Educate Yourself

Week in Review
For the week 6/18/2007 - 6/22/2007
Brian Trumbore
President/Editor, StocksandNews.com

This Monday, Israeli Prime Minister Ehud Olmert, Palestinian President Mahmoud Abbas, Jordan?s King Abdullah and Egyptian President Hosni Mubarak are set to meet at Sharm El- Sheikh, with Mubarak then holding talks with Saudi King Abdullah the next day.

All parties have their own concerns, including Mubarak?s over a Hamas stronghold in Gaza that could boost the Muslim Brotherhood, Egypt?s strong opposition movement. They also can?t be thrilled at Iran?s link to Hamas.

?Fatah?s security forces in Gaza outnumbered the Hamas gunmen. Fatah had stockpiles of weapons and military gear (now in Hamas? arsenal). Fatah even had the quiet backing of Israel and America.

?Hamas won because its fighters are religious fanatics ready to die for their cause. Fatah runs an armed employment agency under the banner of Palestinian nationalism. Most of the latter?s security men are on the payroll because relatives or ward pols got them jobs. And they want to stay alive to collect their wages.

?The result was predictable. Our government pretended otherwise. Now hairs should be standing up on the backs of thousands of necks, from the White House to the Green Zone.

?Yes, Iraq is more complex than Gaza. But once you pierce the surface turbulence and look deep, the similarities are chilling: Iraq?s security forces do include true patriots ? but most of the troops and cops just want a job, or were ordered to join up by a sheikh or a mullah, or are gathering guns until their faction calls.

?The al Qaeda in Iraq terrorists, the core members of Moqtada al-Sadr?s Mahdi Army and the hard-line Sunni ghazis are willing to die for the victory of their faction and their faith. They believe they?re doing Allah?s will. It gives them a strength we rush to explain away.

?The raw numbers suggest that Iraq?s fanatics don?t stand a chance. The government has a far greater numerical advantage than did Fatah. But numbers often mislead analysts during insurgencies: Iraq?s government wouldn?t last a week without U.S. troops.

?The lesson from Gaza is that such wars are neither waged nor won by the majority of the population. A tiny fraction of the populace, armed and determined, can destroy a fragile government and seize power.?

?America and its Middle Eastern allies have every reason to panic. The green flags of Hamas are furling over Gaza and the Fatah forces trained and financed by the United States have ignominiously fled. Fears are rife that Iranian-backed and Syrian-hosted terror will next achieve dominance over the West Bank and proceed to undermine the pro-Western governments of Lebanon, Jordan, Egypt and the Gulf.

?To avert this catastrophe, the U.S. has joined with the Israelis and the Europeans in resuming the flow of hundreds of millions of dollars in financial aid to the Palestinian Authority under the leadership of its Fatah president, Mahmoud Abbas, and accelerating talks for the establishment of a West Bank Palestinian state. The goal is to provide Palestinians with an affluent, secular and peaceful alternative to Hamas, and persuade Gazans to return to the Fatah fold. But the policy ignores every lesson of the abortive peace process to date as well as Fatah?s monumental corruption, jihadism and militancy. Indeed, any sovereign edifice built on the rotten foundations of the Palestinian Authority is doomed to implode, enhancing, rather than diminishing, Hamas?s influence?.

?In view of its performance over the past 14 years, the Palestinian Authority under Fatah can be counted on to squander most or all of the vast sums now being given to it by the U.S. and the international community. More gunmen will be hired and better weapons procured, but in the absence of a unified command and a leadership worth fighting for, PA soldiers will perform no more credibly than they did in Gaza. Mr. Abbas will continue to denounce terror while ignoring the terrorist units within his own organization, while PA imams will persist in preaching their jihadist sermons.?

Ahmed Yousef, political adviser to Hamas leader Ismail Haniya (the deposed prime minister) was given space in both the New York Times and Washington Post. The following is from his Times op-ed.

