Educate Yourself

Week in Review
For the week 3/19/2007 - 3/23/2007
Brian Trumbore
President/Editor, StocksandNews.com

This week marked the fourth anniversary of the Iraq War and a number of polls of Iraqis were released. A survey for USA Today/ABC News/BBC/ARD (German TV) revealed that 6 in 10 feel their lives are going badly, but by a 43-36 margin say life is better than before the invasion. [Similarly, a poll for the London Times noted by a 49-26 margin, Iraqis preferred life under the new government vs. under Saddam.]

Attitudes break down on sectarian lines, as you'd expect, with 2/3s of Kurds saying they feel "very safe" in their neighborhood, 33% of Shias, but a mere 3% of Sunnis.

The London Times survey said by a 61-27 margin, Iraqis do not consider today's action to be a civil war. But when it came to commenting on the availability of electricity or clean water, 69% to 88% said the situation is either "quite bad" or "very bad."

On the issue of U.S.-led forces, just 18% have confidence in them, while, disturbingly, 51% said it was "acceptable" for "other people" to attack coalition forces. In 2004 this figure was just 17%. [USA Today et al]

Meanwhile, the House voted 218-212 to call for the withdrawal of most U.S. combat forces by Sept. 2008, though the measure will find tough going in the Senate next week, let alone a certain veto as President Bush affirmed on Friday. The Democratic position is largely incoherent and while Americans want the war to end, the majority still recognizes we can not as yet cut and run.

The Washington Post editorialized on the specifics of the bill that not only includes funding for the war until 9/08, but is also loaded with $21 billion in pork for items ranging from support for peanut storage in Georgia, to aid for shrimp fishermen, and another $1.3 billion to build more levees in New Orleans.

"Congress can and should play a major role in determining how and when the war ends. Political benchmarks for the Iraqi government are important, provided they are not unrealistic or inflexible. Even dates for troop withdrawals might be helpful, if they are cast as goals rather than requirements - and if the timing derives from the needs of Iraq, not the U.S. election cycle. The Senate's version of the supplemental spending bill for Iraq and Afghanistan contains nonbinding benchmarks and a withdrawal date that is a goal; that approach is more likely to win broad support and avoid a White House veto.

"As it is, House Democrats are pressing a bill that has the endorsement of MoveOn.org but excludes the judgment of the U.S. commanders who would have to execute the retreat the bill mandates. It would heap money on unneedy dairy farmers while provoking a constitutional fight with the White House that could block the funding to equip troops in the field. Democrats who want to force a withdrawal should vote against war appropriations. They should not seek to use pork to buy a majority for an unconditional retreat that the majority does not support."

Iran?On Saturday, the UN Security Council is slated to vote on a new set of sanctions against Tehran, including a ban on Iranian arms exports as well as freezing more assets. But the New York Times reported that Russia had issued Iran an ultimatum - suspend uranium enrichment immediately or the nuclear reactor project at Bushehr will never be finished - only to have Russian Foreign Minister Lavrov say Russia had not issued any such ultimatums and that there was no link whatsoever between Bushehr and UN sanctions. Additionally, Moscow said it "will not support excessive sanctions against Iran" so we'll see what eventually emerges. It is now over a month since Iran's first UN deadline to suspend enrichment expired.

But with regards to Iran and Bushehr, it is clear that Russia is pulling workers from the plant that is 95% completed because if Moscow isn't going to be shipping fuel oil while it negotiates with Tehran over a payment dispute, there is nothing for the technical staff to do; so of course, bring them home.

[In keeping with my 'wait 24 hours' approach, there is little to say on the capture of the 15 British marines by Iranian Revolutionary Guards until we know more. As of this writing, Iran has not stated its intentions and in past instances released those in similar circumstances within a few days. But the recent alleged kidnapping of senior Revolutionary Guard figures leads one to think this is in retaliation.]

Israel?The new Palestinian unity government of Hamas and Fatah is in place and immediately Israel and the U.S. said they would not negotiate with it on a formal basis because Hamas continues to refuse to recognize Israel and renounce violence. But while the European Union supports the U.S. and Israel in terms of not alleviating the sanctions on the Palestinians, some European governments are personally meeting with Hamas Prime Minister Haniyya, while even U.S. Secretary of State Condoleezza Rice said she would see some cabinet-level members of Hamas, against Israel's wishes.

