Educate Yourself

Week in Review
For the week 11/26/2007 - 11/30/2007
Brian Trumbore
President/Editor, StocksandNews.com

Before I get into the Fed's latest bailout of Wall Street, as well as a proposal sweeping the markets and Washington to in essence bailout some homebuyers by freezing "teaser" interest rates on their adjustable mortgages, I want to readdress a topic I have broached the past few months.

Such as in last week's review I quoted former SEC director Richard Breeden who said "Transparency is what makes the markets." To which I added that these days the U.S. capital markets system is an utter embarrassment. We're a "laughingstock" around the globe.

If you thought "laughingstock" was too strong a word then, you might be rethinking that today.

For years I've said the U.S. stock market was no more than a casino, thanks to a large extent to program trading, which often comprises 50% or more of overall trading volume. But now you can expand that to a simple reality. To a great extent our markets are rigged, or, more broadly speaking, you could say we live in the United States of Goldman.

Over the past few decades, from time to time Asian markets have experienced spectacular bubbles that have largely resulted from shared holdings; as in Co. X holds shares in Co. Y, and Co. Y holds shares in Co. X. A giant Ponzi scheme, in other words. It was true in the 80s in Japan, later South Korea, and today China to a lesser extent. It's also a joke.

As is the U.S. today. Not in the sense of shared holdings, but in the lack of transparency, coupled with the lack of a level playing field.

You want an analogy? Look at President Bush and his 'democracy agenda.' Now that's a joke. It's one thing to want to spread democracy in the Middle East, but then you can't ignore an autocrat/dictator like Egypt's Hosni Mubarak, or you can't look the other way when a man we've handed $10 billion, Pervez Musharraf of Pakistan, calls a state of emergency to squash supporters of democracy. Or tiptoeing around the fact Saudi Arabia is ruled by autocrats, while at the same time encouraging a vote in Palestine and then condemning the result.

In other words, there's no consistency in policy. As in there's no consistency in domestic, fiscal and monetary policy, as well as foreign policy. That's what the joke is these days in America. And that's what the 2008 presidential election should be about, in actuality.

As Senator John McCain says on the issue of torture, for example, it's about our moral standing. America used to be the guiding light, not just for the Free World, but for those in other nations that were oppressed. Today, both on Wall Street and in the international sphere, you can't tell me what the United States stands for. Free markets? Bull. Democracy? It's in the eye of the beholder.

Back to the mortgage issue and potential bailouts, I don't 'short' the market and I have no interest in seeing anyone suffer. A massive wave of foreclosures in no way helps me, so of course I want what's best for good, law-abiding people. Each week when I write this column, in the back of my mind I try and remember to be sensitive to those who may have made poor decisions and are paying for them. There's nothing worse in life than having that gnawing feeling and not being able to sleep at night.

But if you're not too familiar with the ways of Wall Street and government, just understand that these days there is a ton of manipulation taking place. Anyone who says we are better than some of the emerging markets I myself used to poke fun at, in terms of the rules of the game, isn't looking in the mirror and facing reality.

This is a great country, made up of good people. When was the last time you saw the Chinese military send troops to Indonesia for tsunami relief, or Bangladesh, as in the cyclone disaster? It's always the United States. We have as good a heart as any in the world.

But there are very troubling signs, in so many areas, that we have lost our way. I can say with certainty that is the case when it comes to our financial markets and our government.

This used to be a society where you understood the rules of the game and the contract was you played by them or were penalized. In foreign policy, outsiders knew what the United States stood for. We held the moral high ground.

But I need to digress even further to discuss another topic I need to get off my chest.

When everyone began praising French President Nicolas Sarkozy, I said this was a big reason why I didn't want to play the French-bashing game when it was popular to do so. I would write we'll need them one day, and we should have taken advantage of the French when Lebanon's Rafik Hariri was assassinated, something I wrote extensively on at the time. Jacques Chirac was not a real popular figure in America, and for good reason, but he was a staunch ally and friend of Hariri. There was an instance, I wrote, where Presidents Bush and Chirac should have been hand in hand in Beirut, supporting the democracy movement that sprang up before Syria and Hizbullah could regain their footing. Alas, that wasn't the case.

To a lesser extent, it's popular in conservative circles in America to bash the BBC, the British Broadcasting Corp., for being anti- American in its coverage.

But I watch the BBC every morning because it's one of the few news outlets left in the world that has resources around the globe. The BBC covers parts of the global scene that no American network does, with the exception of CNN, while most of our networks waste our time on the latest Stacey Peterson type case. When I watch the BBC, I know when I'm being spun. I just want some facts so I can form my own opinion.

