Educate Yourself

Week in Review
For the week 12/3/2007 - 12/07/2007
Brian Trumbore
President/Editor, StocksandNews.com

I was tempted to just rewrite my opening few pages from last week, because, as I concluded then, "our system has become a joke." How else to describe the mortgage bailout plan, which in some respects isn't exactly a bailout, it being "voluntary," we've been told, while in actuality the plan to save America will have zero impact on the economy. The stock market loved it, though, and at the end of the day that's all that really matters, sports fans?.isn't it?

A: The program covers subprime adjustable-rate loans that were made from Jan. 1, 2005, to July 31, 2007, and will reset from Jan. 1, 2008, to July 31, 2010. Industry officials estimate that of the 1.8 million loans in this category, 600,000 borrowers can't afford their loan even at the initial rate.

Of the other 1.2 million borrowers facing resets, about half are likely to be able to refinance their loans, and the rest qualify for a freeze or modification. Borrowers with more than 3% equity in their homes are candidates for a refinance, possibly under a government program.

A: To be on the fast track for a five-year or longer freeze, borrowers must live in their homes, be current on the loans and not missed more than one mortgage payment in the previous 12 months. Other criteria qualifying for fast track include borrowers with credit scores under 660 who face a reset that would boost payments more than 10%.

[To which Democratic Congressman Barney Frank said, "Talk about moral hazard. We've all told people, don't go any more deeply into debt. Now we're saying that people who go more deeply into debt will have an advantage over people who don't go more deeply into debt." - New York Times]

The bottom line is the plan will impact far fewer homeowners than we are led to believe, so some of us are thinking, why bother? That doesn't mean a majority of Americans today, upon hearing the details, are heartless. We certainly realize that just one foreclosure in a neighborhood can spell big-time trouble for everyone else, and some urban areas are being particularly hard hit these days as the foreclosure wave turns into a tsunami.

But the rules of the game have changed; that's what upsets us the most. Following are a few examples of sentiment across the country.

"Rather than over-leverage themselves with a risky mortgage, [Casey and his wife] rented an apartment in La Jolla and waited patiently for the housing market to drift back to earth, hoping they hadn't missed their chance to become homeowners.

"But now the government-brokered plan unveiled Thursday by President Bush to ease terms on some subprime mortgages feels like a 'slap in the face.'

"Many people who prudently sat out the housing bubble - or resisted the urge to cash out their home equity to help finance their standard of living - share that visceral reaction. In part, they resent on principle the rush to help a segment of society that may not have acted responsibly. But they also fear that any effort to prevent foreclosures could keep home prices from falling to an affordable level?.

"(The) undercurrent of antagonism to the program is strong and is lent support by an economic principle that says people tend to act more recklessly if they know they'll be protected from the consequences." [Walter Hamilton / Los Angeles Times]

Economist Michael Darda: "Should you and I be bailing out people who lied about their incomes, bit off more than they could chew or were too lazy or ignorant to understand what kind of an obligation they were entering into? I understand there are sleazy people in the mortgage area, but what I don't hear from politicians is: 'Does the individual bear any responsibility for this problem?'"

Renae Merle of the Washington Post wrote: "The agreement has sparked bitterness and anger among those who either sat out the housing boom or endured friends' snickers when they stuck with a traditional mortgage and a smaller house. To some who watched prices rise out of their reach or who moved to cheaper cities, the agreement looks like a penalty for those who didn't gamble.

" 'What about those of us who played by the rules? Can we get six months of free gasoline? Isn't there something for the rest of us?' asked Tim MacKinnon."

Then there is the political aspect. As Renae Merle wrote, "[Politicians] need to appeal not only to people at risk of losing their homes but also to those such as Ben Sullivan, who sees the agreement as an undeserved bailout. After the 2001 technology stock bust, many people lost significant value in their retirement plans, Sullivan said. 'No one was offering to pay for their 401(k) losses. Why should they do it for their housing losses?'"

