese airspace. Of course Israel has been crossing the border for years, but don't get me started on that one. What's inevitable, though, is a plane is about to be shot down and then all hell will break loose yet again.

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Wall Street

From the Bank of Japan's Monetary Policy Meeting of Wednesday as the BoJ hiked the key lending rate to 0.50%.

"Reviewing the outlook for Japan's economy based on incoming data and information, both on domestic and overseas economies, the Bank judged that our economy is likely to continue its moderate expansion with a virtuous circle of production, income, and spending in place. Uncertainties over the future course of overseas economies, including that of the United States, are abating, and this is likely to reinforce the prospects of continued increase in corporate profits and business fixed investment."

Yup, that about sums up the current environment. In fact I'm reminded of Ray Stevens'1970 #1 pop hit "Everything Is Beautiful." Whaddya say we all gather round, join hands, and sing it together.

Everything is beautiful, in its own way
Like a starry summer night, or a snow covered winter's day
Everybody's beautiful, in their own way
Under God's heaven, the world's gonna find a way

To profits, that is. At least that seems to be what's happening, doesn't it? That is unless you're one of those who overstretched in buying their home. For now Goldilocks prevails; moderate growth, low inflation and low interest rates across the globe.

But while the global bull run in equities continues, you have to wonder about excessive speculation in all assets. When does it end, and how? Here in the U.S., for example, margin debt reached an all-time high?the highest since March 2000. There certainly is a herd mentality at play, as well, exacerbated by hedge funds. When does that end? What changes perception?

Back to real estate, a sector that has seen its own global bubble, the cracks have been appearing for some time here in the States. Luxury homebuilder Toll Brothers' CEO, in announcing profits fell 67% in its fiscal first quarter, maintained "There are too many soft markets at this stage of the selling season to call a general upturn in the new home market. Demand varies greatly from week to week."

What we do know is foreclosures are soaring, while everyone keeps saying, yeah, but that's still only in the subprime market. True, thus far.

But as I noted last time we are now in the part of the cycle where growing job losses in the housing sector, broadly defined, should begin to ripple through. Building supply king MASCO's CEO, in an appearance on CNBC Friday, said "the unemployment impact has yet to hit the economy." But it will.

Josh P. passed along some information from The Joint Center for Housing Studies at Harvard University estimating that the decline witnessed thus far has resulted in 100,000 job losses, including from furniture, construction supplies, domestic appliances, and plumbing, with potentially far more to follow.

But now there are rumblings in the mortgage bond market, further exacerbated by awful earnings news from NovaStar, a Missouri-based lender that is paying a price for rising delinquencies. Credit default swaps, one of those securities created by geniuses, have seen their value plummet 20% in just about four weeks, and that's for a particular class of them still considered 'investment grade.' No doubt, until recently these instruments have been home runs but there's always a flip side. Now someone is getting hurt.

Remember, when it comes to derivatives and interest rates, it's all about speed in measuring risk of the systemic kind that represents a chief danger to the market. If the yield on the 10- year Treasury, for example, were to rise from 4.50% to 5.00%, but the move occurs over a number of months, traders can adjust accordingly and should be able to minimize risk. If it happens in the space of a week or two, however, look out. Speed kills, and that's what we've been seeing in the credit-default swap market. No one knows what the damage is, as yet, and it's possible it will be limited. It just bears watching and is but another symptom of the growing debacle in the subprime market.

Street Bytes

--Blue chips, as represented by the Dow Jones and S&P 500, slipped the last three days with the Dow ending down 0.9% to 12647 and the S&P losing 0.4% to 1451. But for the life of me I can't figure out why Nasdaq rose 0.8% to 2515. Correct me if I'm wrong, but what great news have we been receiving out of the tech sector for weeks now? Then again, I was drinking Casablanca Premium Lagers in Morocco part of the time so what do I know?

One thing is for sure, geopolitics is back on the radar screen mostly due to Iran, but also because of increasing violence in Nigeria ahead of its elections. And wouldn't you know, because of these two the price of crude is suddenly $61 and your price at the pump is headed back up to the $2.40 level, soon.

--U.S. Treasury Yields

6-mo. 5.15% 2-yr. 4.80% 10-yr. 4.68% 30-yr. 4.78%

Bonds were virtually unchanged, despite a little scare due to a higher than expected core number for consumer prices in January, up 0.3% and now up 2.7% over the past 12 months. Yes, hotter than the Federal Reserve would like to see but to beat a dead horse, there is no way the Fed is raising rates this year so cut your losses if your bet is in that direction. They are too smart to know that if they did hike, it would cause a recession, period.