For the better part of 1 ? years, since the Bush administration failed to follow up on the democracy movement in Lebanon after the assassination of former prime minister Rafik Hariri, and especially during the conflict between Lebanon and Israel this past summer (one that Vice Premier Shimon Peres labeled a mistake this week under questioning from a government investigative panel), I have written the United States is not being an honest broker in the region.

"Democrats are railing at just about everything President Bush does, with one prominent exception: Mr. Bush's crushing embrace of Israel.

"There is no serious political debate among either Democrats or Republicans about our policy toward Israelis and Palestinians. And that silence harms America, Middle East peace prospects and Israel itself.

"Within Israel, you hear vitriolic debates in politics and the news media about the use of force and the occupation of Palestinian territories. Yet no major American candidate is willing today to be half as critical of hard-line Israeli government policies as, say, Haaretz, the Israeli newspaper?.

"For more than half a century, the U.S. was an honest broker in the Middle East. Presidents Harry Truman, Lyndon Johnson and Ronald Reagan were warmer to Israel and Dwight Eisenhower, Jimmy Carter and George H.W. Bush a bit cooler, but all sought a balance. George W. Bush has abandoned that tradition.

"Hard-line Israeli policies have profoundly harmed that country's long-term security by adding vulnerable settlements, radicalizing young Palestinians, empowering Hamas and Hizbullah, isolating Israel in the world and nurturing another generation of terrorists in Lebanon. The Israeli right's aggressive approach has only hurt Israeli security, just as President Bush's invasion of Iraq ended up harming U.S. interests?.

"Last summer, after Hizbullah killed three Israeli soldiers and kidnapped two others, Prime Minister Olmert invaded Lebanon and thus transformed Hizbullah into a heroic force in much of the Arab world. President Bush would have been a much better friend to Israel if he had tried to rein in Mr. Olmert. So let's be better friends - and stop biting our tongues."

It bears repeating that President Bush did not speak to Olmert once during the entire Israel-Lebanon war.

Two weeks ago, March 10, I wrote that I was incredulous that some actually thought what former Federal Reserve Chairman Alan Greenspan had to say at a speaking engagement or two moved the markets.

"The man is irrelevant?and I see zero reason to bring him up in the future, unless it's about his earlier forecasts as chairman which fell woefully short of being accurate."

Well, Randall Forsyth had a terrific column in the March 19 edition of Barron's and on the issue of Greenspan, Forsyth writes:

"In a speech to the Fed's Community Affairs Research conference in April 2005, The Maestro sang the praises of 'technological advances' that 'have resulted in increased efficiency and scale within the financial services industry. Innovation has brought about a multitude of new products, such as subprime loans,' he continued, adding that technology had allowed lenders to size up the creditworthiness of borrowers more cheaply.

" 'Where once more-marginal applicants would simply have been denied credit, lenders are now able to quite efficiently judge the risk posed by individual applicants and to price that risk appropriately. These improvements have led to rapid growth in subprime mortgage lending; indeed, today, subprime mortgages account for roughly 10% of the number of all mortgages outstanding, up from just 1% or 2% in the early 1990s.'

"Since then, subprime mortgages have burgeoned to about twice that level, to around 20% of the total, according to most estimates. And the results are becoming apparent?.

"Yet among the avalanche of coverage of the subprime debacle, the deterioration of adjustable-rate mortgages - even of prime quality - is still more dramatic. But three years ago, Greenspan was touting ARMs for Everyman. 'American consumers might benefit if lenders provided greater mortgage product alternatives to the traditional fixed-rate mortgage,' he told the Credit Union National Association in 2004. 'To the degree that households are driven by fears of payment shocks, but are willing to manage their own interest-rate risks, the traditional fixed-rate mortgage may be an expensive method of financing a home.'

"As Greenspan spoke, the Fed's key interest-rate target, the overnight federal-funds rate, stood at a mere 1%. Just over four months later, however, the Fed began tightening its monetary policy, eventually raising the funds rate 17 times, to the current 5.25% level.