Look. This bailout, even if voluntary, is a mess. And not only was the whole situation preventable, to a large extent, in terms of Federal Reserve policy under Alan Greenspan, but there were some very simple things the President of the United States could have done early on; that is if he had had a clue in the first place, and we all know by now he didn't?on so many different levels these past seven years.

What frustrates me to no end is the president has the ultimate tool?the bully pulpit. How many times have I written that instead of promoting some new retirement savings scheme and messing with Social Security, we just need our public officials, starting with the resident of the White House, to get on the airwaves and promote IRAs and 401(k)s?! It has never, ever happened in my lifetime. We've had public service announcements for anti-drug campaigns, but never one to promote savings. Just what the hell am I missing?

In the same respect, if we had had leaders who were worth a damn, they would have known that a bubble was developing and that as nice a goal as homeownership is, it's not for everyone. And if you don't think that millions of Americans wouldn't have listened to the president, then you just haven't followed the history of this country. Think FDR, to cite one obvious example.

Oh, sure, there will be those reading this thinking, well, that would have done a number on the homebuilding industry; talk such as that. Well look what the consequence of our inaction was. A few warnings on affordability and overstretching would have worked wonders. We talk all the time about economic literacy, and then do zero about it.

But here's my bottom line. The Speculator/Ignoramus Bailout of 2007 is meaningless when analyzing the Big Picture. It is way too small and slowing the rate of foreclosures in some neighborhoods, while a noble gesture, doesn't begin to address the main point of this column for years now.

We are in the midst of a GLOBAL real estate bubble that has popped or is close to doing so just about everywhere that matters. Whether you are talking Spain, Russia, Britain, China, Australia or the U.S., hundreds of millions have seen, or will see, their number one asset not only decline in value, but then sit there for an extended period of time whenever each respective market hits bottom. This, in turn, will of course impact consumer spending in a big way. And when the United States starts sneezing and hacking (we're still in the sniffle stage...but with a rising temperature that has Mom feeling our foreheads), the rest of the world will indeed catch cold. We are already seeing European authorities, as well as U.S. economists and the Organization for Economic Cooperation and Development (representing 30 developed nations), ratchet down growth forecasts. And no amount of rate cuts is going to help the situation. That's been my position?and I'm sticking to it.

--Stocks posted solid gains for a second straight week as the rally off the lows continued with the Dow Jones adding 1.9% to 13625, while the S&P 500 gained 1.6% and Nasdaq picked up 1.7%. Traders pinned their hopes on an economy that may be stronger than expected, though all I see are earnings estimates continuing to be lowered for the fourth quarter and beyond.

And while Friday's jobs report for November showed modest growth of 94,000, there seem to be an increasing number of large companies such as Home Depot and Dow Chemical announcing cuts of about 1,000 employees each, while Bristol-Myers Squibb said it was slashing its payroll by 10 percent, or about 4,500 jobs.

For the record, the two-year Treasury note fell 80 basis points, 0.80 percent in the month of November, the biggest monthly drop since June 1989, when the Fed was cutting rates aggressively. This week yields rose some as money continued to flow back to equities. But this Tuesday, the Fed weighs in again on rates and another cut is a lock, though the Street is split on the size?25 or 50 basis points.

"What we are witnessing is essentially the breakdown of our modern day banking system, a complex of leveraged lending so hard to understand that Fed Chairman Ben Bernanke required a face-to-face refresher course from hedge fund managers in mid- August. My PIMCO colleague, Paul McCulley, has labeled it the 'Shadow Banking System' because it has lain hidden for years - untouched by regulation - yet free to magically and mystically create and then package subprime mortgages into a host of three-letter conduits that only Wall Street wizards could explain.

"As I've noted before, it is certainly true that this shadow system with its derivatives circling the globe has democratized credit. And as the benefits of cheaper financing became available to the many, as opposed to the few, placating and calming waves of higher productivity and widespread diversification led to accelerating economic growth, incomes, and corporate profits. Yet, as is humanity's wont, we overdid a good thing and the subprime skim milk has soured." [pimco.com]

--The economists at UCLA, who have done some great work on real estate, do believe the U.S. economy and California will escape recession in 2008. The UCLA Anderson forecast concludes in part:

The loss of 3 million manufacturing jobs early this decade means there is little room to cut more positions.