And so it was that the other evening I stumbled on the BBC and opted to watch its broadcast rather than the local news telecast I normally do at that time. I wish every American could have seen an extensive report it had from Baghdad that evening.

Last Sunday on "This Week," in discussing the Iraq War and the success of the 'surge,' Cokie Roberts said "it just breaks your heart." Her colleagues looked at her quizzically, but I knew immediately where she was coming from as she went on to explain, 'if we had only done things right in the beginning, this kind of success could have come far earlier.' My exact sentiments.

So the BBC report highlighted one of the many successes in and around Baghdad. 600 Sunni fighters, who once fought against the United States, have rallied around General David Petraeus and their own charismatic leader, Abdul Abed. They are called the Knights of Mesopotamia and since August, there has not been a single attack or killing in the area under their control. It had to be the most uplifting report I've seen on the entire war. And to top it off, the BBC reporter said "the short-term payoff has been nothing short of spectacular."

This from the 'hated' BBC; a spectacularly positive report on America and its much-criticized war. And it all started with Gen. David Petraeus talking to our enemies. There are so many lessons to be learned in just this one example, including, most obviously, with regards to Iran.

Come home, David Petraeus, when your mission is complete. We need you desperately. With perhaps one exception, you are head and shoulders above all the prospects we have running for president. We are also desperate for your moral leadership, in so many different areas, including on Wall Street.

"Three months ago it was reasonable to expect that the subprime credit crisis would be a financially significant event but not one that would threaten the overall pattern of economic growth. This is still a possible outcome but no longer the preponderant probability.

"Even if necessary changes in policy are implemented, the odds now favor a U.S. recession that slows growth significantly on a global basis. Without stronger policy responses than have been observed to date, moreover, there is the risk that the adverse impacts will be felt for the rest of this decade and beyond.

"Several streams of data indicate how much more serious the situation is than was clear a few months ago. First, forward- looking indicators suggest that the housing sector may be in free- fall from what felt like the basement levels of a few months ago. Single family home construction may be down over the next year by as much as half from previous peak levels. There are forecasts implied by at least one property derivatives market indicating that nationwide house prices could fall from their previous peaks by as much as 25% over the next several years.

"We do not have comparable experiences on which to base predictions about what this will mean for the overall economy, but it is hard to believe declines of anything like this magnitude will not lead to a dramatic slowing in the consumer spending that has driven the economy in recent years.

"Second, it is now clear that only a small part of the financial distress that must be worked through has yet been faced. On even the most optimistic estimates, the rate of foreclosure will more than double over the next year as rates reset on subprime mortgages and home values fall?.

"In such an environment, economic policy needs to be governed by the clear and public recognition that restoring the normal functioning of the financial system and containing any damage its breakdown may do the real economy is the central macro- economic and financial challenge facing the U.S. In the U.S. today, as in many other countries in the past, confidence will return the first day an official statement about the economy proves to have been too pessimistic."

Summers goes on to say that "fiscal policy needs to be on stand- by to provide immediate temporary stimulus through spending or tax benefits for low- and middle-income families if the situation worsens." [Financial Times]

Larry Summers is highly respected in all circles (well, except women, but that's a different story) and I can virtually guarantee that Federal Reserve Vice Chairman Donald Kohn and Chairman Ben Bernanke were thinking of Summers' comments when they made their own on Wednesday and Thursday that in turn fueled a huge rally in stocks.

Kohn said, "Should the elevated turbulence persist, it would increase the possibility of further tightening in financial conditions for households and businesses." The Fed must be "flexible and pragmatic." Kohn added, "Heightened concerns about larger losses at financial institutions now reflected in various markets have depressed equity prices and could induce more intermediaries to adopt a more defensive posture in granting credit, not only for house purchases, but for other uses as well."

Kohn also admitted that he was basically like Tweedledee (Bernanke) and Tweedledum (Treasury Secretary Hank Paulson) in that "The degree of deterioration that's happened over the last couple of weeks is not something I personally anticipated."

The next day Bernanke said that the housing crisis and related mortgage turmoil were adding "greater than usual" uncertainty in the financial markets as well as the economic outlook. Bernanke added that "the weak housing market, tighter credit conditions, and declines in stock prices seem likely to create some headwinds for the consumer in the months ahead."

"The effectiveness of monetary policy depends critically on maintaining the public's confidence that inflation will be well controlled."

Of course this is the tightrope the Fed will be walking when it opts to lower interest rates further on Dec. 11. [If it doesn't, Katy bar the door.]

So here's my bottom line, in keeping with the opening commentary. Bernanke and Kohn's remarks bailed out Wall Street, which had just hit the 10% correction level from the highs, in strongly hinting the Fed was prepared to continue to lower interest rates.