"The impact on those who took Mr. G's advice has been dramatic. The latest data from the Mortgage Bankers Association show a sharp jump in delinquencies and foreclosures in the fourth quarter. People with ARMs with low 'teaser rates' at the beginning are getting into trouble once they adjust up to prevailing market rates?.

"But this latest fiasco goes beyond mortgages. 'Subprime is today's dot-com - the pin that pricks a much larger bubble,' writes Stephen Roach, Morgan Stanley's chief economist?'the actors have changed, but the plot is strikingly similar,' he continues. 'This time, it's the U.S. housing bubble that has burst, and the immediate repercussions have been concentrated in a relatively small segment of the market - subprime mortgage debt.

" 'As was the case seven years ago, I suspect a powerful dynamic has been set in motion by a small mispriced portion of a major asset class that will have surprisingly broad macro consequences for the U.S. economy as a whole,' Roach concludes."

"The top man at the Treasury Department urged calm last week in the face of losses on Wall Street brought on by fears of defaults on the riskier kinds of mortgages. Really, he said, the damage is easily containable.

"But of all people, Henry M. Paulson Jr., former head of the New York investment banking house of Goldman Sachs, should know just how reasonable this near-panic was. Easy credit has long been the American financial lifeblood. Anything resembling stringency on the part of our formerly carefree lenders would tend to set the economy on its ear.

"Easy credit financed the bull market in houses and the flood of home refinancings. Americans felt richer and spent as though they were. It stands to reason that the withdrawal of this manna will lead them to spend less - with substantial collateral damage to the housing-centered U.S. consumer economy, and, perhaps, well beyond. Our captains of industry owe as much to their lenders' leniency as does any subprime, or high-risk, home buyer. They, too, have been able to raise money on terms unimaginable only four years ago.

"All this sounds scary enough, and it is. But financial history offers some solace. The U.S. economy excels in the art of facing up to error - of identifying it, reappraising it and then repricing it. Loans, especially the risky kind, have been mispriced. They were, and are, too cheap. They will be repriced - as they were, for example, in the aftermath of the junk-bond and real estate troubles of the late 1980s and early 1990s. Borrowing costs will go up, and the value of the things that debt financed will tend to go down. In an attempt to ease the pain, the Federal Reserve will print more money?.

"But the ripples from this cold bath go even further than the $8 trillion mortgage market. The truth is that the no-down-payment, no-documentation, interest-only mortgage loan has its counterparts in most branches of American finance.

"The date of the last ceremonial burning of an American mortgage is lost in the mists of time. Outright, unencumbered ownership of a house, a building or a corporation is no longer an ideal that most Americans embrace. The new goal is to borrow as much as possible, as soon as possible, against any asset that could be financed. And these days - thanks to Wall Street's ingenuity - all manner of assets pass as good collateral for a loan?.

"Nowadays, loans rarely rest on the balance sheets of the lenders who make them. Rather, they are scooped up and fashioned into securities - 'asset-backed securities.' And these are gathered up and refashioned into still other securities - 'collateralized debt obligations.' And the CDOs, many of them dizzyingly complex, are sold to investors the world over. No bank regulator watches over these financial sausage-making operations. As the Federal Reserve has receded in importance in this worldwide financial system of ours, so has the U.S. banking system. A parallel kind of banking system has come into existence. Wall Street calls it the 'CDO machine.' ?.

"In a speech two years ago, Federal Reserve Chairman Ben Bernanke pointed to a curious coincidence: Growth in U.S. mortgage debt tracks closely with the growth in the trade deficit - that is, the difference between what we consume and what we produce. 'Over the past two decades,' he said, 'major innovations in the United States have improved the availability and lowered the costs of home mortgages. These developments likely spurred homeowners to tap increasing home equity to finance consumer expenditures beyond home purchase. In contrast, mortgage debt is not so readily available among our trading partners as a vehicle to finance consumption expenditures.'