--Remember? "Water?the new oil." A report out of the National Academy of Sciences concludes droughts will be longer and more serious than previously assumed. This is of particular concern to areas such as those that receive their water from the Colorado River, where the population continues to soar and private vs. agricultural uses collide.

--The Wall Street Journal reports spending on healthcare is expected to double to $4.1 trillion by 2016, "consuming 20% of the nation's gross domestic product?.By then, (a federal) study predicts, the government will be paying 48.7% of the nation's healthcare bill, up from 40% in 1990."

--The new management at Fannie Mae is withholding $44.4 million in long-term incentive pay due former and current executives, including former CEO Franklin D. Raines. According to Fannie's regulator, the Office of Federal Housing Enterprise Oversight, "The board concluded that the then- management team did not meet the prescribed performance standards." Some of us still believe Raines should be in jail.

--Ford Motor Co. may seek an additional 20% in concessions from its unions on wages and benefits in order to further lower costs. During 2006, Ford spent $3,227 per North American-built vehicle on labor, comprised of $2,592 for wages and healthcare for active workers, and $635 for retiree health care. [General Motors spent $3,289 per North American vehicle with $950 of that for retiree healthcare benefits.]

--The U.S. receives 22% of its crude oil imports from both the Middle East and Africa, with Africa's supply slightly ahead of the Middle East for the first time in 21 years; which is why you hear so much talk on instability in key supplier Nigeria.

--JetBlue founder and CEO David Neeleman said he was "humiliated and mortified" by the problems his airline had as he went on to introduce a passenger bill of rights, including discounts and free tickets depending on the amount of time a plane is needlessly delayed by problems defined as within JetBlue's control. But the damage has already been done.

--Google continues to battle with the television industry over content being displayed on the company's YouTube site. 13 of the 20 most-viewed clips on YouTube for the month ending Feb. 15 were professionally made, including late-night show clips and local news reports. As the Journal reports, YouTube itself responds quickly to complaints from the owners of the video, but the next day YouTube users put it back up.

--New York City residents pay over $9 for every $100 of "taxable resources" or 47% higher than the $6.16 average of the other eight U.S. cities with populations over 1 million.

--Sirius and XM Radio are finally going to merge even as the federal government threatens to block it on anti-trust grounds, which is absurd. The Feds will eventually allow it.

However, if you are a subscriber don't sweat it for quite a while as obviously it's going to take years to come up with compatible technology and the companies aren't about to shoot themselves in the foot with regards to the fact many of us have invested substantial sums in the equipment. Down the road, however, we're all going to have to pay more.

--Shares in Hewlett-Packard slipped on unease concerning the company's earnings guidance, but for the quarter ended Jan. 31, revenues for HP's PC division jumped 17% and rose 40% for laptops as the computer maker continues to build on its leading position in the industry at the expense of the likes of Dell.

--Alcatel-Lucent won the first of six patent lawsuits against Microsoft, this one pertaining to the technology involved in the digital MP3 file format going back to Lucent's Bell Labs days. Microsoft has been ordered by a federal district court to pay $1.5 billion. Microsoft will appeal.

[Separately, on the way home from the airport the other day I noticed that the lawn at ALU's U.S. headquarters was inundated with geese doing what they do best; depositing toxic fertilizer for that fuller, greener lawn come spring.]

--Real Estate tidbits: After mentioning my trip to Marrakech and the real estate boom there, I saw a listing in the Financial Times for a 5BR-5BA, 2.5 acre spread in the Moroccan city at $4.5 million. Gotta love those Saudi petrodollars.

But in the U.S., the Journal reports that Hulk Hogan has marked down his Belleair, FL, estate by 28%!! Of course it still goes for $17.9 million and 15 years ago Mr. and Mrs. Hogan paid just $2 million. I say they end up getting $14.3 million, brother.

--Two other corporate mergers of note. Vulcan Materials is buying Florida Rock, with Vulcan's CEO Spock emerging as the leader of the new combined operation while Florida Rock's Fred Flintstone spends more time with wife Wilma.

And Whole Foods is acquiring competitor Wild Oats. Think Disney taking over Sam Peckinpah.

--Equal Time: Business Week's Mara Der Hovanesian wrote that some of the rumors concerning former Citigroup CFO Todd Thomson and CNBC's Maria Bartiromo may have been trumped up to divert attention from the pitiful job performance turned in by CEO Charles Prince. I maintain where there's smoke, there's fire. Or rather, follow the plane contrails.

