Educate Yourself

Week in Review
For the week 9/10/2007 - 9/14/2007
Brian Trumbore
President/Editor, StocksandNews.com

Following are a few questions and comments that arose from the congressional hearings this week with Gen. David Petraeus and U.S. Ambassador Ryan Crocker.

Rep. Sen. John Warner: "Is the surge making America safer?" Gen. Petraeus: "Sir, I don't know actually. I have not sat down and sorted it out in my own mind."

Dem. Sen. Barack Obama: "(Iraq) has been a disastrous foreign policy mistake?How do we clean up this mess?"

Amb. Crocker: "Our current course is hard. The alternatives are far worse." And, "There are no guarantees political reconciliation will be achieved."

"Gen. Petraeus and Amb. Crocker have argued this week that the maximal troop levels are necessary to prevent Iraq from returning to the downward spiral into sectarian war it suffered before the surge. They also have emphasized that political accords will be slower in coming than Washington has expected, if they are achievable at all. Yet Mr. Bush's plan for the coming year is based, once again, on the hope that Iraqis will take steps that will make the added security provided by U.S. troops sustainable - and prevent a worsening of the situation when American brigades withdraw. Though this hope proved illusory during the past eight months, there will be no change in the U.S. mission.

"It's impossible not to be skeptical that the necessary political deals and improvements in Iraqi security forces will take place?.Still, there are no easy alternatives to the present policy."

"(The) Iraq war is turned upside down. The Sunnis who were our worst enemies are now our best friends. The Shiites for whom we fought the war of liberation are increasingly obstacles to reconciliation, and thus our foes. Today's actual successes undermine yesterday's plans for success?.our costly bets about the future are little more than guesses."

A slew of polls this week all revealed similar feelings. 60-65 percent want to see a withdrawal of U.S. troops, with most calling for a deadline in 2008. 30-34 percent approve of Bush's handling of the war.

--The president mentioned again that 1,500 insurgents and al Qaeda types are being captured or killed since January. I can't help but repeat this is a far cry from a few "dead-enders."

--"One year ago much of Baghdad was under siege." That was 2006?three years after the start of the war; but then I said I wouldn't look back any more.

--The president talked of denying al Qaeda a safe haven, but of course no mention of Afghanistan and Pakistan being keys to the fight as well.

--The president said nothing about the massive corruption at the government level.

--Bush talked of an enduring relationship with the same Iraqi leadership, but here we are holding secret discussions with Moqtada al-Sadr, a man many agree should have been killed years ago. If the purpose of the talks is to prepare a role for him in a future government, just what the heck does that say? Or are we just going to give him $5 billion and set him up on the French Riviera? [I'd check off a box on my taxes for that.]

Well, I do agree with President Bush that a free Iraq would set a positive example, and I agree neighbor Iran is a big threat and that a stable Iraq would help check Tehran's ambitions. And I believe the alternatives are far worse.

So if I had a vote in Congress, I would continue to fund the effort, which is the bottom line at this point. Some progress has been made, but it's an incredible leap of faith to expect true political reconciliation.

It's also clear that the longer we stay in Iraq, the easier it is for the extremists to recruit. Picture what is being said during Ramadan in the mosques across the entire region. Not one word of praise for American resolve you can be sure, not that I'd expect anything more of the clerics, 99% of whom refuse to condemn the Islamo-fascists in their midst.

So, as President Bush told us, assuming Congress approves a new round of funding, we have a new timetable, aside from the permanent one he suggested. Next March?another report from Team Petraeus and Crocker. Time to turn over the hourglass.

But I need to switch gears. Last week I wrote, "Someday I'll get into another topic that disturbs me?the increasing disconnect between the people and the military."

Ironically, in the past few days there have been a few op-eds addressing this very issue.

I was also struck by the print ads for Ken Burns' new film "The War" about World War II.

Read this and think of today. What has President Bush asked us to do as a people? Nothing! He missed yet another opportunity on Thursday. I'm not talking about supporting your congressman if you want to keep funding the surge, as he was. What are we, as a nation, doing to support our troops and, let's face it, the suffering people of Iraq? Why couldn't Bush have at least said something like the following:

"This war has been painful and not an hour goes by when I don't think of the brave men and women of our armed forces and the tremendous sacrifices they are making. I think all the time, as I know you do, of the sacrifices being made by their families back home as well.

