Week in Review 
For the week 10/8/2007 - 10/12/2007
Brian Trumbore
President/Editor, StocksandNews.com

Turkey, Iraq and the Kurds

Relations between Turkey and the United States took a decided turn for the worse this week and this becomes as serious a foreign policy issue as Washington has faced in years.

For starters, though, I'll let others debate whether the 1915 killings of over a million Armenians, as the Ottoman Empire was collapsing, was genocide. But today, the fact is the decision by the House Foreign Affairs Committee to define it as such in a 27- 21 vote could not have come at a worse time.

I've written quite a bit about Turkey over the years, traveled there twice in 2001 and 2002, studied its history, and I've been warning that the U.S. better get its act together in preventing the Kurdish rebel militia, the PKK, from continuing with its campaign of violence against Turkey from its safe havens in Iraqi Kurdistan. Recently, the violence has been ratcheted up and in but one of many attacks, last Sunday at least 13 Turkish soldiers were killed by the PKK in an ambush.

Some of you have written me over the years, defending the PKK as being freedom fighters. What's clear is that the Bush administration, having just liberated the Kurds in Iraq, thus allowing them to set up the only success story in the nation, has failed when it comes to getting Kurdish leaders to rein in the PKK and keep them on the Iraqi side of the border.

So the PKK keep jumping across, attacking patrols, setting off bombs, and then like cowards fleeing back across the border, knowing Turkey wouldn't pursue them because it was an ally of the United States and had supported the removal of Saddam.

In fact Turkey isn't just an ally, they are a member of NATO, for those who've forgotten, where an attack on one is an attack on all. The U.S. has critical air bases in Turkey, such as at Incirlik, and 70% of the air cargo destined for Iraq transits through Turkey. Turkey maintains key roads entering Iraq through which the U.S. transports further material and personnel. And Turkey is a highly critical ally of Israel, their only one in the Muslim world.

So this was the worst possible time for the House resolution, the Turkish people (not just some politicians) are incredibly upset, and a proud military keeps asking their civilian leader, Prime Minister Erdogan, why it is they are not allowed to go into Iraq to take out the bases. You want a simple analogy? See what would happen if a terrorist group, using Canada as a base, crossed the border and attacked some villages in Minnesota or upstate New York. Do you think for a second that the U.S. would hesitate in going after them, any fallout in relations with Canada be damned? Now picture that for the entire time since the fall of Saddam, Turkey has held its fire.

Following is part of an editorial in the moderate Daily Star of Lebanon. I don't necessarily agree with the opinion expressed herein, but we need to understand where each side is coming from.

"This renewed tension is fueled in part by the consequences of the American-led attack against Iraq, and the fact that U.S. and allied Iraqi forces seem unable or unwilling to bring an end to cross-border attacks by PKK or other militants. Iraq and the U.S. both counsel non-violent diplomacy and a recently signed Turkish-Iraqi security agreement as the answer to Turkey's concerns. However, there is something brazen and bizarre about the U.S. government's warning Turkey against making an incursion into northern Iraq by saying, in the words of State Department spokesman Sean McCormack, 'If they have a problem, they need to work together to resolve it, and I am not sure that unilateral incursions are the way to go.' For the U.S. to caution against unilateral military action in Iraq after itself undertaking unilateral militarism on a gargantuan scale in Iraq is perplexing to the point of incredulity. The U.S. is correct to discourage military action, but hypocritical not to abide by its own advice. The American-led war against Iraq has ignited all sorts of new tensions in the region."

Next week, as early as Monday, Turkey's parliament will give Prime Minister Erdogan approval for cross-border incursions, while the full U.S. House will pick up the genocide resolution before year end. Regardless of the outcome, the damage has been done.

In Iraq itself, General David Petraeus strongly accused Iran of inciting violence, Petraeus normally leaving such talk to others, specifically citing Tehran's ambassador to Baghdad as being a member of the Revolutionary Guards' elite Qods force.

Meanwhile, Iraqi President Talabani, a Kurd, endorsed the plan of Senate Democrat Joseph Biden to divide Iraq into three separate zones along ethnic lines, saying that a recently passed Senate non-binding resolution (by a 75-23 vote) to do so "is a very good one. It is insisting on the unity of Iraq, of the security of Iraq, of the prosperity of Iraq, of national reconciliation and asking our neighbors not to interfere in the internal affairs of Iraq." [Bloomberg News]

And along sectarian lines, two Shia rivals, Abdul Aziz Hakim and Moqtada al-Sadr, have announced a peace agreement, though no one seems to know exactly what this means; as it could be anything from combining militias to wreak havoc, to a true political alliance.