--Goldman Sachs' co-presidents, Gary Cohn and Jon Winkelried, each received cash and prizes of $53 million for their efforts in 2006. It had been previously announced that CEO Lloyd Blankfein earned $54 million. It's gotten to the point where these figures are almost no longer meaningful when you hear about them day after day. What we do know is the battle between Mrs. Cohn and Mrs. Winkelried must be a fevered one as they play 'can you top this.'

But along these lines, Robert Frank of the Journal had a story in Friday's edition that is quite telling. "According to a survey of more than 200 Wall Street professionals who took home at least $2 million in cash from their 2006 bonuses, respondents are spending 11% of their payouts, on average, on watches and jewelry. For even the lowest-paid bankers in the survey, that's a bling budget of more than $200,000."

Frank adds, "Bankers' spending - what they call their 'burn rate' - is growing as fast as their bonuses," whether it is real estate, art or other collectibles and, yes, mistresses.

"What surprised me is the low savings and investing rates for people who are making millions of dollars a year," says Russ Alan Prince, president of Prince & Associates. "This says to me that Wall Street expects the good times to continue."

As for charity, respondents doled out only 4%. Said Mr. Prince, "This is not an especially generous group."

I'm tempted to say more than "ain't that the truth," having railed about this sort of behavior for so long, but the above speaks for itself. Suffice it to say it's all further evidence that when the crash comes, be it terrorism-related or a systemic financial meltdown for whatever reason, it's going to be uglier than most can imagine.

Foreign Affairs

North Korea: Kim Jong-il turned 65, which must mean something here in terms of benefits; like perhaps an extra grass salad or a can of sterno. But as Vice President Dick Cheney said on a trip to the region, the United States' eyes are wide open when it comes to the recent agreement to begin the denuclearization process. North Korea will stonewall as much as possible, of this everyone should be certain, and will put off discussing topics it doesn't care for as long as possible while lying about some of its facilities.

And to those in the Bush White House praising China's role, of course China never has our interests at heart?.just see Taiwan.

Gary Schmitt and John Tkacik had the following thoughts in a piece for the Feb. 26, 2007, issue of The Weekly Standard.

"China continues its military buildup and is close to being able to make good on its threats to coerce Taiwan into accepting its rule, while fewer and fewer of Taiwan's citizens - less than 5% in recent polls - think of themselves as Chinese. And the 'name game' Washington, Beijing, and Taipei are playing now is a reflection of the tension generated by the inconsistencies and contradictions in America's 'one China' policy. We want a peaceful resolution of the Cross-Strait dispute, but can do little to stop the Chinese military buildup and shy away from doing all we can to buttress Taiwan's defenses. We want to promote democracy globally, but find it problematic that a democratic Taiwan has no interest in becoming unified with a despotic China and wants, naturally enough, to be recognized by the rest of the world as a legitimate self-governing state.

"At the moment, Beijing is dictating how Washington and, for that matter, Americans think about Taiwan. In late January, the New York Yankees signed an agreement with Chinese officials to help support China's fledgling baseball leagues in exchange, they hope, for getting a leg up on marketing the Yankees in China. At the press conference announcing the agreement, general manager Brian Cashman referred to Yankee pitcher Chien-Ming Wang, who last year tied for the most wins in the American League, as coming from 'Chinese-Taipei.' While doing so no doubt pleased his Chinese Communist hosts, it was undoubtedly an embarrassment for Wang, a national hero in Taiwan, to have his country tossed aside for the sake of the Yankees' commercial interests. Of course, the Yankees have not been the only ones down this road. And the real issue here is not whether the Yankees or Major League Baseball can sell a few more baseball caps and shirts in China. The real issue is that by playing this game we are not moderating Chinese ambitions toward Taiwan but fueling them."

Two issues tick me off more than any others when it comes to this White House?Lebanon and Taiwan. Never listen to President Bush and all his democracy talk without thinking about how his administration has handled both of them.

Russia: The head of the missile forces, General Nikolai Solovtsov, showed his true colors in needlessly ratcheting up the debate over the deployment of missile defense components by the United States in the Czech Republic in Poland.

"If the governments of Poland and the Czech Republic take such a step?the Strategic Missile Forces will be capable of targeting these facilities if a relevant decision is made."

