Week in Review 
For the week 7/2/2007 - 7/6/2007
Brian Trumbore
President/Editor, StocksandNews.com

Wall Street

Well, nothing like a little dumb legislation to spoil the party, see also Smoot-Hawley and the Great Depression. Only this time we're talking China and sweeping protectionism, as well as an incredibly stupid movement to allow members of OPEC to be sued under U.S. antitrust laws. Oh yeah, it's great for votes and I imagine a vast majority of you on first blush might be thinking, what's wrong with these two initiatives, editor?

And let's face it, China is under the gun these days, not just because of its currency that gives them an unfair advantage, but also because of a sudden surge in defective products. While in dealing with OPEC, it's pretty hard to defend them under any circumstance, I'll grant you that. But just remember one thing. Oil is a product, just like Farmer Joe's corn. Both can sell it to anyone they want and it's the market that determines the price. If you want to reduce the price of oil, you have to stop using it. Now ask me if this is possible over the, oh, next 30 years.

Both China and OPEC would retaliate by seizing American- owned property and, in the case of OPEC, first taking a short- term hit to profits by stopping the sale of crude to the United States, but then accessing its ready markets in China, India and just about everywhere else in the world. And there would be no guarantees that the U.S. could make up the shortfall.

But I'll listen to all sides of this debate and present them over the coming weeks and months. For now, just remember protectionism under almost any guise is dangerous, and at the very least leads to higher prices.

I had to start the column this way because once again some this week were singing "Shangri-La" in their best imitation of The Lettermen, voices soaring, as economic releases on manufacturing, the service economy, and employment were all solid.

Of course at the same time the news on the housing front only got worse, as the disconnect between the bull and bear camps widened. Delinquencies on home equity and auto loans rose to new highs, while the debacle in the subprime mortgage arena, and derivatives thereof, led to a number of hedge funds announcing they were either closing shop or suspending redemptions; the latter being a none too subtle sign of an imminent padlock on the door to prevent investors from taking out their wrath on the offending principles.

Now I've tried hard not to be one to cry wolf with every little hiccup, and in the grand scheme of things, trouble at the $650 million Horizon ABS Fund or $300 million Galena Street offering, even when added to the troubles at the far larger Bear Stearns funds, doesn't in and of itself spell the end of civilization as we know it, but it speaks to some far broader issues, like credit quality and the impact when the ratings agencies finally begin to do their job and throw around downgrades like rose petals at a Bollywood wedding.

The agencies - S&P, Moody's and Fitch - have been holding back on downgrading the mortgage pools, as is their job, even though delinquencies and foreclosures have been soaring on the homes that comprise them. And since the pools have been sliced and diced into instruments known as collateralized debt obligations, understand there is trouble when subprime-related paper comprises 45% of the collateral backing the CDOs, according to Morgan Stanley and Bloomberg.

Also, upon being downgraded, hundreds of institutional investors are immediately faced with a quandary. Are they violating the mandates of their funds by holding the stuff? Chances are, yes. So they have to sell, while everyone else is trying to do the same, and the price goes down?down?down?until some brave soul, or sucker, says, "Hey, at this level it's worth a shot."

Of course I'm oversimplifying (not really), but the important thing to remember is the knock-on effect that a sweeping downgrade of bonds leads to in terms of asset sales by investors, banks and pensions funds. Such movements impact everything, even down to the rates on car loans. It's not just about housing.

And it certainly impacts the current private-equity boom, even if, as Randall Forsyth writes in Barron's, "(They've) been slow to face up to the deterioration in the financing environment for leveraged buyouts."

Forsyth quotes junk bond expert Martin Fridson, who notes a "turning point in leveraged finance has been reached" as dealers cut back on making markets in high-yield (junk) paper. Reduced activity "will remove the buyout premium from stocks," Fridson concludes.