?Our stated aim when we won the election was to effect reform, end corruption and bring economic prosperity to our people Our sole focus is Palestinian rights and good governance. We now hope to create a climate of peace and tranquility within our community that will pave the way for an end to internal strife and bring about the release of the British journalist Alan Johnston, whose kidnapping in March by non-Hamas members is a stain on the reputation of the Palestinian people.

?We reject attempts to divide Palestine into two parts and to pass Hamas off as an extreme and dangerous force. We continue to believe that there is still a chance to establish a long-term truce. But this will not happen unless the international community fully engages with Hamas.

?Any further attempts to marginalize us, starve our people into submission or attack us militarily will prove that the United States and Israeli governments are not genuinely interested in seeing an end to the violence. Dispassionate observers over the next few weeks will be able to make up their own minds as to each side?s true intentions.?

Mr. Yousef?s comments, if the subject wasn?t so serious, would almost be laughable, seeing as Hamas continues to call for the eradication of Israel in virtually all other public pronouncements. Yousef and his organization will no doubt continue their offensive, even as new Israeli Defense Minister, and former prime minister, Ehud Barak is preparing a massive counterattack on Gaza.

Israel is now surrounded by Hamas, Hizbullah and Syria, with Jordan?s own massive Palestinian population alongside as well. But while there won?t be any kind of long-lasting peace in the region in our lifetime, the best hope is lengthy truces. Towards that end, it?s not a bad idea to appoint Tony Blair as special envoy to represent the U.S., EU, UN and Russia in the region. [These four are also meeting next week.] You still have to talk, after all, though now it?s up to Abbas and Fatah to take advantage of their last lifeline and become the ?genuine partner? Israel?s government has longed for.

As for Iraq, the U.S. military under General David Petraeus is clearly on the offensive, and on a wide scale, leaving many of us to wonder why we didn?t ?surge? years ago. But, as witnessed this week, the casualties the U.S. takes could be substantial and the strategy is running right into a political timetable; September and Petraeus? report to Congress on progress in Iraq. You already know what he?s going to say.

?We have made substantial progress over the past four months in dealing with both al Qaeda and the insurgency. Stability has been brought to once violent provinces such as Anbar. But this has come at a cost to the U.S. military. Unfortunately, this was predictable as al Qaeda and the militants sought to influence debate in America.

?There are no guarantees in this business, but if we pursue the path we are on, we can continue to pacify the country, improve the lives of the Iraqi people and give them hope for a brighter future. Iraq can yet be a model for peace and stability in the region.?

At which point Democratic members of Congress, as well as some Republicans, will ask Petraeus about the lack of commitment on the part of Iraqi leaders and whether or not there can ever be a unified and stable nation without real progress towards political reconciliation.

Petraeus will then say, ?Senator, I?m a soldier and all I can tell you is that real progress is being made with the charge I was given. I can also say we?re creating the conditions for the politicians to finally reach agreement on the issues confronting them.?

But Petraeus and the Bush administration will not be given an open-ended timetable as the pressures of the presidential campaign, on both sides of the aisle, take precedence over a lame duck, and unpopular, White House.

In George Will?s column for the Washington Post last Sunday, Will related a tale from Oregon Republican Senator Gordon Smith, who has lost faith in his president?s leadership.

?In Iraq last month, Smith was dispirited by the contrast between meeting with inspiring U.S. troops and meeting with grim members of the Iraqi parliament. When the parliamentarians gave a dusty answer to his question about the length of the summer vacation they might take, he said: I want you to go ? if you will first pass legislation allocating oil revenue. Their response, he says, was to show pictures of people slaughtered in the parliamentarians? neighborhoods. They were, he says, bent ?on revenge, not reconciliation.??

Lastly, with regards to Iran, it seems inevitable that we are headed towards military conflict, having reached the point of no return in terms of Iran?s nuclear weapons program. You may have noticed I stopped pleading for an end-run of President Ahmadinejad months ago because it is too late.