But we hereby name Czech Republic and Poland "Nations of the Week" as Poland's prime minister brushed off the Kremlin's "attempt to intimidate" and Czech Foreign Minister Karel Schwarzenberg said, "The Czechs will now think the shield is even more necessary. We have quite an experience with Russians. You have to make clear to them you won't succumb to blackmail. Once you give in to it, there's no going back."

And I liked the thoughts of Roger Cohen of the International Herald Tribune, who offered some of the following as a response President Bush should have given to some of Russia's renewed Cold War talk.

"Vladimir, I'm pleased you have given me the opportunity to speak my mind. You are angered by NATO's expansion to embrace the former vassal states of the Soviet empire. You see in it 'a serious provocation' and the drawing of new dividing lines across Europe. You suggest Russia is the target of this maneuver.

"Russia is big, Vladimir, but memory and history are bigger. Have you forgotten the Hungarian martyrs of 1956? Have you overlooked the Prague Spring that followed a dozen years later? Have the Soviet tanks and thought police that enslaved the peoples of Central Europe slipped from your mind?

"Here was an overstepping of borders dedicated to the cementing in the Central European soul of totalitarian fear. I know that I have spoken in the past of the struggle between good and evil. I guess what I meant to say is that the 20th century saw a battle between the sanctity of the individual human being and the loss of humanity caused by the ferocious certainties of Communist and other armed utopias.

"A child of one of the new NATO members, Pope John Paul II of Poland, was one of the leaders of this struggle in the name of the individual against a dehumanizing system. In this lay his lasting greatness.

"Next time you're having problems with NATO expansion, try seeing it as an act of prudence, a guarantee to people who needed it that they will no longer be shaped and controlled against their will, the repayment of a debt to Europeans whose humanity was traded away at Yalta?.

"There is an enduring school of thought that we have somehow cornered you into belligerence through pushing NATO eastward and establishing a military presence in Central Asia. I have a different view.

"Could it be that your assertiveness, and recent rudeness, are no more than the natural ploy of a once-great power with a declining army and population, a looming election in which nationalist muscle-flexing will play well, a diminished world influence and a horde of petrodollars allowing it to dream of wielding a big stick once more?

"You seem somewhat blind, dear Vladimir, to events in your own country. You criticized the imposition on the world of one state's legal system - the American - but do not ask yourself what legal system allows the killers of Anna Politkovskaya to act with apparent impunity.

"And what of the slaying last year of Andrei Kozlov, the central banker whose mistake, it seems, was to shut down banks involved in money laundering?

"The 'hyper-use of force' of which you complain appears not to apply to your own scorched-earth policies in Chechnya. Taking as a measure the harshness of violence there, in the storming of the Moscow theater in 2002, and at Beslan's school in 2004, it is legitimate to ask how Russia would have responded to a terrorist attack that took not tens, nor hundreds, but thousands of lives in two major cities. As you recall, Vladimir, we suffered just such an attack."

I would just add that with regards to Chechnya, if you want further evidence (not that you should need it) of the direction the Kremlin is taking under Putin look to the appointment of 30- year-old Ramzan Kadyrov as acting president. Putin will quickly formalize the move by decree (recall Putin abolished direct elections of regional governors back in 2004), but what you need to know is Ramzan Kadyrov is not only the son of a man who was once Chechnya's president and then assassinated in '04, but as I've noted before in this space, Ramzan has been basically adopted by Putin. And who is this kid? He is an absolutely horrible, vile, disgusting thug that's a walking human rights nightmare with his own private militia. This, comrades, is the face of today's Russia.

Kosovo: The UN has laid out a framework for 'almost' independence for the disputed territory, with the 90% majority Albanian Kosovars to get their own flag, constitution and national anthem, but not full independence as yet. However, Serbia continues to vehemently oppose this in speaking for its Serbian minority in Kosovo and as I've warned this is going to be an increasingly big story. Maybe not a market mover, but remember, any requirement for an increased NATO presence to keep the two sides apart means a reduction in available resources elsewhere, such as for Afghanistan.

Tunisia: I noted last time that North Africa has been the scene of quite a bit of terrorist activity since 9/11, particularly in Morocco, but for decades that's already been the case in Algeria. Now the Herald Tribune reports that once sleepy Tunisia is emerging as a new potential haven for al-Qaeda. A brutal Algerian group, linked to Osama bin-Laden, is organizing extremist groups as part of its plan to cover this part of the continent.

A French counterterrorist official told reporter Craig S. Smith that the Algerian/Tunisian/Moroccan threat is the greatest one facing France today.