"But there are ways we can help, to show the soldiers and their families how much we care and appreciate them. Many of you are acting on an individual basis through various organizations, sending care packages to the troops, writing letters. Churches across America have their own programs to support the families.

"Regardless of how you feel about the war, one thing is clear. The American people support those who protect our freedom. If you want to help and are not currently involved with a specific effort in your community, go to a Web site we've created??. You'll find a few suggestions.

"And with the start of the new school year, I'd encourage teachers to have their students write a letter to the troops. You'll see an address on the same site. The soldiers and their families need our support."

" 'The U.S. as a nation - and indeed most of the U.S. government - has not gone to war since 9/11,' he observes. While the military is fighting, 'the American people and most of the other institutions of national power have largely gone about their business.'

"Rarely, if ever, has daily death in combat been accompanied on such a scale by the maxing out of the credit cards at the mall. President Bush likes to call himself a 'war president.' More accurately he has been the war-and-shop, conflict-and-home- equity-credit president.

"Now those two worlds, eerily remote from each other, have come together in simultaneous Iraq and credit crises?.

"Chiarelli has long suffered the disconnect. He saw his soldiers killed in flimsy Humvees because American industry was not geared up in World War II fashion to produce replacements?.

" 'Our current problems raise the legitimate question of whether the U.S., or any democracy, can successfully prosecute an extended war without a true national commitment,' he writes.

"Unless you believe the United States can simply withdraw from the world, a popular but na?ve view, that essential strategic question needs addressing beyond the Iraq tactics before Congress this week. An answer is the minimum the now overstretched shopping nation owes the long overstretched fighting nation it seldom notices."

Owen West, former Marine who served two tours in Iraq, in an op-ed for the Wall Street Journal, 9/12/07

"Nearly six years into the war on terror?and the stark irony of America in modern war has emerged. Our professional warriors who take the most risk believe the nation must commit to a long- term fight that includes Iraq in some form. Overall support for the endeavor wanes with distance.

"This divergence isn't new. Those who have battled the enemy up close have always been more heavily invested in a cause. What's different is that in past wars, the nation was tied to its soldiers and had a familial barometer. Today most Americans have never met a Gold Star family, let alone shaken the hand of a fallen soldier. The military community is increasingly insulated even as the burden of global war swells?.

"(According) to an August CNN poll, 68% of Americans said Gen. David Petraeus's congressional testimony on Iraq this week would not sway their personal view one way or the other. Worse, 53% of Americans do not trust him to report what's really going on in Iraq, according to a USA Today/Gallup Poll published Monday.

"This wrenching inconsistency indicates a deeper problem than a fickle public or an inherent distrust in hierarchy. The poisonous partisan climate in Washington has seeped beyond the Beltway and is now harming the public's trust in the institution that will continue to sacrifice most in the coming years?.

"(While) the country can thrive as a politically divided nation, its ability to defend itself diminishes alongside faith in the fidelity of the military. The unbalanced portrayal of the conduct of our soldiers has done damage enough. To impugn our warriors' motives as political is thoroughly corrosive and hurts all Americans."

But the disconnect in this nation was perhaps best exhibited in one of the uglier incidents in memory. At the Rutgers-Navy football game on Friday, Sept. 7, at Rutgers, a substantial number of students in the Rutgers section serenaded Navy's players and uniformed Midshipmen with "F--- you, Navy. F--- you, Navy."

Mark DiIonno of the Star-Ledger wrote of an Annapolis grad on the sidelines, Bill Squires.

" 'At one point, I thought, we defend this country for people like this?' said Squires. 'I wasn't embarrassed as a New Jerseyan. I was embarrassed as a human being.'"

I get into this disgraceful display in far more detail elsewhere on this site. Suffice it to say, aside from the fact Rutgers' president and athletic director were scrambling to apologize to their Annapolis counterparts, sadly, it's a reflection of our times and our clueless society. MoveOn.org's well-publicized print ad was yet another example.

We are growing apart as a people and if you're not concerned, you ought to be. World War II taught us some supreme lessons and I can guarantee one thing; as you watch Ken Burns' epic (which starts a week from Sunday), you'll be shedding more than a tear or two. Not just for the past and the heroism displayed at home and on the battlefront, but also for today's America. We have lost our way, and it's disheartening. We have paid all too steep a price the past few years with the mess in Washington, where both political parties share the blame. It's time to take back our government, but for that you need both an educated and engaged populous.