What's apparent, as a Washington Post story had it, is that true reconciliation isn't obtainable. The Post interviewed a deputy prime minister, a Kurd, who said "I don't think there is something called reconciliation." Of the cabinet members in the Maliki government, for example, half have dropped out, in case you had doubts as to whether the government is dysfunctional or not.

Lastly, as I go to post I see that the former top commander in Iraq, Lt. Gen. Ricardo Sanchez, who retired in 2006, is blaming the Bush administration for a "catastrophically flawed, unrealistically optimistic war plan," adding "there has been a glaring and unfortunate display of incompetent strategic leadership within our national leaders." Sanchez made his comments before a group of military reporters and editors on Friday.

Well Sanchez is right. But Sanchez was himself a disaster. The administration should have dismissed him early on.

Iran?I nailed it

French President Nicolas Sarkozy traveled to Moscow for his first summit with Russian President Vladimir Putin, urging Putin to put more pressure on Iran and its suspected nuclear weapons program. Sarkozy was unsuccessful.

At a news conference, Putin said, "We don't have information showing that Iran is striving to produce nuclear weapons. That's why we're proceeding on the basis that Iran does not have such plans." At least Vlad, who is making a trip to Tehran this week, added "We share the concerns of our partners that all of Iran's programs be made absolutely transparent." Of course Russia has more than a passing interest in a successful nuclear energy program, seeing as it has been building the controversial plant in Bushehr.

But last week, in a discussion that I know raised a few eyebrows, I urged President Bush to accept a Tehran university's invitation to address the students, saying that Bush should do so because "Iran is ripe for revolution."

I posted that Saturday morning. Two days later we learned, as reported by Reuters, "Dozens of students scuffled with hard-line supporters of Mahmoud Ahmadinejad on Monday on the Tehran University campus and chanted 'Death to the dictator' ahead of a speech there by the Iranian president."

The London Times: "In scenes rarely witnessed in Iran, scores of students chanted anti-Ahmadinejad slogans, clashed with pro- government militia and made public a highly critical letter addressed to the Iranian leader. The authorities responded by firing teargas canisters into the campus."

One student told a reporter that there were 2,000 opponents on each side of what was like a boxing ring. The student group had presented a letter with a list of 20 questions, challenging Ahmadinejad's rule and authority. And so I repeat what I wrote last week of President Bush.

"Those students in Iran? Accept their invitation. Then watch Iran's government deny you access because they would be deathly afraid of the consequences, and see the students begin to march in protest."

Wall Street

The slide in the housing sector is having an impact on the overall U.S. economy, certainly as witnessed in the statements out of Ryder Systems Inc., the largest truck-leasing company. Ryder said "Economic conditions have softened considerably in more industries beyond those related to housing and construction. Consequently, freight and shipment levels have weakened to a greater extent than previously anticipated." As third quarter reports pour in, we'll see if Ryder's comments are echoed by others. GE reported on Friday and while the numbers were solid, as well as its outlook, it didn't exactly say there was going to be improvement in its global operations beyond what has been already forecast.

According to the Liscio Report, an economic research firm, and the New York Post, 25 states are seeing disappointing sales tax revenues, which seems to be an obvious harbinger of tougher times ahead.

And it's still largely about real estate, as S&P's chief economist David Wyss garnered some press for his remark at an international conference that "(U.S.) housing prices won't bottom until next summer and the losses won't peak for another two years, until 2009. We are not halfway through this crisis yet." Wyss added "We underestimated the extent to which fraud was occurring in the industry," with both lenders and homebuyers to blame.

The Wall Street Journal had a page one story titled "The United States of Subprime" and the explosion in high-interest rate mortgages from 2004-2006. It's been about the large number of Americans who are stretching beyond their means, with losses of all kinds continuing to pile up, such as in Thornburg Mortgage's announcement it lost $1.1 billion in selling bonds backed by adjustable-rate loans, far worse than expected. Homebuilder Beazer Homes, which admittedly has some unique problems due to various legal investigations, nonetheless said its cancellation rate for the quarter ending Sept. 30 was a whopping 68%, almost double the rate of the prior quarter.