Kohn and Bernanke were also trying to tell the credit markets they are prepared, as they did in August, to do everything to keep the spigots open.

Paulson's proposal on mortgages is a bailout, too, yet in keeping with Summers' principle that, essentially, both the Fed and the Treasury (read White House and Congress) have to do everything necessary to keep the average American from suffering unnecessarily.

There's nothing wrong with this if policy is administered consistently and on a level playing field. I just think these days it smacks of a rigged market, because there has been zero consistency in federal or Fed policy.

It was all fine and dandy when the banks and mortgage lenders were promoting home ownership, even for feral cats with fraudulent papers and zero income, just as it was all fine and dandy when Wall Street's analysts were in cahoots with their investment banking divisions to tout Internet companies that had no viable business plan, as long as it meant fee income.

Some final thoughts and facts. New and existing home sales continued to fall short of already dour expectations, with the median price on a new home now down 13% from its year ago level, while the new benchmark, the S&P/Case-Shiller index of metropolitan markets across the country, showed prices down 4.5% over the past 12 months.

Foreclosures have doubled in one year, though up only 2% in October over September, if you're looking for a shred of good news, but inventories are at their highest level since 1985. This last bit is critical. To repeat myself, when we do hit bottom in the housing market in terms of prices, there is absolutely no way we then begin to climb back up the price ladder until we work off a substantial portion of the inventory.

And thus far we've been focused on residential real estate, yet now we're seeing increasing reports that the commercial end is finally on the verge of rolling over as well. CB Richard Ellis, the world's biggest property consultant, said the commercial property market is facing its worst year since it crashed in the early 1990s.

"Real estate deals are coming apart at the fastest pace since September 2001, when the U.S. economy was shrinking, because banks are tightening standards for loans, said Robert White, president of Real Capital Analytics, a New York-based research firm.

"About $15 billion of commercial property transactions of $10 million or more are under contract in the U.S., compared with about $70 billion at mid-year, White said. That's unusual because the number usually rises at year-end, he said.

"More than 75 have been withdrawn because banks aren't lending, and that estimate is 'probably conservative, because not all deals that blow up are well-publicized.' White said."

"Lenders are cracking down on sub-prime borrowers across Britain and could force tens of thousands of homeowners into forced sales of their homes, property experts warned yesterday.

"The global credit crunch provoked by the crisis in American sub-prime mortgages is creating a time bomb in Britain's own market for loans to borrowers with imperfect credit records."

The British Bankers' Association warned that house prices are in for their sharpest correction in at least a decade, and as I noted a while back, folks here have far more debt than even the average American.

--After plummeting 237 points to 12743 on Monday, and thus crossing the 10% correction threshold from its high of 14164, the Dow Jones and the other major indexes staged a spectacular rally on the heels of talk of fresh rate cuts, as well as a cash infusion from the Arabs into distressed Citigroup (more below). The Dow finished the week up 3% to 13371, while the S&P 500 gained 2.8% to 1481 and Nasdaq picked up 2.5% to 2660.

But the Fed's own beige book of regional economic activity said we would see a "slow holiday season," despite the silly talk of Black Friday and Cyber Monday, as in attempting to extrapolate out after one or two caffeine-fueled mornings and afternoons. And it needs to be noted that if you believe stocks over the long run trade off of earnings as much as anything else, well those same earnings, as forecast, are plummeting. Thomson Financial now estimates earnings growth of just 2% in the fourth quarter, down from an earlier projection of 12%.

Bonds rallied some on talk of further rate cuts, but much of the move had already been priced in. On the economic data front, personal consumption for October was up only 0.2%, the same figure as personal income, but construction spending was down a whopping 0.8%, double expectations.

And for the record, the first revision of third quarter GDP came in at a strong 4.9%, but few believe the fourth quarter's pace will be higher than 1%.

--Good news! Oil plummeted back below $90 on concerns over demand amidst a U.S. slowdown. And that all-important figure on gasoline futures is back to $2.25, below my $2.30 target level. If this were to hold, gasoline at the pump would fall back below $3.00 in most portions of the country.

"Investors seem delighted that Abu Dhabi is injecting $7.5 billion into Citigroup, bidding up stocks in general on new confidence that the mortgage solvency crisis might ease. We hate to spoil the party, but it strikes us as unfortunate, if not a tragedy, that America's largest bank had to go hat in hand to Arab sheiks because of bad management and blundering U.S. monetary policy.