While my main focus for years now has been housing and its potential impact on the consumer, I have to admit I was surprised we didn't see any preannouncements from the likes of investment bankers Lehman, Bear Stearns, or Morgan Stanley, all of whom report next week, along with Goldman Sachs. [There was a cryptic warning from Merrill Lynch, but it revealed no estimates of the damage, plus Merrill doesn't report until October.]

"The leading commercial and investment banks have been in private talks about how to account for losses in their leveraged lending and securities businesses due to the credit squeeze.

"The discussions reflect concerns that the various banks could make very different judgments about the impact of the market turmoil.

"Banks have a high degree of discretion about how to value the losses but top executives believe too much variation will undermine market confidence."

Treasury Secretary Hank Paulson was interviewed by the Financial Times and made a rather curious statement.

"The reason (the duration of the current crisis) is going to take longer today (than previous ones) is that we are more globalized. Secondly, it is the level of complexity," he said, adding that he had met daily with bankers trying to value asset-backed commercial paper and other products. "When they are confident they understand the products, confidence will return."

OK, sports fans. Am I the only one thinking, first, why is Paulson discussing valuations with these scam artists, of which he was once one, admittedly, and, second, "When they are confident they understand the products, confidence will return"?! This is absolutely pitiful, though it could also be the most powerful statement of the year. It's further proof of what I first said eons ago, "These guys don't know what they own." Why it's enough to drive one into cash.

But let's go back to housing and the economy. This week Federal Reserve Bank of San Francisco President Janet Yellen said in a speech:

"A big issue is whether developments in the relatively small housing sector will spread to the large consumption sector, perhaps through declines in house prices. Should the decline in house prices occur in the context of rising unemployment, the risks could be significant."

While Ms. Yellen ends with the right conclusion, I'm continually amazed at how Fed officials and other 'Legends of the Fall' say that the housing sector is "small." What planet are these people living on?

It's everyone's number #1 asset! Start there. If you don't feel good about your #1 asset, and you have a lot of debt on top of it, even if you do have a good job you're probably concerned, as in tossing and turning at night, snapping at the kids, and reining in your spending. I'm not trying to be humorous here. There is a lot of pain out there.

Thankfully, noted economist Martin Feldstein gets it. From his important Wall Street Journal op-ed of 9/12/07.

"The time has come for the Federal Reserve to cut the federal funds interest rate substantially, starting on a path from the current 5.25% to 4.25% and possibly even less. Without such a policy shift, the U.S. economy faces the risk of a significant economic downturn.

"Three separate but related forces are now threatening economic activity: a credit market crisis, a decline in house prices and home building, and a reduction in consumer spending. These developments compound the general weakening of the economy earlier in the year, marked by slowing employment growth and declining real spendable incomes?.

"In addition to (the) general credit market problems [Ed. The Bank of England's rescue of a leading UK mortgage lender, Northern Rock, on Friday being the latest example], the decline of house prices and home building will be a growing drag on the economy. Home building has collapsed?House prices are beginning to decline?Since house prices adjusted for inflation had surged an unprecedented 70% relative to rents and construction costs between 2000 and 2006, house prices could now fall substantially further.

"Falling house prices would not only cause further declines in home building but would also shrink household wealth and thus consumer spending. A 20% cumulative fall in house prices would cut wealth by some $4 trillion, implying a decline in annual consumer spending by about $200 billion or about 1.5% of GDP - enough to push the economy into recession?.

"If defaults become widespread, the process could snowball? driving prices down further?.Problems of illiquidity of financial institutions could become problems of insolvency."

[I do have to add, though, that I don't agree with Feldstein that the Fed's actions will make any kind of real difference.]

The consensus among 52 economists for the latest Wall Street Journal survey has an average estimate for 4th quarter GDP growth of 1.9%, with 2.1% growth in the 1st quarter 2008. The risk of recession over the next 12 months has been pegged at 36% when taking an average of their projections.

The Anderson Forecast out of UCLA predicts GDP growth of just 1% in both Q4 and Q1 '08. These guys, fronted by Senior Economist David Shulman, have been all over the real estate debacle, particularly in California, and Shulman predicts home price declines of 10-15 percent nationwide before recovery in '09. Shulman writes in his report:

"The small recent minimal declines represent not the end, but rather the beginning of what will be a very painful decline."