That doesn?t mean the Iranian people couldn?t yet rise up and take down the mullahs, but you?ve noticed a full-scale crackdown on dissent across the country and any protests against the ruling elite will be brutally repressed. [The government, by the way, still hasn?t implemented the gasoline price hike and rationing that I talked about. While it?s hard to get all the facts, it appears rationing is only in place for government vehicles while the price hike to date has been far less than anticipated. Why? Clearly, Ahmadinejad and his allies are concerned about civil unrest should they attempt to adopt sterner measures.]

Back to Israel, when it comes to Iran it cannot afford to let the mullahs get the bomb, plain and simple. An attack is a foregone conclusion; if not this year, certainly in 2008. To believe otherwise simply isn?t dealing with reality.

Next week represents the end of the first half of ?07 and I want to save some commentary for that time, but for now we have this issue of Bear Stearns and two of its imploding hedge funds that specialize in mortgage debt securities related to the subprime sector as well as other types of paper, including toxic derivatives.

?But, Editor, I thought the subprime mortgage debacle was an isolated event,? you might be musing. ?At least that?s what all manner of Federal Reserve and Treasury officials have been telling us.?

Au contraire, mon frere. Aside from my dictum, ?wait 24 hours,? what are some of my other favorites?

?Not all of these guys putting these deals together are smart.? ?They don?t often know what they own and the securities haven?t been stress-tested.? And, ?They don?t know who?s on the other side of the trade.?

In a nutshell that?s the world of derivatives and collateralized debt obligations these days and every so often we all have to relearn our history, just like the good folks at Long-Term Capital did, and they had a few Nobel Prize winners on their staff to boot.

As of this writing, I really have no clue myself what is going on with the Bear Stearns fund positions as traders and portfolio managers at the likes of Merrill Lynch, Lehman Brothers and JP Morgan Chase run around like chickens without their heads, attempting to place some of their holdings with other unsuspecting schmucks, or hide it under the desk, hoping their boss doesn?t ask about it.

Of course the problem is, as alluded to above, no one knows what the stuff is really worth, especially since it wasn?t designed to be disposed of in a fire sale environment. For now, Bear Stearns says it will provide up to $3.2 billion in financing in an attempt to stabilize the situation in one of the two funds, with the other still under severe stress. While we learn more over the coming days, though, the broader question is whether this is just an isolated event? The odds are it isn?t.

Steven Rattner of private equity firm Quadrangle Group wrote of the coming credit meltdown in the high-yield sector in an op-ed for the Wall Street Journal.

?The subprime mortgage world has been reduced to rubble with no lasting impact on another, larger, credit market dancing on an equally fragile precipice: high-yield corporate debt. In this fast- growing arena of loans to business?lending proceeds as if the subprime debacle were some minor skirmish in a little known, far away land.

?How curious that so many in the financial community should remain blissfully oblivious to live grenades scattered around the high-yield playing field. Amid all the asset bubbles that we?ve seen in recent years?the current inflated pricing of high-yield loans will eventually earn quite an imposing tombstone in the graveyard of other great past manias.?

The bottom line is junk bonds are trading at the smallest risk premiums in history, less than half the normal margin, while at the same time we don?t need a full-blown recession to wreak havoc with some balance sheets. As Rattner notes, even ?a mild breeze could topple a few, causing the value of many leveraged loans to tumble as shaken lenders reconsider their folly,? though as he also concludes:

Speaking of bubbles, Kevin Duffy of Bearing Asset Management had a great line in Barron?s in describing today?s global financial environment.

Noted strategist Marc Faber picked up the ball in an op-ed for the Financial Times.

?Asset prices have soared in value everywhere in the world since October 2002. Prices of stocks, commodities, real estate, art, and every kind of totally useless collectible have shot up. Even bond prices have until recently gone up as interest rates fell.

?That all asset classes have increased in value simultaneously around the world is most unusual. Previous asset bubbles were concentrated in just one or a few asset classes?.But the beauty today is that every kind of asset is grossly inflated. How could this happen?