Most of the damage to the economy from the housing slump will be over by the end of next year.

The weak dollar will help U.S. exports, aiding manufacturers in Southern California.

Consumer spending will drop, but much of the effect will be felt by other countries as U.S. imports of their products decline. [Los Angeles Times]

--Then again, Morgan Stanley analysts concluded in a report this week that U.S. home prices could slide another three years or more.

"The property derivatives market seems to be suggesting that we are in a very different environment, on the heels of market events that could force a housing recession like none ever imagined or experienced.

"The fundamental argument for going long housing is that history has never seen such extended periods of house price declines. We think that such arguments have limited credibility because of limited periods of data and over-reliance on analysis using national level data."

[Delinquencies in America are now at an all-time high; a whopping 5.6% in the third quarter as reported by the Mortgage Bankers Association.]

--Noted economist Martin Feldstein, in an op-ed for the Wall Street Journal, said "the probability of a recession in 2008 has now reached 50%. If it occurs, it could be deeper and longer than the recessions of the recent past."

--A strategist I have a lot of respect for, Doug Cliggott, told Barron's "I think we're very early in the economic slowdown."

--I had the opportunity this week to speak to 120 members of the Summit Old Guard, a delightful group of retirees. While the focus was on foreign policy, I couldn't help but ask if they all put 20% down when they purchased their first home. I didn't need to ask for a show of hands.

--I got a kick out of Ben Stein's column in the Sunday Times, particularly his broadside against Goldman Sachs, seeing as how I had similar thoughts the day before. But Stein should have talked about broader conflicts of interest rather than go after Goldman economist Jan Hatzius.

Stein concludes, "Maybe it's time for an investigation of just what Wall Street and Goldman did to make money as they pumped this mortgage mess into the economic system, and sometimes were seemingly on both sides of the deal."

--UK home prices fell for a third straight month, the longest such stretch since 1995. In response the Bank of England cut interest rates as concerns over the economy trumped any inflation fears, as will undoubtedly be the case with our own Federal Reserve.

--Tom Raum of the AP wrote a highly publicized story this week on the national debt, which is expanding by about $1.4 billion a day. Of course my favorite part of this amazing debacle is that we are now paying out $430 billion in interest on it, the third largest budget item behind Social Security / Medicare and defense. Yet this figure still gets nowhere near the publicity it deserves and it will just continue to grow and grow, along with the debt, which itself will hit the $10 trillion mark around January 2009.

Separately, Raum reports that foreign governments and investors now hold $2.23 trillion - or 44 percent - of all publicly held debt, estimated at $5.1 trillion. Japan is first with $586 billion, followed by China at over $400 billion. Oil exporters, including Saudi Arabia and the UAE, are at $125 billion and rising. Between China and the oil kingpins, it's a national security issue.

--The House and Senate continue to be at loggerheads over a solution for the alternative minimum tax mess. Democrats in the House pledge to pay for the fix by raising taxes elsewhere, while Republicans, and the Senate as a whole, do not offset the lost revenue.

A solution, even if another temporary one, will be found, but regardless the IRS needs to reprogram its computers before sending out the appropriate tax forms, which in turn means substantial delays in refunds.

--Mortgage giant Fannie Mae cut its dividend 30 percent and announced it would sell $7 billion of preferred stock to shore up its capital base amidst the housing slump. The shares, which hit $70.50 on Aug. 22 before plummeting to $26 by Nov. 20, have since rallied back to $37.

--We note the passing of legendary oilman Robert O. Anderson, 90. From an obituary in the New York Times by Douglas Martin:

"It was Mr. Anderson's insistence on drilling one more exploratory well on the North Slope (of Alaska) in 1967 - after a succession of failures - that led to the discovery of what is still the largest oil field yet found in North America; it has produced billions of barrels of crude and accounts for a fifth of domestic oil production."

As Anderson told The Los Angeles Times in 1989, "There's no question that if we hadn't made a discovery, it would have been the last well drilled on the North Slope for a good many years."