In the critical six-county Southern California region, home sales in August were at the worst levels in 15 years, but the median price was still up due to the high-end market. That's about to change. [Josh P. passed on that in San Diego County the median price finally fell $20,000 to $475,000. Inventories here, reflective of the dreadful picture nationwide, stand at 13 months!]

Homebuilder Hovnanian garnered a ton of press for holding a sale on new homes this weekend, offering $100,000 in add-ons and price reductions, as well as attractive fixed rate mortgages for those who qualify. In some areas the savings are 20% off list. There are some rather hefty construction and land loans to pay off, as you can imagine. I keep looking at this monstrous townhouse development going up two blocks from me and I know full well what game the developer is playing.

And remember, to repeat myself, this is global. Not just the short-term liquidity squeeze faced by the aforementioned Northern Rock, but in asset values. The Brits, for example, are taking on record levels of mortgage and consumer debt at the exact time their real estate bubble is about to pop. The London market will outright crash, mark my words. China's housing and property sectors get little press, compared to industrial activity, but prices there are insane. There are others such as Australia, where a survey on consumer confidence is at record levels, but here too, the same report touting this figure in the Sydney Morning Herald also said "housing affordability" was an increasing issue. It's all unfolding at different rates of speed, around the world, but few will escape the gathering storm.

For now, however, we await the Fed's decision on interest rates, Tuesday, and some clarity from the investment banks???HA!

--The Dow Jones registered its biggest gains since April, up 2.5% to 13442, largely on the belief the Fed will be accommodative. The S&P 500 rose 2.1% and Nasdaq climbed 1.4% to 2602.

I didn't mention oil in my opening segment for a reason, even though the price of crude hit an all-time high of over $80 before finishing the week at $79.10. It just hasn't mattered, at least not yet. Of far more import to me are the prices on gasoline and natural gas futures and thus far, neither has spiked along with crude. [Soon the focus will turn to heating oil as well.]

As for OPEC, it met this week and raised production 500,000 barrels, a mild surprise, thanks to pressure from the Saudis on its fellow cartel members, but with daily demand running at 87-88 million barrels, and supply closer to 85, the oil price kept climbing even after the increase. Regardless, headlines with $80 in them are great for alternative energy plays.

Most await the Fed's accompanying statement on Tuesday. In the long run it's irrelevant.

--In an interview to be aired on "60 Minutes," former Federal Reserve chairman Alan Greenspan says he knew about questionable lending practices in the mortgage sector, including borrowers with adjustable rate loans who didn't know what was about to hit them, thus creating a broad range of problems, but he "had no notion of how significant they had become until very late." We should have pinned the name tag on his windbreaker years before he excused himself from the table.

[And as always happens with book releases, the Journal got a copy before Monday's planned release date and details are coming out as I go to post. Greenspan slams President Bush and the Republican Congress for its failure to rein in spending. Greenspan also calls Bush "incurious" when it came to economic matters.]

--Oil production in Iraq before the war?2.58 million barrels per day. Oil production today?1.15-1.5 million, depending on whether the power stays on long enough to pump it.

--Mexico's state oil monopoly, Pemex, was the target of six explosions that shut down pipelines carrying oil and natural gas. President Felipe Calderon said "Those who attack the security of the Mexican people under any pretext are attacking Mexico and democracy." Evidently a guerrilla group similar to the Zapatista Army for National Liberation carried out the attacks, seeking the release of some of its members now in prison, but it's a worrisome development, worldwide, if Mexico now becomes a constant target such as Nigeria has been; both being major suppliers of crude to the U.S. [Colombia's pipelines have also been a long-time target of rebels, but the impact on the global energy picture here has been non-existent.]

--Shares in General Motors rose on optimism contract negotiations between Detroit's Big Three and the UAW will go relatively smoothly, including the lead issue of long-term retiree health care. [The UAW selected GM as the 'strike target' but this doesn't mean workers will actually walk off. Talks have now progressed past the deadline?a good sign.]

--Japan reported growth fell a larger than expected 1.2 percent in its second quarter.

--Shares in Countrywide Financial rallied on Thursday after the largest home lender on the planet said it had arranged another $12 billion in borrowing capacity, enabling it to continue making loans. This after the company announced its mortgage loan fundings for August fell 17 percent. I don't see how anyone can have a clue whether the worst is over for them. I suspect not.