?Already ahead of 2000, the U.S. Federal Reserve pursued an ultra-expansionary monetary policy. Then, after the March 2000 peak in the Nasdaq, the Fed eased monetary conditions massively. All asset prices soared, particularly for U.S. homes. A subsequent boom in refinancing and home equity extraction injected an overdose of adrenaline into consumption-addicted U.S. households. Thus, the U.S. trade and current account deficit soared from less than $200 billion in 1998 to above $800 billion?.

?In a credit, and hence asset price-driven economy, money supply and credit must continue to grow at an accelerating rate in order to sustain the expansion.

?The moment credit growth no longer grows at an accelerating rate, the economic plane loses altitude. This is now the case. Not because the Fed has tightened credit but because the market has done so by tightening lending standards for mortgages because of the subprime lending collapse. Contracting liquidity and less consumption in the household sector follows.?

And that?s where I?ll pick up the story next week as we look ahead to the second half of 2007. It?s also report card time.

--Volatility has picked up considerably the past month, witness the weekly percentage gains and losses for the Dow Jones; +1.2%, -1.8%, +1.6%, -2.1%...with the last figure being this week?s action as the Dow fell back to 13360 while the S&P 500 lost 2.0% and Nasdaq declined 1.4%.

But I?d be remiss if I didn?t at least mention the Blackstone Group?s IPO on Friday. Priced at $31 a unit, the shares started trading north of $36 and settled at $35.10, for a still successful opening day. CEO Stephen Schwarzman?s stake was worth about $10 billion when he went home for the weekend. He might as well throw himself another party?.maybe get Paul McCartney, Eric Clapton, Bono and Brian Wilson to do a little jamming, just for the hell of it.

The Blackstone offering hit the market even as legislation working its way through both houses of Congress would hike the tax rate on Blackstone and similar firms to 35% from the current 15% level. But this move has a ways to go before anything is enacted and there could be various transition periods and exemptions.

The yield curve steepened some between the 2- and 10-year as there was a bit of a flight to quality in the former the latter part of the week over the Bear Stearns situation.

But this coming week brings another Federal Reserve meeting, and while no one expects a change in interest rate policy, a slight modification in the accompanying statement could be in the offing.

--Aside from the Fed meeting, next week also brings the latest on new and existing home sales. Homebuilder confidence is at a 16-year low, while UCLA?s Anderson Forecast notes ?weakness in the housing market is finally spilling over into consumption spending.? Upcoming mortgage resets will help keep the housing sector down.

--World trade talks collapsed again. India and Brazil accused the U.S. and the European Union of arrogance and inflexibility, while the U.S. and EU said Brazil and India offered no real access to manufactured goods markets in return for reductions in farm subsidies.

--The Senate voted 65 to 27 to require car manufacturers to increase fuel mileage standards; to 35 miles per gallon by 2020 for new cars and light trucks compared with 25 today. It?s about time. But on the issue of increased use of renewable fuels, while a target has been set, few tax breaks and subsidies were included in a victory for the oil companies. Big Oil also avoided new taxes on its operations. However, it?s not likely the House will get around to its own version until later in the year and even then, compromise isn?t certain.

--The U.S. Supreme Court ruled in favor of Wall Street and against shareholders on two significant cases this week. On Monday, the justices ruled 7 to 1 that securities underwriters were generally immune from civil antitrust lawsuits in a case that originated from the Internet bubble/IPO days. The court noted the SEC was responsible for policing shareholder complaints. This was a big win for the likes of Credit Suisse, Goldman Sachs and Morgan Stanley who had been accused in a class action of conspiracy to drive up IPO prices.

In the second ruling, this time by an 8 to 1 margin, the Supreme Court ruled that investors must show ?cogent and compelling? evidence of intent to defraud; such as in a company?s earnings projections. Both rulings relax some of the provisions of 2002?s Sarbanes-Oxley Act and were supported by the Bush administration in response to Wall Street?s complaints it was losing business to overseas competition because of the costs involved in class-action litigation.

--BP ceded its holdings in a $20 billion Russian natural-gas project to state-controlled Gazprom in the Kremlin?s latest move to take total control over all of its energy assets.