"If I were the head of state of one of our trading partners, I would be asking myself if these 'major innovations' were as wholesome as they used to seem. Deciding not, I would command my minister of investments to unload U.S. mortgage holdings. And I would imagine that I would not be the only head of state to whom this thought had occurred."

You'd be hard-pressed to find someone who has written more than I have on the real estate bubble, and I'm continually amazed by those who offer we've already hit a bottom. Robert Froehlich of DWS Scudder went so far as to say the subprime mortgage crisis "will be the most hyped disaster that never occurred since Y2K." Right, Bob, but then you have mutual funds to hump so I'd expect nothing less. How the heck can you compare Y2K, which indeed proved to be nothing (though I was taken in by it myself) to a real estate debacle that has caused real pain to a broad class of Americans; those who can least afford it? It's that kind of irresponsible shillery (my word of the week) that gives Wall Street a bad name.

Every few weeks I have to repeat myself on a key point. When we do hit bottom in the real estate market, it is not just going to bounce right back up. Think of the plight of the Kansas City Royals baseball team. They last won 90 games in 1989 (92-70). They then stair-stepped down the next four seasons before flat- lining, with the worst period being the last five-year stretch, 2002-2006. Or, since Detroit's housing market is suffering as bad as any these days, think the Detroit Lions. We will bottom and stay there.

But we aren't close to that bottom yet. I also have a confession to make. Until recently I didn't know what the definition of an "Alt-A" mortgage was, the class between subprime and prime. You know, for Alt-A, I'm told, lenders are finally demanding 5% down! This isn't even subprime, and yet you can still get one without little documentation and basically no money down. So doesn't that make Alt-A really the same as subprime?

"According to Credit Suisse, the number of no or low documentation loans - so-called 'liar loans' - increased to 49% last year from 18% of purchase loans in 2001, a nearly three-fold increase. The investment bank also found that borrowers put up less than a 5% down payment in 46% of all home purchases last year."

"The Alt-A market?.has increased sevenfold since 2001 and accounted for 20% of home-purchase loans last year. Fully 81% of Alt-A loans in '06 were no or low documentation loans?. Why have borrowers employed this kind of risky financing? Because it was the only way many of them could afford a home in some of the hottest housing markets, where prices more than doubled in five years."

There are some idiots out there, snug in their castles, who go on the air and say 'It serves them right.' That's simply cruel and my heart goes out to those who made some very bad mistakes in judgment, or were flat out swindled.

I also am not one of those free marketeers who say the government needs to stay out of this mess. Wrong! Think back to the Tech Bubble. What was one thing Alan Greenspan could have done that would have without a doubt lessened the pain? Raise the margin rate. What one thing could the Fed, the FDIC, or the Comptroller of the Currency have done during the real estate boom? Insist that mortgage documents be written in plain English and spell out the risks.

You think that is hard to do? Ask my old mutual fund buddies. Years ago, when I was still in the business and before the market-timing scandals that hit the industry, we were forced to come up with simpler prospectuses that spelled out as plainly as possible the impact of expenses on shareholders. Regulators also insisted that past performance be laid out for all periods (and adjusted for applicable sales charges), not just the hottest one.

So it can be done. It doesn't mean the government is interfering in the ability of Mr. and Mrs. Jones to buy their first home, but at least some of the homebuyers may have realized that when their mortgage resets, the payment goes up $500. It's been shown time and time again that in many instances this wasn't explained to them. No doubt, there is the principle of individual responsibility, but there is also accountability.

I don't feel in the least bit sorry for speculators who were flipping Miami or Las Vegas condos and finally got burned. They should have known the risks and if they didn't, tough.

But it makes me sick how some of the 'little people,' and I use the term affectionately, were burned when all they thought they were doing was pursuing the American dream.

So, no, we haven't hit bottom and while I'm at it, let me tell you what is really on my mind, something that Barron's Randall Forsyth and countless others in the financial press want to write but can't because they have editors standing behind them. Alan Greenspan was not a great Fed chairman. He was a fraud, as history is increasingly revealing.

Just a brief note on the Federal Reserve's move to hold the line on interest rates for a sixth consecutive time. There is a debate as to whether they dropped the bias to raise rates in their accompanying statement. Frankly, I don't give a damn because I have been adamant they will not hike again in this cycle?period.