--You know who nailed the real estate debacle? Former Credit Suisse analyst Ivy Zelman, who as the Journal pointed out has started her own firm, Zelman & Associates, to assess the current state of the housing industry. These days Ms. Zelman says "This recession in housing is more severe than the 1990 and 1991 downturn. It could have a much broader impact on the economy than people realize, and it will be longer in duration."

--California and Arizona investors, in particular, have been caught up in yet another real estate bubble, this one south of the border in Baja. Folks have been snapping up condos in new developments along the coast, shelling out an average of $500,000, and now many either are reneging on their contracts or can't sell units they thought they could flip. The Los Angeles Times estimates 40 percent of the units were purchased by flippers. I can't say I feel sorry for these folks.

--Washington Mutual increased its loan loss reserves to $2.2 billion for 2007 and is laying off 1,000 in the mortgage business, on top of 10,000 cut at the bank since the end of 2005.

--Goldman Sachs, former home of New Jersey Governor Jon "Look Ma?no seatbelts!" Corzine and Treasury Secretary Hank "Administration Shill" Paulson, saw its Global Alpha hedge fund decline 22.5 percent in August on losses from currency and stock trades. Further redemption notices are no doubt flooding in over the weekend. [Another fund, Global Equity Opportunities, lost 28 percent in the first eight trading days of August, but rallied back some.]

--McDonald's continue to execute their business plan, accurately gauging consumer tastes and trends, beat expectations, and increase the dividend.

--Back to Dirtball Nation, according to John Aidan Byrne of the New York Post, "Federal agents are investigating a brazen group of New York scam artists who raised about $30 million from unsuspecting investors by posing as principals of a successful hedge fund and then fleeing with the loot."

Operating under the name A.R. Capital out of a downtown Manhattan office, it appears these guys just cold-called prospects, including a number of college professors, created false performance records, got more money from the same investors and then one day?poof! They were gone.

--No surprise here?two professors at the University of Pennsylvania's Wharton School did a study of the private-equity business and found that "The bulk of the average firm's earnings come from profitably refashioning and reselling the businesses it buys." In other words, investors are simply being gouged, not that they shouldn't have already known this. It's about the 2% management fee and the 20% cut of any profit that the buyout firms retain. And as the Journal's Tennille Tracy noted, half of the fees generated fall in the 'carried interest' category that has become a hot topic on Capitol Hill from a taxation standpoint. [Carried interest revenue is currently reclassified as capital gains and taxed at 15% vs. ordinary income which is taxed at 35%. It's a total scam. But don't say that to Stephen Schwarzman. He's liable to stab you with a $400 crab claw.]

Massachusetts regulators charged Morgan Stanley and three employees with illegally cold-calling prospects who had placed resumes on CareerBuilder.com. These guys downloaded "thousands" of them and of course paid no heed to do-not-call lists, thus violating state and federal statutes.

--As reported by the Wall Street Journal, about 100 investors in a private equity fund run by disgraced Democratic fund-raiser Norman Hsu may have been fleeced to the tune of $40 million. Hsu convinced investors they were going to earn 40 percent on short-term loans to fashion designers in the U.S. buying garments made in China.

--I've been writing the past few weeks of various health issues, including a mystery virus that had killed more than 100 in the Congo who attended a funeral for two tribal chiefs. But now the World Health Organization has identified a separate outbreak in the region, that of Ebola, that has also killed over 100 at last count. Ebola kills more than 80% of those who contract it and you can get it simply by touching an infected person.

I note these cases under "Street Bytes" because you never know when something like Ebola or bird flu suddenly explodes to the point where it cripples economies, though as I heard one expert say on the BBC the other day, in the case of Ebola it doesn't travel well; as in you're basically dead before you can make it to a plane.

--Italians were urged to hold a one-day "pasta strike" on Thursday to protest price increases of 20 percent as the cost of wheat soars due to increased production of biofuels. As reported in the London Times, a recent survey found that nearly half of Italians would rather forgo sex than spaghetti. For me it's veal cutlet and sugar cookies, but I digress.

--Inflation in China has become a serious issue with consumer prices rising 6.5 percent, the most in 11 years. Pork prices have soared 86 percent due to outbreaks of disease. The central bank has already raised interest rates five times, including Friday.

Meanwhile, China's fixed asset investment rose another 26.7 percent over the past year, despite curbs meant to control runaway spending, which in the field of real estate rose 29 percent, yet another example of the growing bubble in the sector.