"The Citi play is being spun as a masterstroke by Robert Rubin, the chairman of the bank's executive committee. The bank gets a capital infusion without having to cut its dividend, and gives up only a minority stake while Abu Dhabi gets no seat on the board. Even better from a political point of view, Abu Dhabi will be able to convert shares for no more than a 4.9% stake, which comes in just below the 5% level that requires approval by the Federal Reserve. Mr. Rubin even seems to have greased the skids on Capitol Hill, with New York Senator Chuck Schumer already forgetting his campaign against Dubai Ports World.

"Citigroup did have to shore up its balance sheet, and we suppose petrodollars are a better source of capital than U.S. taxpayers under a 'too big to fail' doctrine. On the other hand, where were Mr. Rubin and the bank board when Citi was betting so much on subprime? Given the 11% the bank is paying Abu Dhabi, Citigroup's other equity holders might also be better off down the road had they taken a dividend cut instead?.

"No one should doubt that [the Fed's] monetary mistakes helped to make possible Citi of Arabia. Its easy money policy this decade created a subsidy for debt that led to the housing bubble and Citi's mistakes in the mortgage and [structured investment vehicle] markets. It also fed a global commodity boom that has enriched the oil producers and other countries that have a low propensity for domestic consumption. Their petrodollar windfall has to go somewhere, and so it is gobbling up U.S. assets. This recycling may help Citigroup now, but it has also weakened American influence more broadly as the dollar has continued to decline. And it left Abu Dhabi better positioned than American finance companies to rescue Citigroup.

"No one favors open capital markets more than we do, and foreign investment is a crucial part of American economic success. But since 9/11, commercial calculations must also consider national security. We'd feel better if this deal were inspected by U.S. officials, and we especially agree with [Manhattan District Attorney Robert] Morgenthau when he says, 'It's a sad day for American financial markets when you've got to turn to Abu Dhabi to get bailed out.'"

--As I note below, it will not be smooth sailing for Russian President Vladimir Putin in the years to come, domestically, because inflation is a rapidly growing issue. The government now forecasts it is running over 11%.

--Under pressure from French President Nicolas Sarkozy and other European leaders who had separate visits to Beijing this week, China's Prime Minister Wen Jiabao said "China will continue to perfect the renminbi exchange rate in a gradual, proactive and manageable manner, (while giving) a further role to the market in determining the exchange rate." The key here is Wen's mention of "the market," a first and mildly encouraging.

The EU is helping the U.S. in this matter because its own trade deficit with China is forecast to hit $250 billion this year as tensions rise sharply.

--My investment partner David P. and I were exchanging notes on Goldman Sachs and with its rising power in the U.S. financial markets, and governance in general [ex-CEOs Hank Paulson and New Jersey Governor Jon Corzine being two examples], I think a good description of Goldman these days is 'chaebol,' as in the ruling conglomerates of South Korea. This isn't a compliment. Goldman has tremendous conflicts of interest throughout its operation, far more so than others on the Street, and it is a master of manipulating its book, or talking out of both sides of its mouth depending on its positions. [Whether it's a prediction on oil or the U.S. dollar, for example, let alone individual stocks.]

--Morgan Stanley's co-president Zoe Cruz was fired as a result of the firm's excessive losses in its mortgage securities holdings, though as some reported this move had as much to do with her leadership style as trading losses.

--Motorola's Ed Zander was forced out. He said he looked forward to spending more time with his family. His family said they liked things the way they were and intended to fly to Guam.

--Speaking of the mortgage debacle, and related securities, such as structured investment vehicles, the state of Florida was forced to suspend withdrawals from an investment fund for schools and local governments after a flat-out run on the bank, sparked by downgrades of debt held in the portfolio. On Thursday alone, the Local Government Investment Pool had $3.5 billion of withdrawals before the governor was forced to step in. Expect this story to be repeated increasingly around the country. The issue is there are simply no bids for many of the instruments in these portfolios, most of which serve as money-market type alternatives.

"A recent study by the Organization for Economic Cooperation and Development concluded that biofuels 'offer a cure [for oil dependence] that is worse than the disease.' A National Academy of Sciences study said corn-based ethanol could strain water supplies. The American Lung Association expressed concern about a form of air pollution from burning ethanol in gasoline. Political cartoonists have taken to skewering the fuel for raising the price of food to the world's poor."

And of course these days you have the growing battle between livestock farmers and the ethanol producers because the former's profits are crumbling due to soaring feed costs, up over 50% on average depending on the price for corn at any given time.

So it should also be no surprise that the ethanol industry is consolidating furiously. The other day VeraSun Energy announced it would acquire U.S. BioEnergy, creating what could become the largest producer, surpassing Archer-Daniels- Midland.