But some say we are nearing the bottom, choosing to look at the fact foreclosures for September were down from August's level, though up 99% over a year ago. On the other hand, Countrywide Financial said delinquencies increased to 5.85% in September from 4% a year earlier, while foreclosures more than doubled. It also said new loans fell 44% in the month. Another, St. Joe Co., Florida's largest private land owner, announced it was eliminating 75% of its workforce, selling off 100,000 acres and scrapping the dividend. This hardly looks like a bottom.

I've argued, however, that the housing bubble and its aftermath is global, with some nations still in the process of peaking even as others take on gas.

One example of a bubble still on the ascent is China. There was an item this week about the number of $billionaires on the mainland jumping to 108, according to a new study, up from just 15 last year, thanks to both the soaring stock market and property prices. The government is trying to curb real estate speculation but to no avail. It's no different than in the U.S. Rising prices lead to more construction (and overbuilding).

The China real estate market is producing some outrageous riches. Take Yang Huiyan. Reports have her at 25 or 26 years of age, yet she is now said to be the richest person in China, being the largest shareholder in her daddy's company, Country Garden, a real estate developer. Yang is worth a cool $16 billion.

Of course this isn't sustainable and the government in Beijing, let alone everywhere else in the world, is learning the lesson that while some strike it rich, for the middle class in all nations it's still about affordability. I'll give you one more?Qatar?where according to the finance minister there, "Rent has increased 168% in the past two years." [Daily Star]

Lastly, on the issue of the securities industry, which packaged all the mortgages now turning into junk, I hope everyone took the recent earnings pronouncements, and others to follow, with a grain of salt. Ellington Capital Management, a $5.2 billion hedge fund that is temporarily suspending withdrawals from two of its offerings because of the turmoil in the credit markets, told clients in a Sept. 30 letter:

"There is no way to determine net asset values that would be simultaneously fair both to investors redeeming from these funds and to investors remaining in the funds." [Wall Street Journal]

In a regulatory filing on Wednesday, Goldman Sachs said the fair value of retained interests in its collateralized debt and loan obligations dropped from $3.79 billion three months earlier to $1.77 billion at the end of August, though Goldman did not disclose whether the holdings had shrunk because the firm marked them down, sold them or both.

So it's still about transparency, or lack thereof. We remain in an era where portfolio managers can get away with marking securities any which way they want. Without knowing more specifics, I at least give Ellington Capital credit for coming clean in theory, even as it struggles to figure out just what is on its books.

Street Bytes

--Equities rallied for a fifth straight week, though they were the smallest gains in terms of the major averages during this streak. The Dow Jones tacked on 27 points, 0.2%, to close at 14093 after earlier hitting another new high, 14164. And the S&P 500 hit a new record of its own, 1565, before finishing at 1561, up 0.3%. Nasdaq added 0.9% to 2805, but the Russell 2000 lost 0.4%.

Stocks were helped by renewed merger and acquisition activity, but the Street remains way too optimistic on corporate profits. The trailing price/earnings ratio is 18 on the S&P, far from cheap; especially seeing as the 'e' is expected to grow only about 2% in the third quarter and forecasts for the fourth will be coming down.

--Oct. 9 marked the five-year anniversary of the low for the 2000-2002 bear market, 776.76 on the S&P 500. Or, if you prefer, the fifth anniversary of the subsequent bull market. [For you market junkies out there, March 11, 2003, was another key low, 800.73. Just eight days later the S&P hit 895.79.]

--U.S. Treasury Yields

6-mo. 4.29% 2-yr. 4.22% 10-yr. 4.69% 30-yr. 4.90%

Yields on the short end rose on the strength of stronger than expected retail sales and the feeling, at least for a few hours, that the Fed may not feel compelled to lower interest rates further.

European Central Bank governor Axel Weber shook up the credit markets when he suggested the ECB may need to raise rates given the "expected acceleration in euro-region inflation over the coming months."

But the Federal Reserve's minutes from its Sept. 18 meeting, the one in which it slashed the funds rate 50 basis points, seemed to put inflation on the back burner and instead expressed concern that should the slide in housing continue, it would "feed back on employment and income." Not that this is an earth-shattering revelation, seeing as it's been my own mantra all year, but the issue is if the ECB decides to hike rates at a time when the Fed needs to lower them again to keep the U.S. economy afloat, that spells further trouble for the dollar. The Fed next meets on Halloween.

