Educate Yourself

Week in Review
For the week 6/4/2007 - 6/8/2007
Brian Trumbore
President/Editor, StocksandNews.com

Stocks fell back to earth, after the Dow Jones and S&P 500 both hit all-time highs last Friday, while bond yields threatened to shoot into the stratosphere.

It was all about the 10-year Treasury as it rocketed through 5% and finished the week at 5.11%, the highest level in about a year. In a speech, Federal Reserve Chairman Ben Bernanke reiterated comments from the Fed's minutes of its May 9 meeting, admitting that housing will be a "drag on economic growth for somewhat longer than previously expected," while inflation was "somewhat elevated." Overall, though, Bernanke is optimistic the economy will pick itself up off the floor after a lousy first quarter and those looking for a rate cut will be deeply disappointed.

Last week we talked about how the second quarter could be solid for the simple reason that store shelves needed to be replenished after inventories were run down in the first. Certainly we've seen a rebound in recent manufacturing data. The consensus among economists is that growth in the second quarter will be 2.6% after just a 0.6% rise in the Jan.-Mar. period. On Friday, Morgan Stanley took it a step further and said growth would accelerate to 4.1%. In either case, if this kind of growth were to carry through into the second half of the year, there is obviously no way the Fed is lowering rates. But, again, if they were to raise instead, as I have consistently said all year, it would be the death-knell for the U.S. economy. As it is, the bond market is already doing the Fed's work in taking rates higher without Bernanke's crew having to worry about acting itself and this alone can help dampen inflation.

Globally, rates continue higher across the board with the European Central Bank hiking its key lending rate to 4% this week, the highest since Aug. 2001, while New Zealand captured some attention when its banking officials raised their benchmark rate to 8%, second highest in the developed world next to Iceland. Where this comes into play is in perpetuating the yen carry trade; borrowing yen at 0.5% and buying 8% Kiwi paper, for example.

But what do I think is really going to happen? With the action in the bond pits this week, we are one step closer to flipping? rolling over. Maybe the inventory rebound leads to a solid current quarter, but the developing headwinds are too strong to ignore.

For starters, real estate. I love the comment of Richmond Fed President Jeffrey Lacker, who reiterated his view that the economy will rebound as housing recovers.

"The housing market is likely to find a bottom some time this year and no longer be a drag on top-line growth."

Were this true, though, it doesn't mean we're back off to the races, as I've pounded home all year. Some analysts conveniently ignore the fact that when the average American's #1 asset is no longer rising, an asset that was the source of cash in the form of home equity loans and cash-outs, it doesn't make you want to go out and buy a new car.

And, anyway, I don't know how Mr. Lacker et al can claim we're going to find a bottom just yet when housing inventories continue to rise, long after they were to have leveled off. In most parts of the country inventories are up 30% year over year. Even the National Association of Realtors, the industry's mouthpiece, has lowered its forecast on home sales and prices for the balance of 2007.

So housing is still a major negative. And what of the leveraged buyout/private-equity craze? These deals are built on a foundation of debt and with interest rates now rising rapidly, some of the riskier deals are in danger of falling through the floor, let alone those LBOs where financing hasn't been wrapped up as yet.

--Stocks suffered their worst decline in over three months as the Dow Jones lost 1.8% to 13424, the S&P 500 declined 1.9%, and Nasdaq, 1.5%. Tuesday thru Thursday, the Dow fell 400 points before recovering 150 of them on Friday. The economic news on the week was light, but this coming one is loaded? highlighted by figures on retail sales and inflation.

The yield on the 10-year rose 15 basis points over the week, though it was another 12 bps higher early Friday before bonds rallied. PIMCO's Bill Gross garnered some press for essentially saying the 25-year bull run in bonds was over. But in talking of a 6.50% peak yield on the 10-year over the next 3-5 years, that's hardly a vicious bear market.

One thing is for sure?unless you were dabbling in high yield bonds or emerging market paper, and knew what you were doing, my advice of the past few years to stay in risk-free cash was solid. Some of my friends from the business have been recommending floating rate instruments to their clients and those have worked out well, too. I've just seen no reason not to stay short these days, particularly with the shape of the yield curve. I can tell you one other thing. Bill Gross wishes his portfolio was all cash as well.