[Separately, in a story by James R. Healey of USA Today, researcher John Graham concludes that "Compared to gasoline, a driver could spend as much as $1,600 more on fuel over a vehicle's life burning E85, a mix of 85% ethanol and 15% gasoline, (he) calculates, while a diesel could save as much as $2,300." Graham founded the Harvard Center for Risk Analysis.]

--House and Senate negotiators agreed to hike fuel efficiency standards to 35 miles per gallon by 2020. It's absurd we have to wait that long.

--A former senior Macau official has been accused of taking $100 million in kickbacks related to the casino boom, in a big blow to the territory's efforts to rid Macau of its corrupt past.

"The securities sector accounted for 40% of all the new jobs in the city in 2004, 05, and 06.

"The industry provided 20% of all state tax revenues and 9% of city collections.

"Pay soared to levels never seen even in the Street's gilded history. Bonuses hit a record $23.9 billion last year. The average wage rose to $340,000 - an increase of $50,000 in just one year." [Greg David / Crain's New York Business]

--Last week I said "Dec. 10" was online retailing's Black Friday, and then all you heard this past Monday was that Nov. 26 was "Cyber Monday." So did I get it wrong? Not really. Despite all the hoopla, Cyber Monday is not necessarily the biggest online shopping day of the season, and the way the calendar plays out it could be Dec. 10 as folks focus on ordering gifts that will arrive on time. It's yet another date the online community is pushing. Of course, regardless, all of us are sick of these terms and the excessive publicity paid to them.

But for the record, Cyber Monday sales were supposedly up about 20%, exactly as I noted last week.

--Nice quarter for Sears Holdings, the fourth-largest U.S. retailer ?..NOT! Net income fell to $2 million from $196 million in the same period a year ago as sales declined 3%. The next Warren Buffett, Eddie Lampert, Sears Holdings' leader through his 46% ownership via his hedge fund, took a bath as shares in Sears continue to plummet. And Lampert's other stakes ranging from AutoZone to Citigroup to Home Depot have also plunged. So he may have to wait another year or so before his coronation.

--Dell continues to suck wind as orders from U.S. consumers fell. I know from my own standpoint, while my first 11 or so computers for the business were Dells, the last two haven't been. Hewlett-Packard continues to grab market share.

--Broadway settled the stagehands strike. The folks I felt sorry for were restaurant owners in the area. But the key for the strikers was work rules and now stagehands will receive double compensation for the hour after a show. Classic.

--PNC gives us the cost of "The Twelve Days of Christmas" each year as an inflation indicator. Such as the price for six geese-a- laying has risen from $300 to $360 due to soaring feed costs. However, I have exclusive research of my own. The cost of six geese-a-laying Faberge eggs has risen from $9 million to over $18 million.

The Middle East: I cannot criticize President Bush for attempting to put the parties together on the Israeli-Palestinian issue as he did in Annapolis this past week, but that doesn't mean I have to be optimistic.

What we do know is that starting Dec. 12, formal negotiations are to be held every two weeks between Israeli Prime Minister Ehud Olmert and Palestinian Authority President Mahmoud Abbas, but in terms of even thinking about any final two-state solution, two simple things must occur. Israel must stop building new settlements and the Palestinians have to stop firing rockets into Israel. That's it. You don't even have to begin to discuss how Hamas and Hizbullah, via a now totally ticked off Iran, will look to derail any progress, nor how right-wing extremists in Israel will look to do the same; Israel won't stop building settlements and the rockets will keep flying over the border.

And as the Jerusalem Post reported on Thursday, "Fatah will fight alongside Hamas if and when the IDF (Israeli Defense Force) launches a military operation in the Gaza Strip, a senior Fatah official in Gaza City said Thursday.

" 'Fatah won't remain idle in the face of an Israeli invasion,' the official said. 'We will definitely fight together with Hamas against the Israeli army. It's our duty to defend our people against the occupiers.'"

One positive from Annapolis is that Syria showed up, which the United States hopes signals a future split from Iran, but before anyone gets too excited, understand Syria only sent its deputy foreign minister and it is demanding a return of the Golan Heights, which just isn't going to happen.

Also understand that when it comes to Syria's participation and that of Saudi Arabia and the 30-other Arab World nations and organizations that were in attendance, no one is about to recognize Israel as a Jewish state and Saudi Arabia still won't even shake hands with Israel, which is truly pitiful.

But you want something positive? This is an editorial from Lebanon's Daily Star.

"Surprising though it may seem, the much-maligned [President Bush] has actually succeeded on a couple of key points. More than three dozen countries and organizations agreed to take part in the Annapolis conference, including all-important players Syria and Saudi Arabia: Reviving the peace process without them would have been a fool's errand. In addition, the run-up to the talks has enabled Palestinian and Israeli officials to build something like a working relationship: Doors have been opened, in other words, that were closed for years."