Speaking of the high-yield sector, one of the great portfolio managers, Robert Rodriguez of First Pacific Advisors, said he wouldn't touch junk paper with "a 500- or a 1,000-foot pole." Addressing the Morningstar Investment Conference, he said "It's a fool's paradise. I feel fairly confident, or should I say highly confident, that we will witness another period of time where the spreads in high yield will probably end up setting new all-time high records." How high? Try 1100 basis points over Treasuries, he said?11%. "With what is going on in private equity and the leveraging up there it's setting up the next catastrophe." [Crain's New York Business]

You didn't think I'd end with "Shangri-La," did you?

Street Bytes

--Stocks broke their recent run of one up, one down, and now have a two-week winning streak as the gains were solid, with a holiday sandwiched in between. The Dow Jones rose 1.5% to close at 13611, while the S&P 500 is now back to within 9 points of its all-time high at 1530 and Nasdaq, up 2.4%, is at 2666. Renewed takeover fever was one reason for the rally, as well as the hope that second quarter earnings will once again surprise to the upside as they are released over the coming weeks.

--U.S. Treasury Yields

6-mo. 5.00% 2-yr. 4.99% 10-yr. 5.19% 30-yr. 5.27%

While stocks rallied, bonds swooned. The strong economic readings once again led to the belief that the Federal Reserve won't be lowering rates anytime soon, though few are foolish enough to say the Fed will raise them. I said my spiel last time. You all get a break.

--Oil continues to trade at levels not seen since last summer, above $70, and now gasoline futures are rebounding after a brief respite. But the inventory picture is just fine. So what gives?

It's still largely about sentiment, hot spots (such as Iran and Nigeria?the latter having seen a cut in production of 700,000 barrels per day because of the continuing insurgency there), and the chance of another Katrina.

--Blackstone Group's $27 billion acquisition (including debt) of Hilton Hotels was one of the bigger stories on the week as the private-equity giant will now control about 600,000 rooms worldwide through its ownership in such brands as Doubletree, Embassy Suites, Hampton Inns, and the Waldorf-Astoria, as well as its own LaQuinta Inns and Suites. Blackstone vowed to invest big bucks into Hilton's already aggressive expansion overseas.

But it was the price paid by Blackstone, a staggering 40% premium over Hilton's share price just two days earlier, that raised a few eyebrows. Of course there was also the usual insider-trading activity that accompanies every single one of these deals as the greedy continue to rout the little people.

--Not to be outdone, Blackstone Group rival Kohlberg Kravis Roberts & Co., KKR, filed for an IPO of its own, while a large hedge fund, Och-Ziff Capital Management Group, announced it would sell units to the public, thus continuing a trend first established by Fortress Investment Group back in February.

So while going public presents the likes of KKR with a currency for future acquisitions, the issue is whether or not this rush to the door represents a top? We're close. Maybe one more mammoth deal, aside from Bell Canada, the largest takeover ever in the Great White North, and then we'll all sit back waiting to see if the previous ones actually get their financing. Around Aug. 15, we'll learn of a biggie that isn't getting done and then it's? "Fire!!!!"

--U.S. auto sales continued to suck wind as General Motors' were down a whopping 21% in June from a year ago, while Ford's were off 8% and Chrysler's 1.4%. Toyota's, though, rose once again, another 10%, Nissan's were up 23%, and Honda's grew 12%.

--We all learned this week that in terms of flight delays and the 'official' information we are given on various airlines and airports, "If a flight taxies out, sits for hours, and then taxies back in and is canceled, the delay is not recorded. Likewise, flights diverted to cities other than their destination are not figured into delay statistics." [Jeff Bailey and Nate Schweber / New York Times] Ergo, the situation is far worse than we were led to believe. It's also why yours truly, in case you haven't noticed, limits his own travel during the summer months.

--Being first to warn you about farmed fish from China, I thought you'd enjoy the following from the front page of Friday's Washington Post; a story titled "Farmed in China's Foul Waters, Imported Fish Treated With Drugs."

"The fish are being raised?in a country whose waterways are an ongoing environmental problem, tainted by sewage, pesticides, heavy metals and other pollutants?.

"Batches of seafood traded at the Shanghai fish market this week, for example, carried the tell-tale greenish tinge of malachite green, a disinfectant powder that has been banned in China for five years because it is a suspected carcinogen but is still commonly used."