--Ford Motor received some great news this week in the form of the latest quality ratings from J.D. Power & Associates' annual survey. Four Ford vehicles were "best in show," tied with Toyota. In the 19 total categories, 12 Ford vehicles ranked in the top three vs. 13 for Toyota. You can be certain of one thing. Ford's ad agencies are working overtime with management to figure out how best to capitalize on this.

Meanwhile, Toyota passed the one million mark in sales of its hybrids cars, worldwide, but Honda discontinued sales of its Accord hybrid sedan due to poor sales.

--Two well-known diabetes treatments, GlaxoSmithKline's Avandia, and Actos, a drug from Takeda Pharmaceuticals and Eli Lilly, received the FDA's harshest safety warning, the 'black box,' because of their heart risks. But the FDA itself is coming under blistering fire from Congress because it came to light the FDA knew of the risks long ago and a supervisor, Dr. Rosemary Johann-Liang, said she had recommended the black box warning in March 2006, only to have superiors block it; some say because of the cozy ties between a few FDA officials and GlaxoSmithKline. Another doctor, John Buse of the University of North Carolina and the incoming president of the American Diabetes Association, said he spoke publicly back in 1999 of his fears that Avandia might increase heart risks. "I was characterized as a liar," he told a congressional committee. "I was characterized as being for sale."

--In a bunch of self-serving garbage, OPEC's secretary-general said the cartel would think twice about investing more in new oil production if western countries insisted on developing biofuels as an alternative to the delicious and nourishing product that OPEC has to offer. Be forewarned, OPEC says; if this attempt to diversify continues, the price of oil will go "through the roof." But the fact is world production of biofuels isn't even 2% of all road transport fuels at this point and will take ages to get to 10%.

I also have to digress a bit and talk about the threat to tanker traffic in the Persian Gulf should the Iranian nuclear crisis result in military action. Just glance at my "Hott Spotts" columns of 4/19/07 and 6/7/07. This threat is way overblown. True, any initial action could result in a large price spike, but as far as protecting the flow of oil through the Strait of Hormuz, the United States and its allies will do the job.

That said, the price of crude will remain high for two other reasons; supply barely keeping up with global demand in a still hot economic environment, and, two, the hurricane threat.

--Palm Inc. sold a 25% stake to Elevation Partners, a private equity firm that lists Bono as a partner. One of the prime drivers at Elevation is Roger McNamee, the only $billionaire I can honestly say I ever drank adult beverages with. [This was 4+ years ago.] He's a good guy and certainly one of the top thinkers and investors out in Silicon Valley. As McNamee put it, regarding the Palm investment, "We just think the future is incredibly bright (for all of the players in the handheld computer sector). Today, you can't get your highest valued content to your phone, other than e-mail, and we think that's going to change."

--Two other private-equity outfits, Silver Lake and TPG Capital, purchased telecom-equipment maker Avaya for $8 billion.

--Yet another story on Spain's crumbling housing sector, this one from Bloomberg News. "The real killer of the housing market is the immense oversupply," said a professor at the University of Barcelona. The same fellow says prices will drop by 20% through 2009. Spain has been building more homes on an annual basis than France and the U.K. combined.

--The Journal reported that IBM took advantage of a loophole in the tax code to save an estimated $1.6 billion in taxes less than two weeks ago. It had to do with treatment of overseas funds and circumventing an IRS statute covering U.S. taxes on repatriated earnings. Two days later, the IRS announced plans to repeal it, though it appears IBM is scot-free.

"(I) saw this pond with some ducks and thought, that's pastoral; until I looked up on the bank and saw thousands of them. And then another duck farm, and then another, and then another. 'You don't have bird flu here, do you Dora?' 'No, no bird flu.' 'Pray it stays that way.'"

Alas, in that very province of Fujian, I saw that a Chinese soldier died of bird flu; which in and of itself was a major admission on the part of the Chinese.

Needless to say I wasn't pleased to read this, but I'm betting it's an isolated case and I have no details on where the man picked it up.

As for the biodiesel play in Fujian, I purchased a little more this week. For those of you wondering about the decline in the share price, I'm not concerned. I do know that in about 4-6 weeks time they should be making an announcement on funding for the plant expansion that is the key to the whole story. [I'm just extrapolating from SEC filings.]

Iraq: The big news was the possible incursion by Turkish forces into northern Iraq to root out the PKK terrorists that have been using Kurdistan as a safe haven. But for now it hasn't escalated. I certainly have written my fair share on this issue over the years and the Turkish military has lost its patience with the attacks on its forces. It would obviously be a disaster if Turkey launched a full-scale assault into Iraq.