Anderson was also one of the first to warn about global warming caused by fossil-fuel consumption back in the 1980s.

--An internet security company has noted the number of attacks on Apple Macs has picked up considerably. There are now "100- 150 variants" of malicious code, or "malware," floating around. F-Secure adds that, overall, it has detected 500,000 viruses, Trojans and worms in 2007, compared with 250,000 last year. [Kevin Allison / Financial Times]

--The Organization for Economic Cooperation and Development reported that international trade in counterfeit goods is $200 billion or 2 percent of world trade; not including fakes produced for domestic consumption or digital piracy. India is now challenging China for the top position, especially in fake pharmaceuticals. And Russia is a strong third. Congratulations to all for hoodwinking the rest of us.

--Former UnitedHealth Group CEO William McGuire has settled with the federal government in the largest stock-option- backdating case. The penalty starts at $466 million, including $448 million of all equity-based pay and cash bonuses he received from 2003 through 2006, which will go to UnitedHealth, but the final figure could exceed $600 million.

--A test of about 1,200 children's products by a Michigan-based environmental health organization found that more than one-third of the items contained lead and other dangerous chemicals, including arsenic. Most of the products identified were not on the Consumer Products Safety Commission list.

--The world's most eligible bachelor, Google co-founder Larry Page, is getting married today on Richard Branson's private Necker Island, next to Virgin Gorda. 600 guests are being flown in on private planes in what promises to be a total nightmare. Last May, Page's partner Sergey Brin gave up bachelorhood.

--My portfolio: I still love being 80% cash / 20% equities, and I have not done anything with my holdings the past few weeks.

--Business Week had a blurb on the success of "A Charlie Brown Christmas." First shown in 1965, it has been aired twice each season by ABC since 2004 and last year pulled 21 million viewers and $8.7 million in ad sales, according to TNS Media Intelligence. That's $218,000 for a 30-second spot, comparable to any other prime time shows.

--Lastly, on a personal note, I was saddened to see that long-time market watcher Larry Wachtel died. He was 77.

When Thomson McKinnon Securities' brokerage arm was picked up by then Prudential Securities in the fall of 1989, I moved onto Pru's national sales desk for about six months where I was seated next to Larry, who had his own bullpen area from which he would read the newswires for stories that he then passed onto the brokerage force over the squawk box system.

What a character. Especially in the New York area, where he did a spot three times daily on news radio WINS-AM with his distinctive Brooklyn accent, Larry was one of the Street's legendary figures. Anyone that had the opportunity to work with him loved the guy, including yours truly. Larry Wachtel will be missed.

Iran: In an absolutely stunning development, the National Intelligence Estimate - a consensus view of all 16 U.S. intelligence agencies - concluded that Iran stopped its nuclear weapons program in 2003 and has not restarted it since. Just two years ago, 2005, the NIE stated with "high confidence" that Iran was in the development stage for producing nukes. This past October, President Bush warned of "World War III." Today, the administration is flailing and the situation has actually become far more dangerous. Opinion:

"This just in: the Third World War has been cancelled. Iran, a founding member of the Axis of Evil, once deemed to be bent on world domination at the point of a nuclear weapon, turns out to have been about as threatening as a teddy bear. Well, an inoffensively named, non-Sudanese teddy bear, I should quickly emphasize.

"There we were, all thinking that Mahmoud Ahmadinejad, the Iranian leader, was painstakingly fashioning a nuclear bomb to further his dreams of a new caliphate, when it turns out that he and the peace-loving mullahs of Tehran were actually busy beating their swords into ploughshares. That at least was the startling verdict of the National Intelligence Estimate on Iran, released to widespread shock on Monday.

"The publication of this NIE may come to be regarded as a latterday, real-world, but timelier, equivalent of that famous graffito once scrawled on a bathroom wall: 'Archduke Ferdinand Found Alive: First World War All a Big Mistake.'