--This past March, Oracle Corp. accused business software rival SAP of illegally downloading documents from its Web site. Back then, SAP denied this was the case. But now, SAP admits one of its units did indeed make some "inappropriate downloads."

Now this kind of thing happens all the time, let's face it, but what makes this news is SAP going up against not just Oracle, but Larry Ellison; Mr. Ellison not exactly being a nice man.

So while SAP seeks to settle out-of-court, quietly, for its misdemeanor, you can be sure Ellison will do all he can to embarrass the German software king as much as possible. Not helping matters is the fact the U.S. Department of Justice is now seeking information on the case.

Seeing as I have a few friends at SAP, though, and I'm not a fan of Ellison's, I can't claim impartiality. Be strong, gang!

--Real Estate Crash Alert, Part XIX?ripped from the pages of the Wall Street Journal? "Martha Stewart sold her Westport, Conn., estate for $6.7 million - 26% below the asking price."

--Real Estate Bubble, Part CCX?Regardless of the above, Manhattan apartment sales, fueled by the ongoing explosion in pay for those employed by Wall Street, continues to soar; up 103% in the second quarter vs. Q2 '06. You may find this hard to believe, but the average 4BR apartment on the Upper East Side went for over $7 million.

--My sister-in-law Cindy and I were exchanging stories on how it's not just the large homebuilders with problems; the little guys are also getting crushed. I myself am the first owner of my particular townhouse where the developer went bankrupt in the late 1980s and it sat for about five years before I adopted the place and moved in with my beer and Chex Mix. Cindy noted the dirtballs who stopped working on homes in her neighborhood, stiffing her friends of $8,000 to $25,000 in work, while leaving workers unpaid. This is part of the industry, though. Declare bankruptcy and start over again in the next cycle.

--Microsoft announced it would be spending over $1 billion to repair failing Xbox 360 game machine consoles. It is currently the best-selling brand in the U.S., but it's estimated one third of them have had operational issues. Microsoft said it is extending the warranty to three years, worldwide.

--I saw this story in Friday's South China Morning Post and I believe it could be a real biggie once it's better known.

"Mobile phone batteries labeled Motorola or Nokia exploded during safety tests done by the Guangdong provincial government.

"Only 60 percent of the 40 batteries tested passed, with three types labeled 'made by Motorola in China' and one claiming to have been made by 'Sanyo Energy in Beijing' exploding while charging?.

"A welder died in Gansu last month when his mobile phone battery - which was labeled Motorola - exploded. It was believed to be the first fatality on the mainland caused by such an occurrence.

"Mainland media reports said that the battery was a fake. Reports of the accident have sparked widespread concern among mobile phone users."

As if China doesn't already have enough problems.

--China did, however, sentence another former high-ranking official at its food and drug watchdog agency to death. None of this due process garbage, I say.

--McDonald's announced its 155 UK delivery trucks will be run on biodiesel from cooking oil collected from its restaurants by the end of the year.

--This just in?Iran said it will stop producing gasoline-powered cars and produce flex-fuel ones instead. Iran manufactures over one million autos a year. But the government, amidst its current controversial fuel rationing program, wants the changeover to take place in weeks and there is no way they can put the proper infrastructure in at the fuel stations. Oh, those wacky mullahs.

--Bird flu is still simmering. Three swans in eastern France were victims of the H5N1 virus. Then again, if you live in Iowa and don't plan on coming in close contact with swans in France anytime soon, you shouldn't lose any sleep over this.

--Mexican tycoon Carlos Slim (no relation to poker player Amarillo Slim), is now the world's richest man with an estimated net worth of $67 billion, thus passing Bill Gates. Carlos makes most of his money from his monopoly of the Mexican phone industry. [He also has holdings in MCI, CompUSA and Saks Fifth Avenue, among others.]

--Beer makers are losing big bucks on stolen kegs these days, as lowlifes steal them for scrap. For example, a distributor may charge a deposit of $10 to $30, but today you can get $15 to $55 at a scrap yard.