Of course the Fed said inflation remains its chief concern, but they will always say that. It's their raison d'etre, after all. What Ben Bernanke and crew did say, however, was that the economy was sending mixed signals and that the "adjustment in the housing sector is ongoing," both less bullish sentiments than before. Is a rate 'cut' thus in the cards? Not right away, but one thing I do know is that corporate earnings will increasingly disappoint.

--Stocks roared to their best performance since last summer, in the case of the Dow Jones and Nasdaq, and since 2003, if you can believe it, for the S&P 500. All three gained between 3% and 3.5% and the major indices are back in the black, though in most cases just barely.

Why did stocks have such a good week? Most investors (gamblers) took great heart in the Fed's pronouncement. Since I never believed they would raise rates, I don't understand why there were so many who did. Whatever makes you happy, I guess. More importantly, deals were back in the news and if acquirers can still obtain financing then that's a positive.

Otherwise, not for nothing but oil climbed back above $62, with Friday's spike coming as a result of the news from Iran on the capture of the British soldiers as well as the ongoing debate in the UN over sanctions and how Iran may respond.

It turned out to be a rather volatile week for bonds, though at the end of the day rates were little changed except in the 30-year which rose 10 basis points. But remember, since with few minor exceptions the weekly close on the key 10-year has been between 4.50% and 4.80% since Aug. 25 of last year, my new stated policy is not to make anything of the bond market until we break out of this range. You shouldn't give one lick either. In the meantime, you'd be a fool not to invest in the short end of the curve, if you feel you must have some exposure to bonds, or just stick with cash?.like we do here in the home office. The rate is the same, after all.

Housing starts for February rose 9% and existing home sales (two distinctly different items) were up a better than expected 3.9%. But building permits were down 2.5%. Bottom line, as we've all learned these are volatile readings and particularly so during the winter months when they are subject to the whims of Mother Nature?.and the jet stream.

Colorado led the nation in foreclosures 9 out of 12 months in 2006. The top five states in terms of percentages are CO, GA, NV, TX and MI.

For years, especially after each trip I've taken to Europe, I've written of how the real estate bubble is global, like in my Week in Review of 5/27/06.

"Ask anyone who's been to Europe in the past few years, chatting up a few blokes in a pub, and you'll find everyone is buying a second home in Spain, to cite but one prominent example; thanks in no small part to the prevalence of low-cost airlines that make it far easier to jet away for the weekend. But these same communities are going to slide like the rest."

"Vacation Home Boom May Turn to Bust in Spain as Banks Recoil" was one headline on Bloomberg News.

"Opening a sales office and hiring an attractive woman is no longer enough to sell houses," said James Stuart, who has marketed vacation homes since the 1980s in Marbella on the Costa del Sol. "I don't know any project in default, but banks are asking for more guarantees and more sales to be agreed on before lending any money."

Get this. 98% of mortgages in Spain have floating rates. In the U.S., the majority are still fixed, at least until recently. Wolfgang Munchau, in another article for Bloomberg News, wrote:

"The bogus economic theory from Spain is that large immigration can maintain a construction boom indefinitely." Munchau also noted, "In the past the correlation between U.S. and European property price movements has been extremely high."

I would just add after reading the above that before you rush in and buy European bank shares, understand what you're getting. I know I couldn't begin to tell you what the exposures are for the biggest ones.

--While real estate loses its luster around the world, land prices in Japan rose for the first time in 16 years?which perhaps gives you a window into just how long the U.S. and other real estate markets could be in the doldrums.

--OPEC President Mohammad al-Hamili said the cartel was "committed" to providing enough oil for world consumption, and at affordable prices! But for now he said existing supplies were sufficient, even as inventories tumble in some categories.

--Meanwhile, for about 24 hours investors focused on Halliburton and its earnings warning, with the oil field services operator talking of decreased drilling in North America, thanks in no small part to falling natural gas prices since the peak in late 2005.