"The document, the studied conclusion of the work of [the intel community], said that Iran had been pursuing a nuclear weapons program but suspended it in 2003. Though it retains important know-how and still seeks civilian nuclear power, Iran is many years away from having a military capability, it added?.

"(While) welcome news, the latest intelligence should be treated with at least as much skepticism as America's critics have directed at almost every other piece of U.S. intelligence to have become public in the past few years."

"Rarely has a document from the supposedly hidden world of intelligence had such an impact as the National Intelligence Estimate?.Rarely has an administration been so unprepared for such an event. And rarely have vehement critics of the 'intelligence community' on issues such as Iraq's weapons of mass destruction reversed themselves so quickly.

"All this shows that we not only have a problem interpreting what the mullahs in Tehran are up to, but also a more fundamental problem: Too much of the intelligence community is engaging in policy formulation rather than 'intelligence' analysis, and too many in Congress and the media are happy about it. President Bush may not be able to repair his Iran policy (which was not rigorous enough to begin with) in his last year, but he would leave a lasting legacy by returning the intelligence world to its proper function?.

"[Many] involved in the drafting and approving of the NIE were not intelligence professionals but refugees from the State Department, brought into the new central bureaucracy of the director of national intelligence. These officials had relatively benign views of Iran's nuclear intentions five and six years ago; now they are writing those views as if they were received wisdom from on high. In fact, these are precisely the policy biases they had before, recycled as 'intelligence judgments.'

"That such a flawed product could emerge after a drawn-out bureaucratic struggle is extremely troubling. While the president and others argue that we need to maintain pressure on Iran, this 'intelligence' torpedo has all but sunk those efforts, inadequate as they were. Ironically, the NIE opens the way for Iran to achieve its military nuclear ambitions in an essentially unmolested fashion, to the detriment of us all."

"Mr. Bush implied yesterday that the new estimate was based on 'some new information,' which remains classified. [Ed. the 'new information' was later reported to be phone intercepts and documents from meetings within the Iranian military.] We can only hope so. But the indications that the Bush administration was surprised by this NIE, and the way it scrambled yesterday to contain its diplomatic consequences, hardly inspire even 'medium confidence' that our spooks have achieved some epic breakthrough. The truth could as easily be that the administration in its waning days has simply lost any control of its bureaucracy - not that it ever had much.

"In any case, the real issue is not Iran's nuclear weapons program, but its nuclear program, period. As the NIE acknowledges, Iran continues to enrich uranium on an industrial scale - that is, build the capability to make the fuel for a potential bomb. And it is doing so in open defiance of binding UN resolutions. No less a source than the IAEA recently confirmed that Iran already has blueprints to cast uranium in the shape of an atomic bomb core?.

"The larger worry here is how little we seem to have learned from our previous intelligence failures. Over the course of a decade, our intelligence services badly underestimated Saddam's nuclear ambitions, then overestimated them. Now they have done a 180-degree turn on Iran, and in such a way that will contribute to a complacency that will make it easier for Iran to build a weapon. Our intelligence services are supposed to inform the policies of elected officials, but increasingly their judgments seem to be setting policy. This is dangerous."

"This report?is announcing a victory for the Iranian nation in the nuclear issue against all international powers?.If you want to start a new political game, the united Iranian nation will resist you and will not retreat one step from its program. We will continue our nuclear program and we will not give it up."

"This report proves many facts, the most important being that the statements of (U.S. President) Bush and other United States officials, who always speak of the serious danger of Iran's nuclear program, are fabricated and unreliable."

"U.S. officials have so far inflicted?damage on the Iranian nation by spreading lies against the country and by disturbing public opinion, therefore, they have to pay the price for their action."

"[It would be] a big mistake [to ease diplomatic pressure on Iran despite the new findings.] I continue to see Iran as a dangerous power in international politics. At this moment, it doesn't appear to have an active weaponization program. That frankly is good news. But if it causes people to say, 'Oh, well, then we don't need to worry about what the Iranians are doing,' I think we will have made a big mistake."

Ironically, China appeared ready to support a third round of sanctions against Tehran until the NIE estimate. China's UN ambassador, Guangya Wang, then said "I think we all start from the presumption that now things have changed."