--I continually get a kick out of discussions on the shrinking budget deficit, a good thing, because of the failure to address one simple fact. The picture would be nowhere near as rosy without $60 to $80 oil. While the earnings may have peaked for Big Oil (for a variety of reasons), the revenues are still humongous and that means humongous federal income taxes. Just a reminder. In the first six months of 2007, Exxon Mobil and Chevron, combined, paid over $20 billion to the federal government. It was about $22 billion in the first half of 2006. My point being it's not just low tax rates and the entrepreneurial spirit of America, as Bush likes to tout. The facts speak of another rather large contributor that is always left out of the talking points, wouldn't you know.

--Same store sales figures for the month of September at the big retailers were putrid, up around 1%, the slowest pace in years. Wal-Mart's were up a less than expected 1.4%, but the shares rose on a higher earnings forecast due to increased margins and cost controls. Rival Target's were up 1.2%, while JC Penney saw its same store sales fall 4.6% and Macy's declined 2.7%. For once blaming the weather was truthful. It was too warm for all of us to feel compelled to buy fall and winter apparel. Personally, being almost 50 and seeing as the earth is warming four degrees each quarter, I feel like I purchased the last winter coat of my life three years ago.

--In the Journal piece on the subprime market, there was a table of selected metropolitan areas with the highest proportions of high-rate mortgages for the period 2004-06. Topping the list was the McAllen-Edinburg-Mission, Texas, area with 39.1%. Detroit-Livonia-Dearborn was next at 32.1%, followed by Miami-Miami Beach-Kendall, Fla., 31.6%.

--A report by the Carnegie Endowment for International Peace concludes corruption costs China as much as 3% of its economic output, or $86 billion in 2003, and poses a "lethal threat" to the country's economic development.

The author of the study, Minxin Pei, "says the sums of money expropriated by corrupt officials have risen 'exponentially' since the 1980s and cost more than last year's entire education budget," as reported by Richard McGregor of the Financial Times.

Mr. Pei said: "Even after adjusting for inflation, the sums of money looted by government officials today are astonishing - a relatively low-level official can amass an illicit fortune in tens of millions of yuan."

The odds of a corrupt official going to jail, though, are estimated to be just 3 in 100, as Mr. Pei concludes corruption is not just a stage of development but a failure of political reform.

--Russia's Gazprom said it reached an agreement with Ukraine on what is now being called $2 billion in debt the natural gas giant says it's owed. Just a week ago the figure was said to be $1.3 billion. There was no explanation for the increase, though it should be noted that outgoing Ukrainian Prime Minister Viktor Yanukovich, a friend of the Kremlin, signed the deal for his government.

--For the record, the price of crude oil has fallen 13 of the past 20 years in the fourth quarter due largely to slower demand vs. summer's peak levels.

--The latest IRS figures show that the wealthiest 1% of Americans earned 21.2% of all income in 2005, up from 19% in 2004. The bottom 50% earned 12.8% of all income, down from 13.4% in 2004. As Greg Ip's Journal piece was titled, "Income- Inequality Gap Widens." While comparative data isn't available, academics conclude the rich last had this high a share in the 1920s. Great Gatsby II continues.

--Big goings on in business software land this week. Oracle made a hostile bid for BEA Systems, just two days after chief rival SAP announced it planned to buy Business Objects. Coincidentally, both potential acquisitions were valued, at least initially, at $6.7 billion.

--Morgan Stanley revealed that its quantitative strategies group lost $480 million during the quarter ending Aug. 31, but in an SEC filing admitted its quant traders lost $390 million on a single day in August during the mini-panic.

Securities firms talk about their "trading value-at-risk calculation" to reassure investors that they have a handle on risk management, but MS revealed that in its case it exceeded this calculation six days during the quarter. So much for effective "stress-testing."

--What an embarrassment?Boeing pushing back delivery of the first 787 Dreamliners at least six months. The company said the delay wouldn't impact earnings, but after convincing us all it wouldn't face the same production issues that rival Airbus has, it proved it's no different. The big issue is with the suppliers, such as for carbon fiber. They are having a tough time keeping up with demand these days. [I long sold my carbon fiber holding, but that was a nice idea that continues to work well for those still in it.]