And the bubble will burst following the Olympic Games, at least that's my bet. While opinion is split on whether the Olympics will further propel China forward or mark the beginning of far slower growth, I fall in the slowdown camp for the simple reason that so much of the spending on infrastructure has been unnecessary?like in the building of unused superhighways.

--Alcatel-Lucent once again proved it has been the worst run company of the decade as it warned yet again and cut its full- year revenue forecast. Patricia Russo, the worst CEO in the history of the free world, said ALU "remains confident that it has the right combination of people and assets to position the company as a leading player in the industry." Ms. Russo will be exiting stage left shortly, one can assume. As for my Lucent lawn indicator (its headquarters being blocks from my home), the last time I drove by hundreds of geese remained encamped, doing what geese do; which is most symbolic I think you'd agree.

--An NBC / Wall Street Journal survey showed that approval of President Bush's handling of the economy remains at just 38 percent, unchanged from July.

--In a big move, Mohamed El-Erian left Harvard University and his job managing its endowment to return to PIMCO, where he will ride sidesaddle with Bill Gross as Co-Chief Investment Officer, as well as Co-CEO (a position he will share with Bill Thompson). PIMCO will be aggressively expanding into the alternative investment arena where El-Erian's past experiences should come in handy. This is a big-time positive for my old buddies here.

"Larry Nelson was named director of global citizenship for Sun Microsystems Inc. The position is new."

Russia: In a surprise move, President Vladimir Putin replaced Prime Minister Mikhail Fradkov with little known Victor Zubkov.

The parliamentary elections are in December and the presidential vote is in March. By selecting Zubkov, a Putin-boy, over, say, leading presidential candidate Sergei Ivanov (your editor's choice), Putin is ensuring he retains maximum control at least through December before the presidential race takes center stage.

While few expect Zubkov to run for president himself against Ivanov and the other main contender, Dmitri Medvedev, Zubkov could indeed do so and simply serve as a placeholder for four years until 2012 when Putin becomes eligible to return. Putin could then exercise ultimate control, as opposed to seeing Ivanov or Medvedev build their own powerful bases. Fradkov, incidentally, was doing just that.

[On Friday, a political analyst who met with Putin said Vladimir was indeed thinking of a 2012 return.]

Anyway, lots of fun over the coming months watching this all play out. There is also a slim possibility that the Duma could amend the Constitution to allow Putin to stay in office, with 66 percent being required to effect that.

Lastly, Russia's defense ministry was proud to show off its new super vacuum bomb?which given the source should be renamed the Giant Dirt Devil. Russia proclaimed this to be the "father of all bombs" with the power of a nuclear blast at a third of the cost, or something like that.

Iran: Last week I noted the elevation of Hashemi Rafsanjani to the head of the Assembly of Experts, and how I was frustrated the United States never talked to him in a serious fashion as a way of end-running Ahmadinejad. So on Monday, I read with interest an editorial in Lebanon's Daily Star.

"(American) pundits often demonstrate a lack of understanding or appreciation of the complexity and dynamism of Iran's system of governance, which has evolved considerably since the days of the Islamic Revolution. Interestingly, Iran could be on the brink of yet another transformation, given the recent election of Rafsanjani, a conservative pragmatist, as head of the Assembly of Experts, a powerful body that has the authority to appoint and remove the supreme leader. Rafsanjani has hinted that under his leadership, the assembly will play a more active oversight role, and perhaps even introduce key reforms such as term limits on the supreme leader.

"Iranians are unlikely to abandon their system of Islamic rule. However, the Iranian public has over the past few years demonstrated an unquenchable thirst for change. Both Mohammad Khatami and Mahmoud Ahmadinejad were elected to the presidency on campaign promises to deliver something new, whether in the form of political or economic progress. The parties of both leaders have been punished at the ballot box for failing to deliver on their pledges. And there is every reason to believe that the Iranian people will continue to hold their leaders increasingly accountable."

I think I've proved my point. I respectfully suggest Sec. of State Condoleezza Rice doesn't have a clue. Talk to Rafsanjani and cut a dirty deal with him.

Pakistan: So much for former Prime Minister Nawaz Sharif. His return from exile lasted all of four hours before President Musharraf sent him on to Saudi Arabia. Sharif, you'll recall, was the one deposed by Musharraf in the 1999 coup. Pakistan's Supreme Court, though, which has been very visibly battling with Musharraf, could rule that Sharif should be allowed to return, thus setting up another showdown.