Now in the old days, like when I was in school, kegs made for handy tables and chairs, but these days, it's all about the bucks.

Miller Brewing is an example of just how costly it is for the industry. It counts on kegs lasting 20 years, typically, but a keg costs $150 or so to make. If you lose 30,000, that's real money. [It's estimated 300,000 are lost throughout the entire industry each year.]

--I just love these stories. Back in 1968, a New York art dealer, Ira Spanierman, acquired a painting for $325 at auction. For years, he thought he had a real Raphael but scholars didn't believe it. However, the portrait of Lorenzo de' Medici is indeed real and on Thursday it went for $37 million. Now I'd like to see Blackstone beat that return on investment! Incidentally, it's suspected that the buyer was a Russian. You know, oil money, Maria Sharapova, that sort of thing.

Foreign Affairs

The Middle East:

Ralph Peters / New York Post?a particularly harsh viewpoint

"We're not fighting a single war against terrorists. We're stuck in two. The past few days saw both conflicts hit the headlines. And we're still not serious about either one.

"One war in this global struggle involves Sunni-Arab fanatics, exemplified by al Qaeda, who believe not only that the atrocities they commit will revive the caliphate - a romanticized religious empire - but that their merciless brand of Islam is destined to rule the world.

"Our other fight is with Shia extremists, such as the god- gangsters wrecking Iran, Moqtada al-Sadr's thugs and Hizbullah. Their goals are regional (for now): They want to master the heart of the Middle East and gain hegemony over the world's oil supply?.

"The most effective action we ever launched against Sunni terror was the destruction of the Taliban regime in Afghanistan. We took away the terrorists' safe-haven state?.

"Shia extremists have a safe-haven state, too: Iran. But the Bush administration ran out of steam when Iraq didn't turn into Iowa?.

"Patience isn't a virtue when a hostile government's killing your soldiers. Our timidity only encouraged Iran, which has paid no serious penalties. Tehran has been given free rein not only in Iraq, but also in Lebanon and Gaza.

"An invasion of Iran isn't the answer. But selective strikes against the infrastructure of the Revolutionary Guards, as well as against Tehran's security services, are the minimum needed to get the regime's attention?.

"Our global position isn't eroding because we're stuck in Iraq or because Europeans are mad at us (they're always mad at us). We're losing ground because our leaders, Democrat and Republican, still don't believe we're at war. They live in perfect safety and don't really care if you or your children die, as long as you vote for them.

"If roadside bombs were going off on Capitol Hill, we'd punish Iran ferociously and stop treating captured terrorists like white- collar crooks. But as long as the IEDs only kill and cripple our soldiers and Marines, neither political party gives a damn."

Roger Cohen / International Herald Tribune

"Iran is an ugly regime. Its president, Mahmoud Ahmadinejad, is a foul-mouthed buffoon. But it is also a sophisticated country and the only one in the Middle East with a government far more anti-Western than its generally America-loving population. Placing Iran in the 'axis of evil' and isolating it has served no constructive purpose.

"It is time to put the onus on the mullahs. The United States should propose broad, high-level talks with Iran across the range of issues confronting the two countries - Iraq, Afghanistan, nuclear weapons, Lebanon, Israel-Palestine - while dropping its meaningless insistence that Iran suspend nuclear enrichment activities before talks begin.

"That will test whether the supreme leader, Ayatollah Ali Khamenei, and Ahmadinejad feel they can survive without the 'Great Satan' distraction from acute domestic woes.

"If the answer to the invitation is no, and Iranian-orchestrated attacks in Iraq continue, America should play hardball. Iran, like Iraq, is a multiethnic country. Its Kurds, ethnic Baluchis and other minorities can find money and weapons flowing to them from a 'worthy adversary' of the mullah's regime."

Editorial / Washington Post

"It has been nearly a year since the Hizbullah movement staged an unprovoked raid from southern Lebanon into Israel, killing eight soldiers, abducting two others and triggering a 34-day war in which 1,200 Lebanese and 160 Israelis died. United Nations Security Council Resolution 1701, which ended the war, provided for a greatly strengthened international force to keep the peace in southern Lebanon, along with the Lebanese army. It also mandated the disarmament of Hizbullah, a ban on arms shipments to non-government forces in Lebanon and the clear demarcation of the border between Lebanon and Syria.