But German Chancellor Angela Merkel, meeting with French President Nicolas Sarkozy, said "Iran continues to represent a threat. We and our partners would like to continue with the UN process."

Nicolas Sarkozy added, "Notwithstanding the latest developments, everyone is fully conscious of the fact that there is a will of the Iranian leaders to obtain nuclear weapons."

But then Sarkozy, and President Bush, for that matter, said "What made Iran move up to now, it was sanctions and firmness."

That's just not accurate, if you are then referring to the NIE, which speaks to 2003 and supposed suspension of the weapons program, years before sanctions were introduced.

"In August, I think it was Mike McConnell [Director of National Intelligence] who came in and said, we have some new information. He didn't tell me what the information was; he did tell me it was going to take a while to analyze."

And as you all know by now, President Bush, if we are to believe him, didn't ask Mr. McConnell what that information was and instead went right ahead with his hard-line rhetoric. If it wasn't so serious, it would be almost laughable.

Personally, I do not for a minute believe the NIE, and frankly my talents of deduction are as good as those of the 16 intel chiefs that put the report together. President Bush is indeed right to remain concerned, as are Angela Merkel and Nicolas Sarkozy. The damage already done, though, in credibility, yet once again, is crippling.

But what are people now saying louder than ever? Talk to Iran. What has your editor said for years? Talk to Iran. What would Gen. David Petraeus do if given the opportunity? Talk to Iran. Why have I kept saying Bush should accept the invitation to speak at Tehran University? To make Ahmadinejad look like a fool when he turns it down. Who looks like the fool today? George W. Bush.

"Beginning talks today does not limit American options in the future. If the Iranians stonewall or refuse to talk - a distinct possibility - they will establish a record of intransigence that can be used against them now and in the critical years to come. It's possible the American offer itself could open fissures in Iran. In any case, it is hard to see what other policy options are available. This is the hand that has been dealt. The Bush administration needs to be smart and creative enough to play it well."

In the end, though, it really doesn't matter what I, the administration, the hawks, Merkel, Sarkozy, Russia or China believe. With the NIE's release, it's now all about Israel. If Iran is enriching uranium it can eventually weaponize it. Israel will not let that happen. The White House can still opt to end-run Ahmadinejad and engage Iranians like Hashemi Rafsanjani (Ahmadinejad being No. 3 in the power structure, anyway), but an Israeli strike in 2008 appears a certainty. There are actually quite a few players in the Middle East who wouldn't mind this, though the blowback is unknowable.

Russia: As expected, Vlad the Great romped in last week's parliamentary elections as the party he headed, United Russia, claimed 64 percent of the vote. Coupled with the 16 percent garnered, collectively, by two other pro-Kremlin parties, Putin has control of over 80 percent of the seats (proportional representation hikes it further), with the Communists in opposition. Not one member of the new Duma will be a pro- West supporter. [7 percent was the threshold required for a party to receive any seats.]

So Putin handily has control of over 2/3s of parliament should he want to change the constitution to allow him to stay in office, though he has vowed not to do that.

A declaration of a state of emergency could yet fit the bill, but by December 23, Putin needs to nominate his handpicked successor for the March 2 presidential vote. As I've noted before, 66-year- old current Prime Minister Viktor Zubkov could be tabbed. The two deputy prime ministers, Sergei Ivanov and Dmitri Medvedev, are also candidates, though at this point I'd be very surprised if Ivanov was named. [Remember, Ivanov could be more dangerous than Putin.] One thing is for sure, Vlad has his mandate, even if it was tainted by ballot stuffing and other methods of trickery and deception. He certainly couldn't care less what a bunch of observers and Western pundits say. As dissident Garry Kasparov noted, "[The Kremlin] is raping the democratic system."

Meanwhile, Russia, as announced earlier, formally suspended the country's participation in the 1990 Conventional Forces in Europe treaty; one that limits the number of battle tanks, heavy artillery and combat aircraft deployed and stored between the Atlantic and Russia's Ural mountains; plus it contained confidence-building measures such as two weeks notice of any troop deployments and missile launches.