[Check my ?Wall Street History? link for a summary of the global supply and demand picture for crude oil. I?ll have much more next week as well in this space.]

--Airbus finally received some good news in the form of major orders at the Paris Air Show, some $45.7 billion worth, including from US Airways. Airbus even received orders for its 555-seat, twin-deck flying wiener, the A380.

--Treasury Secretary Henry Paulson, in his attempt to avert protectionist legislation targeting China, said ?As the world opens its doors, we must resist the sentiment that favors economic isolationism; this is not the time to retreat from the principles which have made America so strong and competitive.?

But Congress has its own ideas and Paulson admits the pace of reform in China has been slow. Morgan Stanley?s Stephen Roach recently echoed a common refrain; that a trade war is the biggest threat to global economic growth. The latest figures show China?s exports expanding by 29%, while imports rose 19%. A key is to get the Chinese consumer to spend more, which would help alleviate some concerns in Congress.

--The battle between growth and the environment continues to heat up in China. The government is worried about restrictions on growth resulting from changes in emissions standards, for example, while your editor, owning shares in a biodiesel plant there, is thinking ?Cleaner gasoline for a cleaner future!?

[I am not going to keep commenting on my holding, as I?ve said in the past, but just know I was in touch with the CFO this week and I am not concerned by the price action. Nothing has changed in terms of the company?s long-term prospects.]

--According to a Dutch study, China is now the #1 emitter of greenhouse gases in the world. Chinese officials questioned the findings.

--Yahoo?s Terry Semel was forced to step down as CEO after the vote of no confidence in his leadership from shareholders. Co- founder Jerry Yang assumes control.

--New Jersey is the nation?s leader in mortgage fraud. From Ted Sherman of the Star-Ledger.

?The house in Manalapan went for more than $1 million. And that was only the first time it was sold.

?Within days of the first deal, the same buyer and seller closed on at least two additional mortgages on the house ? each time using different attorneys, title agents and banks who had no clue the property was already mortgaged to the hilt ? illegally obtaining millions more in financing.

?The money was being wired out of the country when the scheme came to light two weeks ago.?

Other cases of fraud involve obtaining home equity loans after ?purchasing? the property.

--Inflation Watch: A week after the Wall Street Journal announced it was hiking its daily price to $1.50 from $1.00, the New York Times said the price of its daily will jump from $1.00 to $1.25, with the Sunday edition rising from $3.50 to $4.00. The Times is also going to be slashing the width of the paper.

--Deflation Watch: The average round-trip domestic airline ticket has dropped 2% this summer from last year thanks to the fact the airlines have added more seats while demand has been slightly less than expected.

--In 1999, Jake Winebaum and Sky Dayton paid $7.5 million for the domain name business.com; the highest price paid for a name at that point. Now it?s reportedly on the auction block for $300 million to $400 million. The site is currently generating significant revenue.

--GE abandoned talks with Pearson (publisher of the Financial Times) about a possible joint bid for Dow Jones & Co., meaning Rupert Murdoch?s News Corp., publisher of the tabloid New York Post, is one step closer to treating Wall Street Journal readers to screaming headlines such as this:

?Schwarzman Chokes On $400 Crab Claw!!!! Food Dislodged By Butler!!!!.........hovering heirs had been hoping for $billions but are forced to wait?

--According to the Travel Business Roundtable, overseas visitors to the U.S. have dropped 20% since 2000. The impact is felt in places like Disneyland, where overseas traffic is down 21%. From 2000 to 2005, the number of foreign visitors to Boston was off 39%. [Commerce Department/L.A. Times]

--In case you wondered how much an English Premier League football team costs, deposed Thai prime minister Thaksin is purchasing Manchester City (not to be confused with Manchester United) for $162 million. The military council that overthrew Thaksin in a coup said the billionaire can do whatever he wants with his money. English soccer has a new television deal worth $5.3 billion over the next three years, with the 20 teams in the league sharing the revenue equally. However, past owners have paid up to seven times more just trying to stay competitive after purchasing a squad. And that?s your football/soccer report for the week.