"The deployment of the UN force?has helped to prevent further fighting in the past 11 months. But the failure to implement the rest of Resolution 1701 means that war in the Middle East could erupt any day."

As I've been reporting, arms are streaming across the Syrian- Lebanese border thanks to both Iran and Syria, while Hizbullah rebuilds its base of operations.

Washington Post:

"When Resolution 1701 was adopted, Israel urged the Security Council to deploy international forces or monitors along the Lebanese-Syrian border to prevent such weapons deliveries. Intimidated by threats of attacks on UN troops, the council refused. The result is that Syria and Hizbullah once again are positioned to rain missiles on Israeli cities, to wage war on the Lebanese government or to assault the foreign troops deployed in southern Lebanon. The Security Council has been fully informed; will it do anything to prevent war?"

Iraq

Last week I noted the defection of Republican Senator Richard Lugar to the camp demanding an immediate change in strategy in Iraq. Neocons such as The Weekly Standard's William Kristol labeled Lugar's speech on the Senate floor "a frivolous and thoughtless betrayal of our fighting men (and women)."

Kristol:

"Lugar acknowledges that the security strategy is working and probably could achieve its goals. Yet in the same breath he accepts as a given 'the short period framed by our own domestic political debate.' Why? Who 'framed' that time period? Who drives our 'domestic political debate'? Don't senators have any influence on this? Can't they try to shape, or reshape, the political debate - especially if it threatens the success of a major U.S. military effort? Apparently that would be too much to ask."

If you just read either side of a debate in a vacuum, invariably you'll adopt that last read. But Kristol's characterization, while clever, is totally unfair and if you read his whole editorial in the July 9, 2007, issue of his publication, you'd just shake your head because contained therein is not one word about the culpability in this whole fiasco of the Iraqi government, which is why the likes of Lugar, and, this week, Republican Senator Pete Domenici, are pleading with the president to switch gears while he can still muster support for a bipartisan plan before the Left totally takes over the debate and America is forced into a precipitous withdrawal.

Pete Domenici:

"We cannot continue asking our troops to sacrifice indefinitely while the Iraqi government is not making measurable progress. I do not support an immediate withdrawal from Iraq or a reduction in funding for our troops. But I do support a new strategy that will move our troops out of combat operations and on the path to coming home."

This is how the debate has shifted, and frankly I spelled out two weeks ago exactly what Commanding General David Petraeus will be telling Congress in September in pleading for more patience.

But, again, when the Iraqi government still can't agree on a way to split up the oil revenues, which account for 95% of the nation's income, at some point the William Kristol's of the world have to wake up. [There was talk of an agreement earlier this week, but then things fell apart amidst the usual sectarian rhetoric, including items such as the status of Kirkuk, who would control development of the fields, and securing Shia interests.]

Heck, I'm a neocon, too. I'm also a realist, I'd like to think. The surge was always about buying time until, one, the Iraqi government got its act together, and, two, the Iraqi security forces got up to speed. There is zero assurance today, however, that this will be the case by year end, let alone 2009.

It also doesn't help the White House that virtually every single large reconstruction project in Iraq, such as the building of the $600 million U.S. embassy, has ended up being a total mess.

But as noted above, debate these days is as much about Iran as it is Iraq with virtually irrefutable evidence the mullahs are directing a surge of their own, and if the United States doesn't act first to counter it, while at the same time Iran proceeds with its nuclear weapons program, certainly Israel will.

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Britain: At least seven doctors have been implicated in the latest terror plot, so look for videos on Al Jazeera to the effect, "You too can be a fake doctor. Prior training in explosives a plus. Contact your local al Qaeda recruiting office, and don't forget to ask for your free bomb belt."

I guess if I were the authorities, one thing I'd look for is doctors who don't believe in any modern treatments, but instead practice the extensive use of leeches, or whatever it is they did in the 18th century, from whence Wahhabism came into being with the teachings of Muhammad ibn Abd al-Wahhab bin Dirtball.