Separately, British commanders will evidently hand incoming prime minister Gordon Brown plans to withdraw the remaining 5,500 troops from Iraq by year end.

Here in the U.S., 53% don't believe the war has contributed to the long-term security of America, according to the latest Washington Post / ABC News survey, with 61% saying the war wasn't worth fighting. But, as has been the case in all of the polls, we're conflicted because only 15% advocate immediate withdrawal of U.S. forces.

Robert Kagan, a long-time supporter of the war, offered the following in his Washington Post column.

"We didn't intervene in Iraq primarily to save the Iraqi people. We went in mostly for reasons of our own, to protect our interests and our allies from the menace of a serial aggressor whose domestic repression was of a piece with his desire for regional domination. And now that we are in Iraq, the United States, not just the Iraqi people, will suffer the consequences of our failure. If Iraq implodes, if the region explodes, if al-Qaeda gains a victory and a foothold in the Middle East and the Persian Gulf, it will be our interests that have suffered.

"Republican leaders think they're being clever in saying that if there is no progress by September, or by the end of 2008, we will have to wash our hands of the whole mess. That's nonsense. Defeat will be no more tolerable in January 2009 than it is now. And it won't matter whom we try to blame."

Peter Rodman, former assistant secretary of defense and senior fellow at the Brookings Institution, in an op-ed for the New York Times.

"The new strategy of the coalition and the Iraqis, ably directed by Gen. David Petraeus, offers the best prospect of reversing the direction of events - provided that we show staying power. Osama bin Laden said, a few months after 9/11, that 'when people see a strong horse and a weak horse, by nature they will like the strong horse.' The United States, in his mind, is the weak horse. American defeat in Iraq would embolden the extremists in the Muslim world, demoralize and perhaps destabilize many moderate friendly governments, and accelerate the radicalization of every conflict in the Middle East.

"Our conduct in Iraq is a crucial test of our credibility, especially with regard to the looming threat from revolutionary Iran. Our Arab and Israeli friends view Iraq in that wider context. They worry about our domestic debate, which had such a devastating impact on the outcome of the Vietnam War, and they want reassurance.

"When government officials argued that American credibility was at stake in Indochina, critics ridiculed the notion. But when Saddam Hussein invaded Kuwait in 1990, he and his colleagues invoked Vietnam as a reason not to take American warnings seriously. The United States cannot be strong against Iran - or anywhere - if we accept defeat in Iraq."

Finally, Gen. Peter Pace was forced out as Chairman of the Joint Chiefs of Staff by Defense Secretary Robert Gates, who feared a nasty reconfirmation hearing as Pace went before Congress for a second term. The move speaks volumes about the administration's conduct of the war.

Iran: The other day, Ken P. observed that his daughter's global test in school showed Iran already with the bomb. "It's that kind of resignation that leads to proliferation," my friend offered. But at this point, with the global community seemingly incapable of stopping Iran's nuclear weapons program, proliferation is where we're headed. And in the case of the mullahs in Tehran, the concern has to do with the man in charge, President Mahmoud Ahmadinejad, who this week once again spoke of Israel's destruction.

"With God's help, the countdown button for the destruction of the Zionist regime has been pushed by the hands of the children of Lebanon and Palestine. By God's will, we will witness the destruction of this regime in the near future." [Reuters]

"If U.S. forces strike Iranian nuclear facilities, Iranian officials say Tehran will respond by triggering all-out regional war.

" 'Ballistic missiles would be fired in masses against targets in Arab gulf states and Israel,' one Foreign Ministry official said. 'The objective would be to overwhelm U.S. missile defense systems with dozens and maybe hundreds of missiles fired simultaneously at specific targets.'

"Tehran's primary targets would be U.S. military installations and strategic targets in U.S.-allied Arabian Gulf states, including oil depots, refineries, power plants and desalination facilities. U.S. warships would also face waves of surface-to-surface cruise missiles sent to overwhelm their countermeasures, said several senior Iranian officials whose comments reflect the official line but who could not obtain permission to speak on the record?

" 'The name of the game is simply to saturate strategic targets with missile firepower in order to render the Patriots and other defenses useless,' said Hassan Fahs, a journalist and political analyst based here."

Iran expects the U.S. to strike with no warning against the military's command-and-control network, "and have ordered ballistic- and cruise-missile battery crews to launch the retaliation plan within an hour after a U.S. attack begins."