--And in case you were wondering what Dick Clark?s assets were valued at, Washington Redskins owner Daniel Snyder acquired Dick Clark Productions for $175 million. So Snyder now controls the likes of American Bandstand, The American Music Awards, The Golden Globes, The Academy of Country Music Awards and Dick Clark?s New Year?s Rockin? Eve.

Snyder, who already owns the Six Flags theme park chain, sees a tie-in with his Johnny Rockets? restaurants and Bandstand videos. Clark, 77, will continue to co-host the New Year?s Eve show with Ryan Seacrest.

--Next week, it?s all about Apple and the rollout of the iPhone on June 29. No doubt there will be an absolute crush at Apple stores. Probably a good idea to wait a few days?.you really can go without it until the following week, you know.

--We note the passing of sausage/restaurant king Bob Evans. Starting with a tiny diner in Gallipolis, Ohio, by 1953, Evans formed Bob Evans Farms, specializing in quality sausage, and expanded to 579 restaurants in 18 states (plus another 115 under the Mimi?s Caf? name) which generate in excess of $1.6 billion in sales. Evans was 89.

North Korea: U.S. envoy Christopher Hill met with his counterparts in Pyongyang for the first time since Oct. 2002. After two days of talks, Hill said the North would ?promptly? comply with terms of the Feb. 13 deal to shut down the nuclear facility at Yongbyon, supposedly in about three weeks. If so, the North would receive 50,000 tons of fuel oil when confirmed. It would not receive another 950,000 until it fully disables the entire nuclear program.

But before you get too excited (not that I imagine any of you are rushing to crack open the good stuff on the news), we?re still dealing with North Korea here and there is little likelihood the goons are going to give up their weapons anytime soon. Plus, Japan does not want to participate in a new round of six-party talks unless Pyongyang comes clean on a dozen Japanese abducted by the North Koreans. And I saw nothing on the health of Kim Jong il.

[Also remember?at some point down the road, either peacefully or by force, North Korea will become the new low-cost producer of goods in the world. This will create its own tensions.]

Afghanistan: Dreadful week here as the scale of the Taliban?s attacks widened, including the largest suicide car bomb yet that killed 35 in Kabul. NATO air attacks also killed 25 civilians on Friday in the latest incident of this kind that obviously hurts in the ongoing efforts to win over the hearts and minds.

Lebanon: The Army announced the siege of the Palestinian refugee camp near Tripoli is essentially over, though at least 75 Lebanese soldiers lost their lives. On a broader scope, Peter Brookes of the Heritage Foundation had some thoughts in a New York Post op-ed that I tend to agree with.

?The United States, Europe and Arab states need to act immediately to shore up the embattled pro-Western democratic Lebanese government. Syria, which occupied Lebanon from 1976 to 2005, and Iran, which controls Islamist-terrorist Hizbullah, with help from al Qaeda, already have Lebanon under siege?.

?And Syria and Iran have re-armed Hizbullah since last summer?s war, too ? so (Hizbullah leader) Hassan Nasrallah?s thugs are ready to go against either Israel or the Beirut government, if given the green light from their Tehran and Damascus masters.

?Lebanon is clearly nearing a tipping point. The Siniora government may be able to hold out, fighting on multiple fronts, both politically and militarily, against determined foes sponsored by rogue states.

?Or the joint efforts of al Qaeda, Hizbullah, splinter groups, Iran and Syria could bring the country to its knees, putting an end to the progress ? albeit halting ? Lebanon has made since throwing off the shackles of Syrian occupation?.

?States with a stake in Lebanon need to get on the stick ? with a lot more than rhetoric ? to prevent Lebanon from succumbing to Islamist/Syrian/Iranian aggression.?

Brookes has an excellent idea; have an aircraft carrier on the Lebanese coast, preferably a French one, that would signal French President Nicolas Sarkozy?s new foreign policy.