One side note concerning the arrest of the accomplice in Australia, authorities there say the Muslim population in Sydney is 200,000 strong and that 3,000 of them are in "ideological sleeper cells". Just as in the UK, the Muslim community is new and, unlike in the United States (we'd like to believe), hasn't established its moderate roots.

North Korea: It's important to remember the timeline, which is why I feel compelled to keep repeating it. Pyongyang agreed on Feb. 13 to dismantle its nuclear facility at Yongbyon by April 14 as the first step in destroying its nuclear weapons program. Almost three months later they still haven't taken it.

But International Atomic Energy Agency inspectors were allowed in to Yongbyon for the first time this week and Kim Jong il signaled he's ready to proceed with not just a shutdown of the facility, but full disclosure of all other nuclear activities.

So should you believe him? Of course not. For starters, the six- party talks, including China, Russia, South Korea, Japan and the U.S., have to be reconvened and this is in doubt because of the ongoing dispute between Japan and North Korea over the abduction of Japanese citizens.

But, should agreement be reached over the coming year or so to truly dismantle the weapons operation, those saying this would lead to a peaceful reunification of the Korean Peninsula are missing another point I feel compelled to repeat; that being there would be new tensions involving South Korea and China, separately, as North Korea becomes the new low-cost provider of manufactured goods.

China: Hong Kong celebrated the 10-year anniversary of the handover and "one country, two systems." But while Hong Kong residents still wonder when they will see full democracy, as per the Basic Law adopted in 1997, Chinese President Hu Jintao said power must be vested in one central government. Ergo, since the Basic Law never established a timetable for universal suffrage, Hong Kongers need to chill out. Well, you can be sure the people will increasingly lose their patience with this scam.

But these days Beijing has bigger problems to deal with, like in the furor over shoddy products and the ongoing destruction of its environment, let alone the government's often misguided attempts to cover up the worst abuses.

For example, authorities pressured the World Bank to cut the calculations of premature deaths stemming from pollution from a report last year. "The World Bank was told that it could not publish this information. It was too sensitive and could cause social unrest," one adviser to the study told the Financial Times. This was the report that noted 16 of the world's 20 most polluted cities are in China. Missing from the final draft, though, was the finding that up to 750,000 premature deaths occur from not just air-pollution, but also exposure to poor air indoors, let alone poor water quality that results in all manner of intestinal disorders.

Speaking of water quality, "Tens of thousands of people in northern Jiangsu were without tap water for more than 40 hours after the community's main water source was polluted. The shutdown occurred just days after Premier Wen Jiabao headed a meeting in the province at which he vowed to curb the contamination of major rivers?.

"Shuyang county authorities cut tap water to most of the county's more than 200,000 residents on Monday after supplies were found tainted with a dark, smelly substance." [South China Morning Post / Xinhua]

Separately, a study was conducted of Guangdong's 21 major cities and in the first three months of the year, nothing but acid rain fell on 15 of them.

As I've noted in the past, the Chinese government knows what it's up against, but it hasn't figured out how to balance needed growth (to keep the people employed and relatively happy) vs. the destruction of its land.

This week, for example, Chinese inspectors announced that 1/5th of the goods that were checked were substandard. On one hand it's encouraging this is finally taking place. On the other, you may want to check virtually every food label these days. Aside from fish and farm products, I'd be particularly concerned about fruit drinks, not that I can think of one brand off hand that may be on our shelves.

Russia: So if you're na?ve and think anything of a positive nature was accomplished at the lobster summit in Kennebunkport between Presidents Bush and Putin, your hopes were shattered just two days later.

For starters, on the issue of the missile defense shield that Bush wants to be based in Poland and Czech Republic, while Putin has suggested the use of an existing facility in Azerbaijan, he also said he would upgrade the Azerbaijan operation (I've seen pictures? it needs it), while offering to build another facility in southern Russia that would be jointly operated.