A second former prime minister, Benazir Bhutto, announced she is returning Oct. 18 from self-imposed exile. Bhutto and Musharraf have been in discussions on a possible power-sharing arrangement, though neither is popular.

Japan: In yet another political surprise this week, Prime Minister Shinzo Abe suddenly resigned and then admitted himself to the hospital, suffering from a nervous breakdown. In Japan, when the leader's approval rating drops below 30 percent, as was the case here, it's sayonara baby and Abe couldn't cope with the scandals that wracked his administration, including the resignation of five cabinet ministers and the suicide of another.

A successor, which will come from the ruling Liberal Democratic Party, doesn't have to call a general election until 2009, however. Of concern to the United States, though, are changing attitudes over support for the wars in Afghanistan and Iraq, with the opposition saying Abe had overstepped the stated mission in helping ferry U.S. troops between Kuwait and Baghdad, to cite one example. And as the Washington Post pointed out in an editorial, opposition leader Ichiro Ozawa absurdly claims the Afghan mission is illegitimate and that the "the U.S. started this war unilaterally without waiting for a consensus to be built in the international community."

[By the way, so much for the talks between the United States, Australia and Japan in Sydney. With the political upheaval in Japan, as well as Australia, these now take a backseat, I imagine, and there was word India was not about to be invited to future security talks among the three. My alliance proposal will have to wait another few years.]

North Korea: Investigators from the U.S., Russia and China inspected the Yongbyon nuclear facility, at the invitation of Kim Jong il, and all parties called it useful as thus far Pyongyang seems sincere about seeking help disabling the plant. But of course there has been little news on other facilities, let alone Kim's turning over nukes he already has.

And then you have this situation in Syria, where there are reports North Korea has been aiding Syria in the development of some sort of nuclear facility. It now seems this was the target of an Israeli airstrike the other day. Or as the Jerusalem Post noted, Israel may have been testing out Syria's air defense system prior to further action either there or in Iran.

Israel: As of this writing, Israeli Defense Forces have yet to respond in any concerted way to a rocket attack on an Israeli training base that wounded over 60 on Tuesday. Hamas was responsible.

China / Taiwan: Taiwanese President Chen Shui-bian took the bold step of warning the United States not to interfere in internal politics on the island, referring to the upcoming referendum next spring on applying for UN membership and a de facto declaration of independence. "(The) U.S. should never take it for granted that it is a natural thing for Taiwan to cooperate with it," said Chen.

For its part, Beijing slammed Chen anew, labeling his call for a referendum a "provocation."

"If Chen Shui-bian obstinately and recklessly takes dangerous moves irrespective of warnings and denouncement of the international community, he must shoulder all serious consequences," said a spokesman for the mainland's Taiwan Affairs bureau. "A scum of the nation who attempts to split the country won't escape the punishment of history." 'Scum' is kind of personalizing it a bit, don't you think?

U.S. Deputy Sec. of State Thomas Christensen said, "While U.S. opposition to Chinese coercion of Taiwan is beyond question, we do not recognize Taiwan as an independent state and we do not accept the argument that provocative assertions of Taiwan independence are in any way conducive to maintenance of the status quo or peace and stability across the Taiwan Strait." [South China Morning Post]

Turkey: A catastrophe was averted when Man's Best Friend, a sniffer dog, detected a giant cache of explosives in a van parked in a multi-story parking garage in Ankara. One can assume the vehicle was to be placed elsewhere before detonation, though the location where it was parked would have killed scores. It isn't known whether it was the work of Kurdish rebels or al Qaeda types.

Morocco: King Mohammed IV is the real source of power here as he selects both the prime minister and cabinet, but nonetheless they held free elections for parliament and only 37 percent turned out last weekend?just 27 percent in Casablanca. What this points out is the tremendous level of discontent in a country with a 40 percent poverty rate; ergo, perfect conditions for breeding terrorists.

Australia: Prime Minister John Howard announced he would retire midway through his next term if he wins reelection in December. His own party wants him out, even if they are hesitant to say so publicly. Howard anointed Peter Costello, treasurer, to succeed him. However, the opposition remains firmly in the lead in the latest polls. Get used to the name Kevin Rudd.

Colombia: Success?the top drug lord, Diego Montoya, was captured. The FBI had a $5 million price on his head.

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