--Two years ago Sprint merged with Nextel and this week chairman and CEO Gary Forsee was dismissed. In a word, the merger has been a disaster. As an example, Sprint warned the same day that it expects to lose another 337,000 monthly customers in the current quarter.

Kim Hart / Washington Post:

"Some analysts and business school professors cite the marriage of Sprint and Nextel as a case study of a poorly conceived merger. Their wireless networks were largely incompatible, and the companies' cultures were worlds apart. Sprint was more than a century old and had a legacy in the local and long-distance telephone business. Nextel was barely a decade old, a scrappy up-and-comer that had cobbled together its network out of cab companies' walkie-talkie licenses."

Hoped for $multi-billions in savings never materialized as combining the operations cost far more than either company projected, thanks in no small part to Forsee's $5 billion commitment to build out a new high-speed wireless network using largely untested WiMax technology.

--Since I slammed Internet-telephony company Vonage on more than one occasion, I note it settled its patent dispute with Sprint Nextel, agreeing to pay $80 million to license Sprint's technology. The stock finished the week up nearly $1 to $1.85, though its long-term viability is still very much in question.

--Shares in Google closed at $637. You know, the latest earnings estimate for 2008 is $20 and with its growth rate it's tough to say the company is way overvalued, even by my conservative way of thinking.

--Inflation Watch: Argentines are protesting the rising cost of tomatoes by launching a boycott of supermarkets and the product. This is part of the public's outrage over the government's official inflation data that put it at just 0.8% for September. It's a big issue in the upcoming presidential election. According to the BBC, official statistics list tomatoes at 4 pesos a kilo, but vendors sell them for 18 pesos, putting them out of the reach of many in the country.

--Inflation Watch, Part Deux: In the latest Zagat's survey of New York City Restaurants, the average tab at the 20 priciest restaurants is up 69% over the past five years. But the good news is the overall city average is basically unchanged over the same period.

--Molson Coors Brewing Co. and SABMiller announced they will merge their U.S. operations in a joint venture. The new MillerCoors will take advantage of its clout to compete with Anheuser-Busch, including in its ability to negotiate better placement on the advertising front, such as for major sporting events. But I'm just wondering if this means Miller will be able to access Coors' Rocky Mountain spring water. Maybe Coors could dig a little channel and divert some of the good stuff over to Miller.

--My portfolio: The China bio-diesel holding continues to hang in there at higher levels after the big run-up, but I've become quite the weatherman, seeing as how the region where the company is located has been hit by one typhoon after another and I'm constantly worrying about production delays. [I can virtually guarantee I am the only U.S. investor who sees a typhoon develop and then follows it all the way across.] This last one, Typhoon Krosa, caused $1 billion in damages. In all seriousness, I will take the weather into account when I decide to exit this position, though hopefully not for another 1 ? years or so. At some point there is likely to be a major storm-related disappointment.

Foreign Affairs

North Korea: This week Kim Jong Il celebrated the one-year anniversary of his nation's nuclear test. James Schoff, associate director of Asia-Pacific studies at the Institute for Foreign Policy Analysis, had a good description of the current situation in the South China Morning Post.

"Contrary to South Korean President Roh Moo-hyun's confident statement that 'the North Korean nuclear issue will rapidly arrive at a complete resolution,' we are better off keeping expectations in check because, upon opening this gift, we are likely to find that more assembly is required?.

"In short, Pyongyang agreed [at six-party talks going back to 2005] to disable its most important nuclear facilities and to provide a complete declaration of its nuclear programs by the end of the year. In return, the U.S. committed itself to begin removing North Korea from its list of state sponsors of terrorism and lifting economic sanctions. It also agreed to work with other six-party members to provide Pyongyang with significant economic, energy and humanitarian assistance.

"The agreement says the disablement of the North's nuclear facilities will be recommended by the nuclear expert working group. The problem is that we don't know what 'disablement' means. Does a written description of these disablement procedures exist, and has it been formally approved by the six- party negotiators? In the absence of more information, we can only assume that there is less here than meets the eye."

For example, Schoff notes it gets down to details such as whether in disabling the plants, could the North easily acquire critical parts to restart them, or would it entail Pyongyang undertaking "an expensive and very visible year-long effort to rebuilt its nuclear capabilities. That's a big difference."