"Remember Nancy Pelosi's spring break in Damascus? Condoleezza Rice apparently does not. When the House Speaker paid Syrian strongman Bashar Assad a call back in April, President Bush denounced her for sending 'mixed signals' that 'lead the Assad government to believe they are part of the mainstream of the international community, when in fact they are a state sponsor of terror.' Today, said sponsor of terror will take its place at the table Ms. Rice has set for the Middle Eastern conference at the Naval Academy.

"Only at Foggy Bottom would Syria's last-minute decision to go to Annapolis be considered a diplomatic triumph."

"Short of intolerable carnage, there's no durable solution to the Israeli-Palestinian problem. None. The best all parties can hope for is an occasional time-out.

"A respite between rounds isn't worthless, of course - lives are saved, Israel's economy improves and the Arabs get one more chance to get their act together. But we're forever disappointed because we're convinced there's a good, permanent solution, if only we can figure it out.

"That's the American way: a can-do spirit, the conviction that no problem's too tough for us. But, in the real world (and in the bizarre fantasyland of Arab culture), some foreign problems can't be resolved equitably. They can only smolder on, occasionally erupting in flames.

"In the Middle East, you can't buy peace. You can only buy time. If we want to help at all, the fundamental requirement is to have realistic expectations?.

"If you want a sober perspective on the Annapolis dog-and-pony show, just ask yourself this: Who will leave disappointed, if nothing much results?

"The Israelis will just be relieved that their latest trip to the geostrategic dentist is over.

"Any Russians soiling the furniture at the Naval Academy will be delighted if another American effort flops.

"Oh, and even if there's some sort of agreement, only the Israelis will honor it. Grudgingly.

"We're dealing with people who are fighting for their lives and homes. Our team's fighting for poll numbers. Now that's asymmetrical warfare."

"There are signs of change in some Arab circles, of a willingness to accept Israel and even to see the possibility of a positive Israeli contribution to the public life of the region. But such opinions are only furtively expressed. Sometimes, those who dare to express them are jailed or worse. These opinions have as yet little or no impact on the leadership.

"Which brings us back to the Annapolis summit. If the issue is not the size of Israel, but its existence, negotiations are foredoomed. And in light of the past record, it is clear that is and will remain the issue, until the Arab leadership either achieves or renounces its purpose - to destroy Israel. Both seem equally unlikely for the time being."

Iran: EU foreign policy chief Javier Solana met with Iran's top nuclear negotiator and said "I expected more and am therefore disappointed."

Who the heck knows where Iran stands with its nuclear weapons program? The fact is it's been defying the UN Security Council for about a year now, refusing to halt its uranium enrichment operation, sanctions haven't worked with $90 oil as a monetary buffer for Tehran, and Russia and China are showing no signs of putting needed pressure on Iran to cut the crap.

For its own part the U.S. has jerked around for years, refusing to even end-run President Ahmadinejad, and it doesn't matter what anyone says at this point, including the White House and Israel. If we are in the same stalemate a year from now, there will be a military conflict.

So as in Petraeus' example up above, get on a plane, President Bush, and meet with Ahmadinejad's rival and leader of the all- important Guardian Council, Hashemi Rafsanjani, somewhere in the Middle East and play some dirty pool. Take Petraeus with you. And just for spite, accept the invitation to speak at Tehran University for the sole purpose of watching Ahmadinejad turn purple and deny the request, thus making him out to be the bad guy in the eyes of his own people.

Iraq: A Pew poll shows 48% of Americans now believe the surge is going well, compared to 30% earlier in the year, but 54% still want the troops to come home today.

Lebanon: The election for president was postponed yet again, however, there is good news, potentially. A compromise candidate, General Michel Suleiman, has been agreed upon. Gen. Suleiman currently commands the Lebanese Army. Sounds good to me.

Russia: Tsar Putin, or Vlad the Great, take your pick, will romp in Sunday's parliamentary election. Heading the United Russia ticket, Putin will then have until March's presidential vote to decide just how he will remain the key figure in town. The actual size of the vote for the party will probably determine whether or not Putin allows parliament to come up with some way to keep him in power, indefinitely. For now we have to assume he'll become prime minister next spring and work his way back to president shortly thereafter, but a "state of emergency" declaration keeping him in power is still a distinct possibility. One thing is for sure, Putin will not be waiting until 2012, the next presidential vote after 2008, for his return.

"We have done everything to safeguard Russia from internal disturbances and to put it firmly on the track of evolutionary development. And I am forced to repeat myself - we will not allow this process to be changed from outside," reiterating he would not allow the United States to dictate its will to the world.