Of course this is yet another ploy, designed to paint the White House as the villain when it rejects the idea. But two days after the summit, First Deputy Prime Minister Sergei Ivanov, the leading candidate to replace Putin in 2008, said if the United States turned down Russia's offer on the missile shield, Russia would in turn base missiles in the enclave of Kaliningrad, which is surrounded by Poland and Lithuania.

So it's once again time to play the game, "Just What Am I Missing?" As in, just why is Russia in the G-8 when it goes around threatening Europe?

But back to the summit, not one word was said about a more immediate issue, the fate of Kosovo, where Washington and Moscow are deeply divided, nor does it appear much was accomplished regarding Iran and attempts to rein in its nuclear weapons program. The U.S. needs Russia to support further sanctions, such as on Iran's gasoline imports, but I'd be surprised if Putin did so. Russia did say, however, that with regards to the disputed nuclear plant at Bushehr that it is building for Iran, it won't be ready until 2008, even as Tehran says it will by October.

The whole issue of the missile shield, though, could be moot for a number of reasons. For starters, Congress has been slashing funding for the project, while the Pentagon said it needs to break ground today to have a system in place by 2013. So, since the project isn't likely to see the light of day unless work starts before Bush leaves office, this is a real problem. Let alone the fact support in both Poland and Czech Republic is drying up as well. And there is no guarantee the system even works!!!

Lastly, Putin successfully used his personal 'charm' to woo the International Olympic Committee and win the bidding for the 2014 Winter Games, to be held in the Black Sea resort of Sochi. Understand something. The entire site will need to be built from scratch. Sochi has nothing on an Olympic scale. In fact, it basically just has a rope tow, let alone zero facilities for everything else you can think of. What a gigantic waste of money.

By the way, South Korea got screwed for a second straight time as its candidate, Pyeongchang, once again fell short; this time by a 51-47 margin thanks to Putin's personal appeal. As one IOC official said, Putin's appearance led to at least four changing their vote.

Pakistan: As of this writing, the standoff continues at a mosque/seminary in Islamabad between radical Islamists and the government. Thus far, 19 have been killed. What the episode highlights is the growing division in Pakistan over its secular leaders and those professing allegiance to a resurgent Taliban, whom many of the students praise in their anti-government rants. The chief cleric of the mosque was captured after attempting to flee wearing a woman's burka.

And on Friday, President Musharraf survived an assassination attempt as his plane was fired at from a nearby rooftop in Rawalpindi.

Afghanistan: Six Canadian soldiers were killed in a car bomb attack. 66 Canadians have now died here.

Japan: The defense minister was forced to resign after he commented that he thought the atomic bombings "could not be helped," in yet another blow to Prime Minister Shinzo Abe whose approval rating is just 28%.

Australia: There is hope the drought may finally be coming to an end as the El Nino weather pattern blamed for the historic shortfall in rain could be transitioning over to La Nina and increasing precipitation.

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Pray for the men and women of our armed forces. That was a very touching scene in Iraq and Afghanistan on the Fourth as some soldiers received their U.S. citizenship.

God bless America.

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Gold closed at $654
Oil, $72.68

Returns for the week 7/2-7/6

Dow Jones +1.5% [13611]
S&P 500 +1.8% [1530]
S&P MidCap +2.3%
Russell 2000 +2.2%
Nasdaq +2.4% [2666]

Returns for the period 1/1/07-7/6/07

Dow Jones +9.2%
S&P 500 +7.9%
S&P MidCap +13.9%
Russell 2000 +8.2%
Nasdaq +10.4%

Bulls 49.4
Bears 18.0* [Source: Chartcraft / Investors Intelligence]

*I never include the remainder, which represents those newsletter writers looking for a 'correction,' but this week's figure in that category, 32.6, is abnormally high. As I've pointed out many times, though, these numbers aren't nearly as important as they were 10 or 20 years ago, but for now, remember it's a contrarian indicator and you're looking for extremes. For example, when the bull figure hit 45.5 on Mar. 13, 2007, that represented a good time to buy as the S&P 500 was at 1377.

Have a great week. I appreciate your support.

Brian Trumbore

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