Separately, columnist Jim Hoagland of the Washington Post says some in the intelligence community believe North Korea has far fewer nuclear bombs than most believe; as in six vs. 12-15. Could this be one reason why Kim has at least publicly appeared to want to cooperate as his nation starves? Is this why the White House is seemingly ignoring the reported North Korea-Syria connection because Pyongyang's nuclear program just isn't that substantial and is controllable?

I think as big a question could be an old one?just who is behind Kim as his health deteriorates? Are there reformists in the midst, or more likely, a bunch of corrupt business types who want to cash in a la Russia's first oligarchs in the Yeltsin era? Or, while Kim has tabbed a son to take over, could there still be a coup by hardliners?

On the business angle, one place to watch is the North-South joint venture at Kaesong, an industrial zone inside North Korea that was designed to instill cooperation between the two. Currently, 19,400 North Koreans are employed here, with another 800 South Koreans in 26 factories, but Seoul envisions 450 companies employing 700,000 by 2012.

China: The 17th National Party Congress is slated to begin this week, during which President Hu Jintao is expected to anoint a successor for 2012.

For its part, the United States is frustrated over the lack of cooperation between the two on issues such as Burma, Sudan and Iran, though it's really no surprise since China is focused on energy security in the case of all three. China instead wants Washington to negotiate directly with Tehran.

And as China expert Cheng Li notes, "China's view on non- interference differs dramatically from U.S. goals on democracy and human rights," adding "the Chinese want bargaining power with the Americans over their own vital interests in Taiwan."

Ah yes, Taiwan. This past week during National Day celebrations in Taipei, Taiwan displayed the latest in military technology, including two locally developed advanced missiles, as President Chen Shui-bian used the event to reiterate that his island's identity was tied to use of the name "Taiwan" rather than the Republic of China, especially when pressing for UN membership.

"The problem in the Taiwan Strait today does not rest with Taiwan," said Chen. "Rather it is with China's totalitarianism, authoritarianism and dictatorship." [South China Morning Post]

Well?Beijing was none too pleased to hear this, while on the mainland two leading democracy activists have gone missing amidst an intensified crackdown by the communist government.

And then we have China's lack of cooperation on the topic of Burma, as alluded to above. President Bush deserves his share of criticism too.

William Kristol / op-ed Washington Post

"[Regarding the president's address in September to the UN General Assembly, Bush] remarked that 'the ruling junta remains unyielding.' So he took the opportunity to announce 'a series of steps to help bring peaceful change to Burma,' including tighter economic sanctions on the regime's leaders and their financial backers and an expanded visa ban on the worst human rights violators. He urged 'the United Nations and all nations to use their diplomatic and economic leverage to help the Burmese people reclaim their freedom.' National security adviser Stephen J. Hadley explained to the New York Times that Bush wanted Burma's government to 'understand that there is a time now for a political transition' and to send a warning against harshly suppressing the protests.

"That night, Burma's dictators announced a curfew in major cities. The next day, the bloody crackdown began. Within a few days, scores (at least) of peaceful protesters had been killed, and hundreds - maybe thousands - of Buddhist monks and democratic activists had been rounded up and taken away; their fates are unknown. Monasteries were occupied and ransacked by Army troops.

"So much for Bush's warning against harshly suppressing the peaceful protests for freedom and democracy?.

"In his second inaugural address, President Bush, quoting Lincoln, put 'the rulers of outlaw regimes' on notice: 'Those who deny freedom to others deserve it not for themselves; and, under the rule of a just God, cannot long retain it.' Couldn't the Bush administration do more to give that just God a helping hand?"

Editorial / Washington Post?on the role of China and India:

"The strangest statement [at a recent UN meeting] came from China's ambassador, who noted with satisfaction that the situation in Burma was 'calming down thanks to the joint effort of all parties.' If by 'joint efforts' he meant the decision by one side to shoot and bludgeon, and by the other to submit to shooting and bludgeoning, that was true. But even stranger, perhaps, has been the silence emanating from India, the world's largest democracy and the birthplace of Buddhism. As long as India and Southeast Asian democracies put commercial interests ahead of principle, progress will be slow.