Russia: President Vladimir Putin blasted the West for attempting to make Russia feel guilty about ?black pages? in its history.

Putin said ?Others cannot be allowed to impose a feeling of guilt on us. Let them think about themselves.? Then he took a direct shot at the U.S. in referring to the dropping of atomic bombs and Vietnam.

?We did not use nuclear weapons against a civilian population, nor did we pour chemicals over thousands of square kilometers and drop seven times as many bombs as were dropped in World War II on a small country, as took place in Vietnam. We did not have other black pages, like, for example, Nazism.? [The Moscow Times]

As for Sergei Ivanov, Putin?s possible successor, his approval ratings are soaring, evidently, as Putin has sought to showcase Ivanov in various forums. The two served together in the KGB in St. Petersburg. But I learned in a London Times interview with Ivanov that he is a Beatles, Pink Floyd and Led Zeppelin fan, plus, unlike the teetotaler Putin, he favors red wine and vodka. I would strongly suggest that the next president of the United States be one who drinks as well because he or she is going to have to deal with this man.

[Speaking of teetotalers, I see where French winemakers are concerned that new President Nicolas Sarkozy doesn?t imbibe. It hurts the image, you understand.]

Lastly, as Fred Hiatt writes in an op-ed for the Washington Post, ?If Putin is so popular, and Russia so content, why does the Kremlin feel it must script the nightly news so tightly on national TV? Why the striking lack of confidence??

Pakistan: There are conflicting stories whether former prime ministers Nawaz Sharif and Benazir Bhutto, both in exile, have formed a power-sharing arrangement in case President Pervez Musharraf allows them to return for upcoming elections. For his part, Musharraf is convinced his party can win, regardless, nor should anyone expect him to give up both the presidency and the chief of army positions anyway.

Plus, Pakistan is building a new nuclear reactor that a U.S. watchdog group, the Institute of Science for International Security, said implies Pakistan has decided to ?increase significantly its production of plutonium for nuclear weapons,? thus accelerating an arms race between itself and India.

Zimbabwe: Talks between President Robert Mugabe?s ruling party and the opposition have broken off as once again there are growing signs of a coup. It?s already too late, of course. While the official inflation rate is now 4,500 percent, many say it is closer to 12,000 percent and heading higher still. From Alec Russell of the Financial Times.

?(The) market rate of the U.S. dollar is Z$300,000. At such a rate diplomats point out it will soon be all but impossible for Mr. Mugabe to continue to dispense patronage to his supporters by offering U.S. dollars at the official rate of Z$250 to $1, precipitating a possible showdown with senior figures in his party.?

Industrial output is now half what it was in 2000, and only 5 percent of businesspeople are optimistic about the future.

Britain: I love Queen Elizabeth, but for the life of me I?m trying to figure out why author Salman Rushdie has been knighted; Rushdie, after all, being the source of totally unreadable books that tend to offend Muslims.

It was Iran in 1989 that issued a fatwa against Rushdie and his book ?The Satanic Verses,? calling for his execution, but this week Pakistan seemed almost as offended as the national parliament passed a resolution condemning the award.

Granted, in 1998, the Iranian government said it would no longer support the fatwa, but at this point in time I see zero reason to give extremists yet another excuse to create mischief and recruit miscreants. And sure enough, a group of hard-line Pakistani clerics on Thursday bestowed a special title on Osama bin Laden in response, the Sword of Allah.

Italy: In case you were wondering, the Mafia killed only 121 last year, compared to 340 in 1992. Italian officials attribute part of the decline to a shift toward less-violent activities such as money laundering.

Pray for the men and women of our armed forces. And for the families of the nine firefighters who perished in Charleston, S.C.

Dow Jones -2.1% [13360]
S&P 500 -2.0% [1502]
S&P MidCap -1.7%
Russell 2000 -1.6%
Nasdaq -1.4% [2588]

Bulls 53.3
Bears 18.9 [lowest since 7/2/04?Source: Chartcraft / Investors Intelligence]

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.