"A moment of truth is coming in global politics. We need to give up the policy of dictatorship and deterrent. We will move nowhere until we agree on new, clear and mutually acceptable rules for cooperation in international affairs."

This as Putin blocks all internal opposition, in true dictator fashion, while failing to cooperate on issues such as Iran and Kosovo.

"Vladimir Putin's propaganda machine likes to portray the Russian president as serenely confident, basking in the adoration of a grateful public that implores him to defy the constitution and serve another term as national leader. And by all rights, Russians should be cheerful. With oil prices booming, their economy is growing and prosperity is spreading from Moscow and St. Petersburg into the hinterland.

"Yet how to square that image of serenity with the behavior of a petty and paranoid tyrant? Here are a few bulletins from the weekend before scheduled parliamentary elections: In Moscow, the chess genius turned opposition leader Garry Kasparov was arrested during a peaceful political rally and sentenced to five days in jail. A pro-Kremlin youth group supplied an amplified soundtrack of taped, cackling laughter during the event, and demonstrators were beaten by police. In Nazran, Oleg Orlov, the head of Memorial, Russia's leading human rights organization, was kidnapped and beaten, along with three television journalists, apparently by law enforcement agents of some kind."

It was pitiful this week when Kasparov's fellow chess compatriot and rival, Anatoly Karpov, attempted to visit Kasparov in prison but was turned away. As Karpov put it, he doesn't agree with Kasparov, politically, but when "a person is in trouble, I'm not indifferent to that."

I saw firsthand the placid side of Putinism when I was in Moscow. If I had been there a week later, I would have seen the other side. Kasparov was jailed a few blocks from my hotel, for example, and there were mild protests outside in support, until the Nashi youth guard broke them up.

But I'm coming around to an opinion that all will not be well under Putin, assuming he remains the paramount leader for years to come. Do not discount the impact of soaring inflation here. There have been an increasing number of strikes, for example, because workers can't make ends meet. Even the Ford plant in St. Petersburg was struck on Nov. 21, as workers demanded a 30% wage increase and shorter shifts. [Ford said production was starting up again by week's end, with many having returned to work.]

"Month after month, workers see their monthly take-home pay eaten away by high prices for goods and services. Workers cannot be expected to resign themselves to their fate if the reward of their daily toil is worth nothing in the market."

"One reason (for the growing restlessness) is the complacency of company directors who have not yet learned to share the huge windfall with their workers. Workers see around them evidence of the luxurious lifestyle of company directors and top managers, while most of them can hardly afford three square meals."

My last day in Moscow, I went to the Museum of Contemporary Russian History, roughly mid-1800s to today, and I was struck by the glowing portrayal of the Stalin era. I couldn't read all the text, but the pictures, the portraits, and the lighting of same all told you that Stalinism is back in vogue. [Pictures of Putin were of course all over the place as well.] Nothing about the Great Terror or the Great Famine that I could see.

Speaking of the Great Famine, this is the 75th anniversary of the start of it in Ukraine, an event that killed anywhere from three to ten million as Stalin's goons confiscated all the grain and food they could find for themselves, leaving the people with literally nothing. Russia is accusing Ukraine today of using the anniversary for political purposes by highlighting it and some say President Yushchenko "has set a time bomb under Ukrainian- Russian relations."

Pakistan: Former Prime Minister Nawaz Sharif, the man who in 1999 denied then General Musharraf's plane landing rights, only to be ousted by Musharraf in a bloodless coup, returned after being in exile and said he would boycott the Jan. 8 parliamentary elections; this after Musharraf stepped down from his army post to take the oath of office as president following his reelection.

So now it's about Sharif and Benazir Bhutto. Sharif is an Islamist, while former Prime Minister Bhutto is seen as a secular leader. But it does not appear the two will form an alliance to oppose Musharraf in the parliamentary vote. For her part, Bhutto's popularity has already fallen from those first heady days upon her own return a few weeks ago.

As for Pervez, Musharraf said he will lift the state of emergency on Dec. 16, which is the reason given for Sharif boycotting the vote, saying there is not enough time for the opposition to mount a campaign. Both Sharif and Bhutto are also demanding the reinstatement of the Supreme Court judges that were booted by Musharraf, while the White House is concerned Sharif will align himself too closely over time with Islamists.

Venezuela: Russia isn't the only big election story on Sunday. The other is here, as President Hugo Chavez seeks unprecedented powers in officially turning his nation into a socialist state, while keeping him in office for life.

But it has not been clear sailing for Chavez and the referendum is suddenly too close to call. There have been massive protests in the country against the move.