"The Nobel Peace Prize is due to be announced today, 16 years after Aung San Suu Kyi herself was the recipient. In all those years, spent mostly under house arrest, she has remained true to the ideals of democracy, reconciliation and nonviolence. Perhaps, in the midst of celebrating this year's winner, global leaders will pause to think about whether they could do a bit more to support her and her unspeakably courageous comrades."

Alas, instead we learned this week that a key ally of Suu Kyi was tortured and cremated, according to a rights group. You learn of such things when the body isn't returned to the family. And in a scene reminiscent of the Holocaust, locals speak of seeing trucks covered with tarpaulins heading into the municipal crematorium late at night, with continuous smoke from the furnaces; an effort no doubt designed to cover up the true death toll.

If knowledge of this last bit becomes widespread in the world press, look for China to not only come under increasing pressure, but for calls for a boycott of the Beijing Olympics to gain traction.

Afghanistan: NATO faces a crisis by end of 2008 as Canada and the Netherlands talk of pulling their significant forces?3,000 in the former; 1,700 in the latter?due to higher casualties, protests at home, and the stress on reserve levels.

NATO's force is currently 41,000 strong, including 15,000 U.S. troops aligned with it. [The U.S. has an additional 11,000 in a separate counterinsurgency mission.] The UK is the 2nd-largest with 6,700.

Pakistan: Heavy fighting in North Waziristan, on the border with Afghanistan, has claimed over 250 lives as President Musharraf has sent in tens of thousands of troops to combat the tribal chiefs who reneged on the peace deal brokered last year. You'll recall that there was much skepticism at the time when the government and tribal leaders agreed on a plan to expel al-Qaeda and non- Pakistani gunmen. The deal fell apart in July, violence has ratcheted up big time in the cities, Pakistani forces have killed a large number of innocents in the current fighting, and the extremists have everything they need to sow further terror and unrest.

Amidst this, Musharraf won reelection, though he now awaits a Supreme Court ruling (around Oct. 17), on whether he was allowed to run for president while heading the military. Musharraf had pledged to step down as army chief by Nov. 15 were he to win reelection.

But then on Friday, to compound matters, Musharraf said he does not want former prime minister Benazir Bhutto to return from exile as she has long planned, Oct. 18.

Israel / Syria: There remain serious questions about just what the Sept. 6 attack by the Israeli Air Force on a site in Syria was all about. Within the White House itself there is a battle between Vice President Cheney and Secretary of State Condoleezza Rice; with the former expressing full confidence in Israeli intelligence that North Korea was aiding Syria in a nuclear program of some sort, while the State Department questions the intel and whether the attack was warranted based on existing tensions in the region and concerns over escalation, as well as the ramifications for nuclear disarmament talks over North Korea.

For its part Turkey assured Syria it would not allow Israel to use its airspace to strike Syria. The rumor was that four Israeli planes flew along the Syrian-Turkish border before striking inside Syria on September 6. Turkey's Foreign Minister Ali Babacan told Syrian President Bashar Assad, "Turkey will not let Turkish territory or airspace be used in any activity that could harm the security or safety of Syria." [Daily Star]

Russia: Last week I said Vladimir Putin was 54 years of age. Well I didn't know that the next day, Sunday, he turned 55. Anyway, there is much talk around the Kremlin that when Putin becomes prime minister, as now seems certain, he will change the constitution to lengthen the term of president from four to five years, maybe even seven. Meaning if he were to run for president again in 2012, as current law allows, he could then be in power until 2022, or longer. Then again, he could become president in 2010, let's say, due to an "emergency." In 2022, by the way, he'd still just be 70.

Britain: Prime Minister Gordon Brown is in hot water over his failure to call for an early election; this as polls show his Labour Party trailing the Tories by six points. ---

Pray for the men and women of our armed forces.

God bless America.

---

Gold closed at $753
Oil, $83.69

Returns for the week 10/8-10/12

Dow Jones +0.2% [14093]
S&P 500 +0.3% [1561]
S&P MidCap -0.2%
Russell 2000 -0.4%
Nasdaq +0.9% [2805]

Returns for the period 1/1/07-10/12/07

Dow Jones +13.1%
S&P 500 +10.1%
S&P MidCap +13.4%
Russell 2000 +6.8%
Nasdaq +16.2%

Bulls 60.2 [uh oh....]
Bears 21.5 [Source: Chartcraft / Investors Intelligence]

Have a great week. I appreciate your support.

Brian Trumbore

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.