Russia / G-8: As the summit for the G-8 leaders approached, the war of words between the U.S. and Russia was heating up. Russian President Vladimir Putin warned that he could retarget Europe with Russia's nukes if Washington proceeded with its missile shield, which would, in Putin's words, "increase the possibility of unleashing a nuclear conflict." Plus, Putin said he might stop complying with past agreements to reduce conventional forces in the European theatre.

For his part, President George W. Bush told an audience in the Czech Republic that political reforms in Russia had been "derailed, with troubling implications for democratic development."

So the two then gathered at the summit and, in an absolutely brilliant move, Putin offered a compromise. The U.S. and Russia could jointly operate a missile shield in the former Soviet republic of Azerbaijan, an idea that totally blindsided Bush and his team. I have to admit I admire the pure politics of the move, though on Friday, Putin watered it down by carelessly offering other locations as well.

Azerbaijan, on the Caspian Sea and next to Iran, with whom it shares a 268-mile long border, is the perfect spot (at least for the radar component of the missile defense system), especially if you are targeting the threat from Iran and the Middle East. But as Putin knows, if Bush eventually turned it down that would mean the originally intended system for Poland and the Czech Republic was as much to do about Russia as Iran. At least that is what he could tell his people. Again, this is great gamesmanship. Vladimir Putin's pedigree as a former high-level KGB operative came shining through this week.

So we'll see what the White House's response is over the coming days and weeks. Russian opposition figure Gary Kasparov, after meeting with Bush in Prague, said "Bush was in a state of denial, and he repeated the same stories about [Russia's] growing middle class and prosperity and elections." Kasparov called on Bush and the G-8 leaders to confront Putin.

"We want these leaders to state the obvious: Russia and Putin don't belong in the G-8 because it's not a democracy and it's not an industrial power."

Well you now know the result. Kasparov himself has two planned protests in St. Petersburg and Moscow over the coming days as part of his The Other Russia movement ahead of the parliamentary elections this coming December. And I just saw a story on the wires that Putin isn't ruling out a return to the presidency in 2012, which is allowed under the constitution.

Back to the summit, German Chancellor Angela Merkel, as host, was able to crow about a deal on climate change. Merkel and British Prime Minister Tony Blair called the agreement to "substantially" reduce greenhouse gas emissions a "huge success," emphasizing that President Bush and the United States were now at the forefront of change and attempts to rework the Kyoto Protocol in 2012.

Well, frankly, touting the goal of halving emissions by 2050 is absurd and not worth the paper it was written on.

But, that doesn't mean it's not important. I would just add that as I wrote last week in my criticism of Bush and his environmental policy, the agreement reached this week could have been written on a beer coaster back in 2001! The U.S. obviously gives up nothing, thus far, but the White House proved it can be amenable to discussions. In other words, we just wasted six freakin' years to gain nothing, except the enmity of our allies. In fact, this is exactly what I wrote of in this space in '01; we should have just played the diplomacy card back then and moved on.

The real bottom line, though, is that the climate change / global warming debate is no longer in the hands of governments, at least with regards to the G-8. The free market has picked up the ball and run with it; witness the extensive initiatives by the likes of General Electric. Where government does play a role is in selecting which industries get the subsidies until the particular technology gets up to speed or reaches critical mass.

Russia, part II: A few other tidbits. I doubt the topic of Putin's handpicked leader for Chechnya, 30-year-old Ramzan Kadyrov, came up at the G-8, but all manner of videos are coming out detailing torture on the part of Kadyrov's security forces. As I wrote on 2/24/07 in this space, Kadyrov "is an absolutely horrible, vile, disgusting thug that's a walking human rights nightmare?This, comrades, is the face of today's Russia."

As to the issue of the extradition of Andrei Lugovoi to stand trial in Britain for the murder of Alexander Litvinenko, Putin said "it's all stupid, stupid nonsense."

China: Defense Secretary Robert Gates struck a conciliatory tone this week, saying the United States and China had the opportunity to "build trust over time." Gates has been trying to present himself as more of a peacemaker compared to his predecessor, Donald Rumsfeld.

Axel Berkofsky of the European Policy Centre opined in the South China Morning Post.