But to those that say this signals the end of the boom, they will be sadly mistaken; and share prices in the entire oil and gas sector rallied anew the day after Halliburton's announcement. Any drop in drilling activity will obviously lead to tighter supplies for natural gas in particular and as long as the economy is growing, even at its increasingly moribund pace, I'd expect a floor in prices around current levels (maybe a $1 or so lower) and profits that will remain strong.

"Amid all the media hysteria over the price of gasoline and the profits of 'Big Oil,' one simple fact has been repeatedly overlooked: The oil companies' earnings are just under 10% of the price of a gallon of gas, while taxes take 17%."

"I liken U.S. ethanol production to using caviar to make cat food. You are taking imported foreign oil and dumping it into a production process that yields a 'renewable resource' where the energy return on energy invested is probably no better than one- to-one. Where is the 'renewable' facet of that process? Where's your energy independence?

"In addition, the economics of ethanol production itself are questionable. Without the 51-cent a gallon government subsidy, most ethanol producers are not making money. These economics could change with market conditions. But the more ethanol we produce, the higher the price of corn rises, the less profitable ethanol production becomes."

--Blackstone Group filed its IPO, as expected, and underwriters Morgan Stanley, Citigroup, Merrill Lynch, Credit Suisse, Lehman Brothers and Deutsche Bank will reap some of the rewards. But no Goldman Sachs.

Last week the story was just breaking as I went to post so I need to fill in some of the gaps. The $4 billion IPO is for the management company and investors will not be investing in the actual portfolio. What the IPO provides, however, is a permanent source of financing for Blackstone; instead of having to schlep around with their hat out, returning to the same investors time after time.

Some say the IPO marks the sign of a top in the private equity market, let alone auguring an era of lower future returns. There are also concerns about the ability to finance future transactions, no doubt, and the IPO could help in that regard.

But the real story to me remains Stephen Schwarzman, the man most in charge at Blackstone. He is reportedly worth $10 billion and the offering could double this. That would put him a mere $30-$40 billion behind Warren Buffett and Bill Gates, and don't you know that is really what's driving him?.seriously.

--Morgan Stanley reported a terrific quarter, earning $2.66 billion, thanks to CEO John Mack's focus on taking more risks in the trading area?.prudently, of course. A Florida appeals court also overturned a $1.58 billion judgment against Morgan for allegedly misleading investor Ronald Perelman on Sunbeam's financial condition before he acquired it.

--Oracle issued a strong earnings report and is suing rival SAP, accusing the German business software maker of corporate espionage; specifically alleging that some of SAP's workers in a Texas unit posed as Oracle customers and downloaded all manner of software from Oracle's customer-support Web site that then appeared in SAP's own programs.

--NBC Universal, News Corp., Yahoo, AOL and MSN are all teaming up to go after Google's YouTube in a distribution agreement to share TV shows, video clips and movies online. The main point is to give the likes of NBC and Twentieth Century Fox's movie and TV studios greater control over how their product is distributed.

--The Chinese central bank raised its key lending rate a third time in 11 months in yet another attempt to slow the economy. In response the Shanghai Composite, which just weeks ago crashed 9%, hit one new record high after another. The government has set a growth target of 8%, but it's still running substantially over 10%.

--Airbus took its giant flying hot dog on a tour of the U.S., but there are still no buyers in the States for the $300 million A380 that can carry up to 850 passengers. The giants of the U.S. cargo industry, UPS and FedEx, have also canceled their prospective orders for a cargo version.

But it's the airports that will really get screwed, those that stupidly opted to spend $tens of millions on improvements to accommodate an aircraft that only a few European and Asian airlines may end up employing.

--As noted in a piece by Charles Babington of the Washington Post, the proposed merger between Sirius Satellite Radio and XM faces a number of challenges apart from any regulatory hurdles, chief of which is the fact both are "straining their systems' transmission capacities even before they try to add each other's content," let alone already huge fixed costs in the multiyear, multimillion-dollar contracts for talent and sporting events.

--A federal judge issued a permanent injunction against Internet phone carrier Vonage for using Verizon's patents, thus in essence sentencing Vonage to death. What a disaster this outfit has been.