And former President Mikhail Gorbachev gave a presentation in Cambridge, Mass., wherein he said the U.S. and Russia are headed towards a clash on the nuclear front unless there is an aggressive move to reengage on arms control. Nuclear weapons expert Graham Allison, speaking at the same conference, said "If we remain on our current course, then we are going to go over a cliff. There will be not just nuclear arms proliferation, but eventually nuclear terrorism and even nuclear wars."

As if that isn't enough, Newsweek had a story addressing the rivalries inside the Kremlin, involving former KGB or other security services. As one political adviser to the Kremlin said, "Nobody but Putin can provide the balance between the different factions." One wonders when clan warfare will break out.

Lastly, Ken S. passed along a story on how a Kremlin insider bought up a blog site that was widely used by dissidents right after the election. Putinism continues to spread. But as I alluded to last week on the issue of inflation and growing labor tensions in Russia, it is not going to be clear sailing for Vladimir in the years ahead.

Venezuela: Not for nothing, but your editor told you last week that President Hugo Chavez's referendum to extend his powers and the socialist revolution was "too close to call," this as the vast majority of pundits said that Chavez would romp to victory, even if it meant fixing the result.

As it turned out the announced defeat was 51-49, though in keeping with earlier opinion polls the actual tally was probably more like 67-33.

"The stunning defeat Sunday?is more than a setback for Venezuela's messianic strongman. It is a victory for the ideal of liberty across Latin America. What an affirmation of that ideal it would be if the U.S. Congress now did its part to keep it alive by voting to liberalize trade with Venezuela's neighbors [such as Colombia]?.

"[The joy] this defeat has produced is warranted. But all democrats in the region should be forewarned that Mr. Chavez isn't likely to stop his efforts at revolution inside or outside the country. The president still has control of all the country's political institutions. Indeed in the early hours Monday morning he warned the nation that his defeat is only 'for now.' He pledged that he will get his reforms accomplished without changing a single word of what he put before them on Sunday.

"Mr. Chavez remains a threat to the region. He is in a race against time to impose his will before his star fades, as it already has in Peru, Brazil and Mexico. His expansionist agenda has the potential to undermine Colombia's democracy, and has already destabilized Bolivia and Ecuador."

Chavez remains in power until 2012. On election night he said "I have listened to the voice of the people and I will always be listening to it." Unfortunately, we're still going to have to listen to him for a while longer.

Iraq: Gen. David Petraeus said progress is being made but added the military was still far from any "victory dance." "Nobody in uniform is doing victory dances in the end zone." Accompanying Petraeus was Defense Secretary Robert Gates, who concluded that with the reduction in violence to date, the "goal of a secure, stable and democratic Iraq is within reach."

[Separately, in a story ripped from the sports pages with front page potential, 3,000 fans showed up at a soccer game between two Baghdad clubs. The stadium was ringed with both U.S. and Iraqi forces, but only a week earlier just a few hundred showed up.]

How are you? I'm lighting the White House Christmas tree tonight. What do you all do for the holidays? How's the tree bark harvest going?

It would seem that Pyongyang is slipping on its yearend deadline to give a full accounting of its entire nuclear weapons program, including whether it is enriching uranium (long suspected) as well as the known plutonium program.

The White House seems to be bent on removing North Korea from the terrorism blacklist if the information that is divulged meets its requirements, but Japan is adamant the North not be removed until Kim comes clean on some 13 Japanese abducted in the 1980s. And also, just what was North Korea doing with Syria?

Israel / Syria: A leading Israeli expert on nuclear weapons programs, Uzi Even, one of the founders of the reactor at Dimona, commented on the recent bomb attack on a suspected Syrian weapons facility.

"I suspect that it was a plant for processing plutonium, namely, a factory for assembling the bomb. I think the [North Koreans] transferred to Syria weapons-grade plutonium in raw form, that is nuggets of easily transported metal in protective cans. I think the shaping and casting of the plutonium was supposed to be in Syria." [London Times]

Pakistan: Former prime minister Nawaz Sharif had already vowed to boycott the January 8 parliamentary election, but Pakistan election authorities barred him anyway, citing his criminal record. Columnist Robert Novak weighed in on Monday.