" 'China has not started any wars lately,' wrote Financial Times columnist Gideon Rachman in February, pointing to Beijing's competitive advantage over the U.S., whose Iraq misadventure is making sure that Washington's international image deteriorates on a daily basis. Not having invaded other countries is admittedly not a bad point of departure for a nation that has made a 'peaceful rise,' the 'democratization of international relations' and the establishment of a 'harmonious international society,' the mantra of its regional, global and foreign-policy strategies.

"Back in the real world, we might not have seen all the small print and details on China's foreign, economic and energy- security policy agenda, argues Hugo Restall, editor of the Far Eastern Economic Review in the magazine's latest edition. 'The West now needs to face the possibility that it has welcomed a Trojan horse into the international community,' he writes, suspecting that we know relatively little about Beijing's 'real' foreign-policy goals, except the obvious: 'China is ready to re- establish primacy in Asia.'

"Whereas the U.S. and the European Union mainly react to international developments and a crisis these days, China's political leaders are planning on shaping world events in as many areas and continents as possible. Indeed, there is a deadline for almost everything on Beijing's policy agenda, and the list of long-term plans outlining policies and strategies is growing."

One item I'm becoming obsessed with the past few weeks is China's maneuvering in the South Pacific and its attempts to gain influence in that theatre, as in the story of the island of Yap that I wrote about the other day. Any student of history understands the dangers to U.S. interests. Japan spelled it out during World War II.

On the environmental front, the Chinese government released its first national strategy on climate change, but it rejects mandatory caps on emissions, even as China in the next year or so is slated to become the biggest emitter of greenhouse gases on the planet. Beijing did spell out that renewable energy is to comprise 10% of the power supply (now almost all coal) by 2010.

China is attempting to balance the reality of its huge environmental problems with continued growth to keep the people happy. The problem is, these two items are already colliding and the regime has to be scared to death. This past week there were massive protests over a proposed chemical plant in Xiamen (in my province of Fujian) because the natives believe it will be toxic and potentially explosive. [They are right on both counts.] We've already seen other large-scale protests over water pollution. These demonstrations are only going to increase significantly over the coming 12-24 months and the immediate issue is, can the government tamp them down enough at least through the staging of the 2008 Olympics.

Taiwan: Former President Lee Teng-hui stirred up the region when he appeared at Tokyo's Yasukuni war shrine, Lee's brother having died fighting for the Japanese during World War II when Taiwan was a Japanese colony. The controversial shrine honors soldiers from both Korea and Taiwan that fought with Japan, though Lee said his visit was totally personal and not meant to be political. Beijing, however, didn't see it that way.

More importantly for Taipei, Costa Rica broke off ties with Taiwan and established relations with China, a big blow as Taiwan seeks to maintain international legitimacy. It's feared (and expected) that Nicaragua, Panama and El Salvador could follow, these being among the last to recognize Taipei. [China won't have diplomatic relations with any country that already accepts Taiwan.]

Israel: Ralph Peters had the following thoughts on the 40-year anniversary of the Six-Day War in an op-ed for the New York Post.

"June 1967 announced Israel as a regional great power - less than 20 years after the state's desperate founding. And the Six- Day War remains more important today for what it achieved than for the Arab failures it left behind.

"We Americans face a fundamental problem in interpreting Israel's history: We imagine that every problem has a solution, if only we can figure it out. But there are no solutions - none - to the Middle East's problems, short of atrocities too horrific for us to contemplate. Israel may dream of peace, but must be content to survive and muddle through. An erratic ebb and flow of violence may be as good as the region gets.

"The Six-Day War didn't create the Middle East's problems, it only changed the math. For Israel, it marked a coming of age. Taken together with the Yom Kippur War six years later - two rounds in a single fight, really - the war of June 1967 meant the end of Israel's basic struggle for existence and the beginning of its 'quality of life' wars.

"We also forget that these two intertwined wars in 1967 and 1973 resulted in four decades of de facto peace between Israel and the Arab states it had fought in four wars. Intifadahs make great TV, but they can't destroy Israel.

"In the real world, outcomes aren't perfect. There are no wars to end all wars. The proper question is, 'Are you better off than before the shooting started?' Judged by that common-sense standard, Israel is vastly better off than it was on the eve of the Six-Day War. Thanks to the heroes of June 1967, Israel survived. Miracle enough."

In the here and now, Turkey is urging Israel to talk to Syria to at least "test the waters," as a senior Western diplomat told the Jerusalem Post. What's different here is that the Turks have real credibility with the Israelis, having had good relations over the years. Turkey has always been willing to act as mediator. Washington, however, does not want the Israeli government talking to Syrian President Bashar Assad at this time.