--Former Reagan White House budget director David Stockman faces indictment related to his days running now bankrupt Collins & Aikman, a multi-billion-dollar maker of instrument panels and carpets, according to the Wall Street Journal and Washington Post. Stockman will be charged with accounting fraud and other serious offenses.

--Fidelity's Research Institute issued its 2007 retirement-index results, among which is the figure for the median household retirement savings of working Americans? $22,500.

[Trader George and I have some advice for Fidelity. Produce new commercials! We both agree we would never open a Fidelity account with such irritating stuff being rammed down the throats of those of us who tend to have CNBC on all day.]

--CNBC's Jim Cramer is in trouble over remarks he made in an interview with his TheStreet.com Web Site, months ago, that just surfaced in a video making the rounds. Cramer bragged about his ability to manipulate share prices back when he was a hedge fund manager and while there is nothing authorities could do to him today, he also disparages the work of Bob Pisani, CNBC's NYSE floor reporter, as well as a journalist at the Wall Street Journal. It's just a matter of time before Cramer self-destructs; kind of like golfer John Daly has on occasion.

--My portfolio: I still have yet to sell anything since the market tremors of recent weeks and I've been buying more of a few selected issues. But I also remain heavily in cash.

--The U.S. Postal Service announced it was hiking the cost of a first-class stamp to 41 cents on May 14 and over the coming weeks you'll see a bunch of incredibly idiotic stories discussing how awful this is.

So consider this. Since I still don't pay my bills online, I figure I send out 20 letters a month, max, or 240 a year, plus about 50 Christmas cards.

Ergo, that's 290 letters, or a whopping $5.80 increase over the full year. Needless to say, I won't be losing any sleep over this, especially because I could cash in my coffee cans full of coins at CoinStar and probably pick up $300 or so. [This is really my 'End of the World' emergency beer money.]

Anyway, cut your U.S. Postal employees a little slack in the next few weeks. When you think about it, for all our complaints the mail service is downright spectacular in this country.

North Korea: Talk about 'wait 24 hours,' you should have learned over a decade ago to adopt the mantra when it comes to this place. On Monday, U.S. negotiator Christopher Hill proclaimed that the issue of the disputed $25 million sitting in a Macao bank had been resolved. Then on Thursday, six-party talks broke down because the Bank of China, serving as a transit point, didn't want to accept the money from Macao, before being handed over to North Korea, because it was afraid it would be sucked into the controversy in terms of losing future business, a legitimate concern. Russia blamed the U.S. for failing to assure the Bank of China it could accept the funds without repercussions. There is no word on when talks will resume.

Of course this is against the backdrop of the Feb. 13 agreement signed by Pyongyang to shut down its facility at Yongbyon by April 14 and allow UN monitors in in exchange for the first shipment of fuel aid. Earlier, North Korean negotiators blasted Japan and questioned why it was still part of the talks.

Zimbabwe: President Robert Mugabe's police force is in a shambles amidst mass resignations over not being paid, so Mugabe went out and rented 2,500 Angolan paramilitaries, known for their brutality, to patrol his nation's streets and enforce the law. This nightmare will all be over by the end of April as Mugabe is ousted in one form or another. It won't be bloodless, however.

Pakistan: Intriguing situation here as over 130 have been killed in Waziristan in clashes between tribal forces and foreign militants, most from Uzbekistan, who owe their allegiances to al Qaeda. Is it an irreparable break in relations? Does it lead to the uncovering of Osama and Zawahiri's hideouts, said to be in the same region?

Separately, President Musharraf is under increasing pressure as a result of his dismissal of the chief justice of the Supreme Court. Opposition rivals, including two former prime ministers, are said to be joining forces to force Musharraf out.

And then there is the murder of Pakistan's cricket coach, Bob Woolmer, at the World Cup in Jamaica following his team's shocking loss to Ireland. This was hours after his effigy was burned in the streets by fans who demanded that Woolmer be arrested on his return to the country. Shocking stuff.

Afghanistan: The U.S. and some of its allies are in an uproar over the move by the Italian government to trade a journalist, kidnapped by the Taliban, for five Taliban terrorists already in custody. A UN spokesman said, "The UN does not negotiate with terrorists." Italian Prime Minister Romano Prodi was challenged by his Opposition to explain why once again the government was giving into kidnappers' demands.