"Diplomats at the U.S. embassy in Islamabad could hardly believe what President Bush said to anchor Charles Gibson on ABC 'World News' Nov. 20. He described Pakistan's President Pervez Musharraf as 'somebody who believes in democracy' and declared: 'I understand how important he is in fighting extremists and radicals.' Was the president issuing Musharraf a free pass to rig next month's Pakistan elections?

"That was not Bush's intention. But lavishing such praise on the general who has ruled through military force led to assumptions in Pakistan that America would blink at election-rigging. Plotters in Islamabad seeking to undermine Benazir Bhutto's third try as premier can claim that U.S. diplomats demanding democracy in Pakistan don't represent what Bush really wants."

Lebanon: Even though Gen. Michel Suleiman is acceptable to all sides for the empty presidency, there have been further delays in formalizing it because the parties can't agree on how to amend the constitution to allow him to take the position. A key figure, Christian opposition leader Michel Aoun, is demanding that the next prime minister be a neutral figure, rather than a Sunni, as the constitution now mandates.

[I also have to note this story out of the Daily Star: "A hailstorm last week caused hundreds of cluster bombs to explode in the South. Israel dropped around 4 million cluster bombs in the southern region in the last 72 hours of the 2006 war. Around 1 million of the devices remain unexploded, according to the United Nations." Unreal.]

"Saudi Arabia's foreign minister, Saud al-Faisal, basked in praise and attention from the Bush administration at last week's Annapolis peace conference. He was thanked repeatedly for deigning to attend the kickoff of Israeli-Palestinian talks; national security adviser Stephen J. Hadley said he told the prince that 'I know it must have been a very difficult decision.' Reporters took note as Prince Saud lambasted Israel and explained why he could not possibly stoop to shake the hand of Israeli Prime Minister Ehud Olmert. Thank goodness one journalist thought to ask about the 'Girl of Qatif.'

"The Girl of Qatif, as she is known in the Saudi press, is a 20- year-old married woman who was gang-raped, together with a male acquaintance, by seven men last year in her eastern Saudi town. A judge sentenced the rapists to prison sentences - and also condemned the woman to 90 lashes with a whip, for being alone in a car with a man to whom she was unrelated. When the women's lawyer, one of Saudi Arabia's most courageous human rights advocates, appealed the case, another court increased the woman's penalty to 200 lashes and six months in jail?.After human rights groups and the State Department protested the barbaric punishment and called on the Saudi government to annul it, the Justice Ministry responded with a defiant statement justifying the court's decision?.

"For several years [post-9/11] the Bush administration pressed the Saudi regime for reforms; the regime responded with half steps that didn't change its essential nature. Most of the suicide bombers in Iraq have been Saudis. Yet in the last year, led by Secretary of State Condoleezza Rice, the Bush administration has abruptly returned to describing Saudi Arabia as a 'mainstream' and 'moderate' state and a staunch U.S. ally. Once again the Israeli-Palestinian conflict is treated as the Middle East's most critical problem and Prince Saud as a statesman who is to be congratulated for appearing in the same room as an Israeli. The case of the Girl of Qatif ought to be a reminder of what the Bush administration has chosen to forget."

Kosovo: We're getting closer to violence here, as Serbia's prime minister said on Wednesday that "The State has no recourse other than war when someone does not respect the UN Security Council," alluding to the efforts of the UN, the EU, Russia and America to accommodate Serbia's demands that Kosovo remain part of its territory, as well as the majority Albanian population who want Kosovo to become independent.

As reported by Richard Beeston of the London Times, "The West is expected to propose 'supervised independence' that would recognize Kosovo as an independent country, but under EU supervision with NATO forces providing security."

Serbia, and its ally Russia, disagree with the plan. We're about to learn a lot concerning the Kremlin's agenda as Russia has threatened to veto any UN proposal granting Kosovo independence without the consent of Serbia.

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