North Korea: Pyongyang test-fired two short-range missiles off its coast, the second such incident in about two weeks.

Unbelievably, the $25 million in funds sitting in a Macau bank is still frozen, according to reports. Until it's released, North Korea maintains it doesn't have to follow through on the shutdown of the Yongbyon nuclear reactor.

Saudi Arabia: Caution?it's time to pat myself on the back. I make some admittedly over the top comments from time to time, only to be proven right later. Case in point, Prince Bandar bin Sultan, the man who all the way back in Oct. 2001, I labeled "Prince Bandar bin Dirtball."

So what have we learned this past week? That this slimy figure, who had the ear of American presidents of both parties for 22 years while ensconced in Washington as Saudi ambassador to our country, was paid "$billions" in kickbacks to secure contracts with British defense giant BAE Systems, money that then flowed into his Washington, D.C., Riggs Bank account. Both the BBC and The Guardian newspaper reported that Bandar was receiving about $200 million a year from BAE for over a decade.

You'll recall that last December, British Prime Minister Tony Blair abruptly cancelled an investigation by Britain's Serious Fraud Office into BAE's ties to Saudi Arabia because, as Blair reiterated at this week's G-8 summit, it "would have involved the most serious allegations in investigations being made into the Saudi royal family, and my job is to give advice as to whether that is a sensible thing in circumstances where I don't believe the investigation would have led anywhere except to the complete wreckage of a vital strategic relationship for our country."

Parliament, however, now wants the investigation reopened, while BAE's takeover of a U.S. defense contractor could be in jeopardy due to the disclosures. Prince Bandar bin Dirtball issued a statement denying the charges.

Spain: The Basque separatist group ETA formally ended its 15- month-old ceasefire and warned Spain's government of new attacks "on all fronts." ETA has killed more than 800 in four decades of armed struggle for independence of the territory straddling northern Spain and southern France, but most Basques do not want to secede from Spain.

While hundreds of ETA terrorists have been arrested over the years, including the leader on Friday, the threat is significant and a sign that other home-grown terror groups across Europe could be undergoing a resurgence. Both Spain and France, in particular, are also extremely concerned about the prevalence of North African terrorists in their midst. I'm just not real optimistic about Europe getting through the rest of this year unscathed.

India: Talks on the U.S.-India nuclear deal broke down without the two sides having resolved their remaining differences, though both remain optimistic. The key sticking points pertain to the reprocessing of spent fuel and further nuclear weapons tests. The Indian government has steadfastly maintained it will not accept any restrictions that impinge on its sovereignty.

Caribbean: The four Muslim men arrested in the JFK Airport terror plot all have ties to Islamist groups in Trinidad & Tobago and Guyana. But some of them appear to have ties to Iran as well, perhaps through contacts in Venezuela. A few commentators this week thus had their "Ah ha!" moment. "Iran has influence in our hemisphere through Venezuela!"

But you, dear readers, have been on top of this as I told you long ago what was going on in the region.

"So I'm reading the Santiago Times and I see a note that Bolivia is in the process of building 24 military bases, paid for by Venezuela and Hugo Chavez, on its borders with Peru, Brazil, Paraguay, Argentina and Chile as a way of promoting Bolivian- style revolution. Isn't that super? It certainly has Chile's attention. Now what other conclusion can you draw by this news if you believe the theory I've been throwing out the past few months? Iran could eventually have advisors at the bases."

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

"(In) reading various editorials and reports on the Iran/Venezuela relationship, including from the Wall Street Journal and New York Times, I still can't believe most folks don't seem to get it. There is zero talk of Iranian agents infiltrating not just Venezuela but other compliant Latin American countries as well."

Cuba: Fidel Castro appeared to be pretty darn healthy as he addressed his people on television the other night. Castro said nothing, however, about going back to work.

I'll tell you what's truly pitiful, though. Early this year there were all kinds of stories Castro was near death, citing our intelligence agencies. But I wrote on 12/30/06, and have maintained ever since, "Castro will not die" this year. At this point, regardless of what happens to him the balance of '07, I'm declaring victory over the CIA on this one.

**Finally, last week I hinted at a "Black Diamond" commentary for this review and I need more time due to other issues of import that came up. I promise to go into my theory in full next week, but I've offered hints in the above discussions on Russia and China in particular. It's also about business spending and the importance of the hot spots I continue to emphasize with each review.

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