China: I found the following opening of a story by Wendell Minnick of Defense News to be rather telling, in light of my own recent missives.

"China and North Korea are the catalysts for virtually all defense procurement and policy decisions being made in Japan, South Korea and Taiwan.

"At the same time, there appears to be no overall policy from Washington guiding East Asia on how to deal with a new emerging superpower - one that is clearly interested in pushing the United States out of the region.

" 'Japan and South Korea are hedging against fears of a potentially diminished U.S. military-leadership capacity in Northeast Asia, due to fears that Washington will increasingly accommodate growing Chinese military power in East Asia,' said Richard Fisher, vice president of the Washington-based International Assessment and Strategy Center.

"Reuben Johnson, a Ukraine-based aerospace and technology analyst and consultant, argues, 'There is almost no intelligent analysis or thinking in Washington about what China will be like - what the nature of the state and its policies will be - when Beijing is a true superpower.

" 'What disturbs China's neighbors is that there is little - if any - sort of strategic vision emanating from D.C. on this subject. In the absence of anything other than the usual polemics, they will seek to go their own way in developing a response to the implications of China,' he said."

Russia: Terrible week here. A mine blast killed at least 106, the deadliest such disaster in a decade; a plane crash landed, killing six; and 63 died in a fire at a retirement home in southern Russia, with the nearest fire station 30 miles away. Pathetic.

Slain journalist Anna Politkovskaya's diaries, just published, blame President Vladimir Putin for Russia's problems. Addressing his re-election in 2004, Politkovskaya wrote "Were we seeing a crisis of Russian parliamentary democracy in the Putin era? No, we were witnessing its death." She also blamed opposition leaders for courting the wealthy while ignoring the plight of the poor. As to Putin's popularity, she wrote "They agreed to be treated like idiots." [Moscow Times]

Somalia: Heavy fighting erupted all over again in the capital of Mogadishu. Ethiopian and Somali troops were killed by insurgents and just as in 1993 dragged through the streets.

Mexico: Over $200 million in cash was confiscated as the result of a drug seizure in one of Mexico City's ritziest neighborhoods. The seven arrested were said to be involved in the production of methamphetamine that was linked to both the United States and Asia. They were part of a still larger group using precursor chemicals from companies in India and China and then processed in Mexican "super labs."

President Felipe Calderon, who is off to a terrific start, said "We are working in a decisive manner to save our country and to keep Mexico safe and clean. I don't even want to imagine how many young people this gang poisoned with its drugs."

A top official at the U.S. Drug Enforcement Administration told the Los Angeles Times, "Kudos for the Mexicans. They're very serious in this effort, and we commend them." [80% of the meth sold on U.S. streets is produced in Mexico.]

A few days after the big seizure, U.S. Customs officials boarded a suspicious tanker off Panama. The result was the largest amount of cocaine ever taken in?$300 million, street value. Go get 'em, boys.

Dow Jones +3.1% [12481]
S&P 500 +3.5% [1436]
S&P MidCap +3.9%
Russell 2000 +4.0%
Nasdaq +3.2% [2456]

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.

The BUYandHOLD website contains links to third-party websites on the Internet. BUYandHOLD provides these links to these websites only as a convenience to users of the website. Links on the BUYandHOLD website are not endorsements by BUYandHOLD or Freedom Investments, implied or express, of the linked sites or any products, services or links in such sites; and no information in such sites has been endorsed or approved by BUYandHOLD. Linked sites are not under the control of BUYandHOLD or Freedom Investments, and we are not responsible for the contents of any linked site or any link contained in a linked site. No information contained in the BUYandHOLD website or accessed through any linked site, or any link contained in a linked site, constitutes a recommendation by BUYandHOLD or Freedom Investments to buy, sell or hold any security, financial product or instrument. Information accessed through linked sites is not, nor should be construed as, an offer or a solicitation of an offer, to buy or sell securities by BUYandHOLD or Freedom Investments. 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, and any investment decisions you make will be based solely on your evaluation of your financial circumstances, investment objectives, risk tolerance, and liquidity needs.