"We know from cases we're working on that the (group's) mission is now to recruit people in Morocco and in Tunisia, train them and send them back to their countries of origin or Europe to mount attacks."

Somalia: Along the lines of the above, those hoping Somalia wouldn't become a safe haven for terrorists after Ethiopia's recent action to install a government more to the West's liking have to rethink their positions as an insurgency has now taken hold, just weeks after the new government regained control from the Islamists. 15 were killed in a mortar attack this week.

India/Pakistan: At least the governments here did not overreact to the terrorist attack on an India-Pakistan train that killed 65. Both immediately condemned it.

But the attack itself was chilling. Two men boarded the train from the starting point in Delhi, after which they began arguing with the conductor, saying they were on the wrong train, according to the London Times. The train then slowed to allow the two to jump off. 15 minutes later their bombs exploded.

"The train is supposed to head from the capital to Atari, at the Pakistani border, without any stops, and the revelation that two were allowed to get off appeared to highlight what many passengers already say - that security on trains and at the stations is cursory, at best."

Pakistan had its own horrific act of terrorism this week when the female minister for social welfare was assassinated by a fanatic upset that she was not covering her head.

Philippines: A UN envoy has accused the army of being "in a state of almost total denial" about a wave of political killings. As reported by BBC News, one human rights group says 832 "extra- judicial killings since 2001 can be blamed on the security forces. Of these, it says 356 are left-wing activists." This is separate from the ongoing insurgency the government is fighting and more than a bit disturbing.

Italy: Between 1945 and 2001, the average government in Italy lasted about 9-10 months. This week Prime Minister Romano Prodi resigned after a similar length of time in office when his unwieldy nine-party coalition couldn't agree on Prodi's two chief foreign policy objectives; keeping Italian forces in Afghanistan and permitting the expansion of a U.S. military base in Vicenza. A new governing coalition will probably still have Prodi at its head.

Meanwhile, anti-U.S. rhetoric is soaring due in no small part to the other issue here, the indictment of 26 Americans, mostly CIA, for the rendition of the Egyptian man four years ago who is claiming he was tortured.

Zimbabwe: $60,000 may not seem like a lot these days, but in Zimbabwe it's a ton and represents the figure spent on Robert Mugabe's 83rd birthday celebration, much to the consternation of a rapidly growing number of opponents. When you have inflation of 1,600% and an unemployment rate of 70%, after a while you begin to finally wake up and the people here are. For example, we are seeing the reemergence of opposition leader Morgan Tsvangirai, whose supporters attempted to hold a court- sanctioned protest last Sunday, only to see dozens arrested by Mugabe's goons. Three days later Mugabe banned all political activity for three months.

When one looks back on the history of this crazy decade, I argue that 9/11 would not have taken place (as I did in this space long ago) had the United States and Britain taken out Mugabe and installed the duly-elected Tsvangirai in 2000. Osama Bin Laden saw the West's inability to respond to the clearest breach of international norms of behavior, and in our failing to act drew his own conclusions. In so many ways the world has been paying a price ever since. Maybe now, however, the people of Zimbabwe will finally take matters into their own hands, storm the palace and hang Mugabe.

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Pray for the men and women of our armed forces.

God bless America.

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Gold closed at $685?highest since 5/06
Oil, $61.14?highest of '07

Returns for the week 2/19-2/23

Dow Jones -0.9% [12647]
S&P 500 -0.4% [1451]
S&P MidCap +1.0%
Russell 2000 +1.0%
Nasdaq +0.8% [2515]

Returns for the period 1/1/07-2/23/07

Dow Jones +1.5%
S&P 500 +2.3%
S&P MidCap +7.9%
Russell 2000 +4.9%
Nasdaq +4.1%

Bulls 50.0
Bears 22.2 [Source: Chartcraft / Investors Intelligence]

Have a great week. I appreciate your support.

Brian Trumbore

BUYandHOLD does not offer or provide any investment advice or opinion regarding the nature, potential, value, suitability or profitability of any particular security, portfolio of securities, transaction or investment strategy. Any investment decisions you make will be based solely on your evaluation of your financial circumstances, investment objectives, risk tolerance, and liquidity needs. The securities mentioned above are being used for illustrative purposes only and should not be regarded as an offer to sell or as a solicitation of an offer to buy. The securities markets are subject to the risks of fluctuating prices and the uncertainty of rates of return and yields inherent in investing. Past performance is no guarantee of future results. The opinions expressed above are not necessarily those of BUYandHOLD, Freedom Investments, its officers, directors or any of its affiliates.