And not to be master of the obvious, but some of the proposed changes are comical, such as the one that would cut the workday from eight to six hours. Of course those in opposition are most concerned that Chavez would have the power to take over all business under the socialist banner.

Separately, a long-time fear has been that Chavez would do something militarily against neighbor Colombia and this week he said "I declare before the world that I'm putting relations with Colombia in the freezer," with Chavez calling President Alvaro Uribe a "liar and a cynic." Uribe told Chavez to butt out of negotiations over the fate of some long-held hostages under the control of the rebel group Farc.

North Korea: Not to pay this short shrift lately, but negotiations over Pyongyang's disclosure of all its nuclear activities appear to be going well thus far. However, North and South Korean defense leaders could not agree this week on a joint fishing area around a disputed western sea border, which tells you Kim Jong- il isn't exactly about to roll over.

China: The diplomatic row over the recent denial of access to a U.S. Navy aircraft group and two smaller ships to Hong Kong's port continues to fester. U.S. Navy Admiral Timothy Keating, commander of the U.S. Pacific Command:

"(China's conduct) is not in our view conduct that is indicative of a country who understands its obligations as a responsible nation," he told reporters this week.

China has come clean and said the denial of access, despite the fact hundreds of U.S. families had flown to Hong Kong to be with loved ones over Thanksgiving, was because of an award handed to the Dalai Lama by President Bush, as well as recent arms sales to Taiwan.

But Keating said China's decision to deny access to the two smaller ships was more troubling because it involved sailors seeking refuge from stormy seas.

"As someone who has been going to sea all my life, if there's one tenet that we observe it's when somebody's in need, you provide and you sort it out later."

Meanwhile, officials deny the Three Gorges Dam project is unstable; this after a landslide killed more than 31 people. I think many of us would feel more comfortable if the dam had been built by incorruptible beavers.

Slovakia: Never was there a better example for supporting Sam Nunn's Nuclear Threat Initiative [co-founded by Ted Turner and Sen. Richard Lugar] than this week's arrest of three men who allegedly tried to sell enough enriched uranium for a dirty bomb on the black market. Slovak police say the material originated in the former Soviet Union, the NTI's focus. [One of the three was arrested in Hungary in the joint Slovak-Hungarian operation.]

France: If I were living in Paris, I wouldn't be a happy camper these days, what with the recent transit strike and now a recurrence of the ugly riots that swept the suburbs back in 2005. The cause of the violence was the death of two boys, 15 and 16, who died when police accidentally rammed their motorcycle. Of course relatives of the victims say otherwise, but the fact is the bike was going at top speed, was not registered for street use, the kids were not wearing helmets and they were ignoring traffic rules. The police were chasing the motorcycle when the accident occurred.

So the African and Muslim neighborhoods rioted and this time, instead of just using rocks, some had guns and over 100 policemen were injured, though no fatalities. President Sarkozy vowed to punish the perpetrators severely, though these ghettos will remain a tinderbox and they are obviously breeding grounds for terrorists.

Australia: Boy, some of the reporting on the election of Kevin Rudd to be Australia's new prime minister was flat out stupid. Sure, John Howard was a great ally of President Bush, and Rudd is going to pull Australia's 500 troops out of Iraq and sign the Kyoto Protocol. Big deal. In all other respects Rudd will be a friend of the United States. No one needn't worry that the relationship between the two countries will deteriorate. Most importantly, Rudd has maintained he will continue to support the campaign in Afghanistan. So while I liked Howard, myself, I quaff a large can of Foster's to Rudd's health.

[On the issue of Afghanistan, the Washington Post reported that the National Security Council has concluded the Bush administration's strategic goals set for 2007 have not been met, despite the successes against the Taliban. At the same time, the Taliban has been expanding into new territory and the government of President Hamid Karzai is shaky. One survey found only 42% are optimistic things are moving in the right direction in the country.]

Northern Ireland: Troubling story from the BBC that sectarian violence has returned as remnants of the IRA refuse to move on and accept the new power-sharing arrangement.

Zimbabwe: The nation's 'chief statistician' said it is impossible to work out the country's latest inflation rate because he's run out of zeroes. This isn't a misprint, but the International Monetary Fund has warned inflation could reach 100,000% by year end. So, I recommend gold as an inflation hedge here.

Philippines: If you were staying at the exclusive Peninsula Hotel in Manila on Thursday, you had a bit of excitement as an armored personnel carrier plowed through the front entrance as part of an operation to arrest about 30 officers and soldiers planning a coup. All were arrested and no one was seriously hurt. A former vice president led the mutineers who were already on trial for previous coup attempts but had somehow walked out of the courtroom and commandeered the hotel next door. It's not known if they pocketed any soap.

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