Educate Yourself

Week in Review
For the week 12/31/2007 - 1/4/2008
Brian Trumbore
President/Editor, StocksandNews.com

Nice start to 2008, eh? Goodness gracious. A few more of these, coupled with continuing dreadful news on the economy, worldwide, and I'll quickly change my forecast of a "fairly shallow" recession to Depression. I suspect that by the end of next week you will see more than one or two stories buttressing my global real estate bubble mess thanks to what should be an abysmal start come Monday in Asia and Europe after the bath Wall Street took on Friday. I also suspect a leading U.S. homebuilder will be filing for Chapter 11 in just two or three weeks, due to construction and land loan issues. All you have to do is follow 'the tape.' I'll go out on a limb and say Beazer Homes or Hovnanian, both of which were down about 10% on Friday alone.

Economist Robert Shiller of Yale, Mr. "Irrational Exuberance" who called the Nasdaq Bubble and has been focusing on real estate since, told the London Times:

"American real estate values have already lost around $1 trillion. This could easily increase threefold over the next few years. This is a much bigger issue than subprime. We are talking trillions of dollars' worth of losses."

Shiller feels that the U.S. faces a Japan-style slump, with house prices declining for years, adding:

"Over the next five years, the futures contracts are pointing to losses of around 35% in some areas, such as Florida, California and Las Vegas?.

"This is a classic bubble scenario. A few years ago house prices got very high, pushed up because of investor expectations. Americans have fuelled the myth that prices would never fall, that values could only go up. People believed the story. Now there is a very real chance of a big recession."

The latest reading on housing inventories is a 10.3 month supply. Nothing of a positive nature can begin to happen until you put a dent in that figure, but with a slowing economy and an increasingly tight credit market, who are the buyers, especially when you have banks like National City Corp., Ohio's largest, halving their dividend and eliminating another 900 jobs (for a total of 3,400 in the past year)? Not a lot of mortgage referral business with the tellers there, if you catch my drift.

Plus I haven't even touched on the two big economic indicators of the week, the ISM reading on the state of manufacturing in America, 47.7, just awful, and recessionary, and the absolutely pitiful December employment report, up just 18,000, with the unemployment rate rising from 4.7% to 5.0%, an increase that is almost unheard of when it comes to this measurement.

And I was reading the New Jersey paper Friday morning and the message from the mayor of Summit, N.J. (where I hang my hat and grew up), was typical of what both towns and states are increasingly facing. We have a true fiscal crisis from the bottom up, a budget squeeze, with declining tax revenues at a time when demands on the pension and healthcare front continue to rise. It's unsettling, to say the least.

But wait?there's more! Gold and oil hit new all-time highs (forget the inflation-adjusted garbage?a new high is a new high), while wheat, soybeans, and corn were all at or near new records of their own. I think you and I would agree these last three are rather important when it comes to something essential in life, eating. Forget America, rising food prices are destroying what had been a burgeoning middle class all over the world. I've been warning of big time potential problems in Russia this year and you can obviously add China to that mix when it comes to political combustibility and hot spots.

You also had a Journal story titled " 'Celtic Tiger' Ends Prosperous Era with a Whimper." Ireland. Where have you seen that before? South Korea, Singapore, Spain, Canada?the stories are all the same. The economies might be technically 'growing,' but the pace of same is sliding faster than many anticipated and that means one thing?reduced earnings expectations.

And once again I haven't mentioned the Federal Reserve until now because, all at once, it is irrelevant. In fact, the Fed remains not just irrelevant, it is also clearly totally clueless. In releasing the minutes from the December meeting, we learn "participants agreed that the housing correction was likely to be both deeper and more prolonged than (previously) anticipated." Correction? I wonder what they'll call it when one or two of the top five builders go under?

Yes, the Fed is indeed in a box. The inflation genie is out of the bottle and the economy is grinding to a halt. Stagflation.

And what of those foreigners who have been providing needed capital, particularly to the financial services industry? Do you think they like the return on their investment thus far? Like Joseph Lewis, the billionaire whose net worth is losing zeroes faster than a mechanic rolling back an odometer. He's the one, after all, who's been investing in Bear Stearns, now under a serious cloud as a federal investigation into its activities gears up.

But I want to close with a favorite topic of mine the past six months or so, transparency. Legendary economist Henry Kaufman, in an op-ed for the Wall Street Journal on Thursday, had some extensive thoughts. Following are mere excerpts.

"Transparency is a hallmark of modern capitalism, and Federal Reserve Chairman Ben Bernanke has made transparency a hallmark of his new regime. Yet among our leading financial institutions, opacity, not financial transparency, has been on the rise.

"The combination - increasingly opaque financial markets and increasingly transparent monetary policy - has created a dangerous brew of financial excesses. Unless both trends are reversed, financial stability will remain elusive?.

"As financial markets have become opaque and risk-laden, the Federal Reserve has touted its own growing transparency. Yet the central bank has made no real effort to compel financial institutions to follow suit.

"When the Fed failed to put into place new disclosure requirements or otherwise penetrate market opacity, market participants took note and devised new ways to camouflage risk and create additional excessive credit.

"Some of the Special Investment Vehicles (SIVs) that contributed to the recent hemorrhaging of the money markets were an off-balance-sheet activity of bank holding companies - and therefore subject to Federal Reserve supervision. But the Fed seemed satisfied to allow them, as long as it determined that the value-at-risk procedure employed by these holding companies fell within generally accepted parameters.

"Rather than focus on the threat posed by the lack of transparency, the Fed has focused on mechanical deficiencies in the market. For instance, regulators tried to insure that the huge volume of trades would be cleared quickly and with correct documentation. This is worthwhile, but by itself cannot forestall credit abuses. By failing to acknowledge and attack risks posed by opaque financial practices, the Fed encouraged them?.

"At the heart of the Federal Reserve's diminished influence as a positive economic influence is its ambivalent core philosophy. During his long tenure as Fed chairman, Alan Greenspan ostensibly was an economic libertarian. This means not only that the market knows best, but that the market should decide winners and losers.

"I say 'ostensibly,' because, like Mr. Greenspan and the central bank that continues in the shadow of his legacy, most Americans applaud competition while being uncomfortable with certain kinds of personal and institutional failure. There is no better example than our attitudes about the failure of large financial institutions.

"With huge liabilities resting on a thin capital base, they are vulnerable giants. Yet they are the custodians of the public's temporary funds, savings and investments. They cannot be allowed to fail. The costs - financially and economically, socially and politically, domestically and internationally - are unacceptable.

"So many economic libertarians such as Alan Greenspan live uncomfortably with the doctrine of too-big-to-fail. Nevertheless, one cannot be a true advocate of the philosophy by adhering to it when monetary ease is the order of the day, and abandoning it when market discipline punishes those who have committed financial excesses.

"Even out of office, Mr. Greenspan continues to want it both ways. His best-selling memoir reasserts his laissez-faire philosophy, but in a recent pronouncement he advocated giving funds directly to needy subprime mortgage borrowers to permit them to meet their contractual mortgage obligations.

"This would have three consequences. It would alleviate the immediate pain of the borrowers (who should not have been allowed to borrow in the first place). It would keep the fa?ade of the financial system in place without disciplining excessive lending practices. And it would socialize the cost of the problem by raising the government's budget deficit.

"Today, a shrinking number of huge, integrated financial conglomerates dominate markets. They offer a full range of financial services - commercial banking, investment banking, insurance, credit cards, asset management, mutual funds, pension funds and so on. But annual reports, 10-K reports and other currently required reporting tools give us little idea of the true extent of their risk-taking activities.

"My own preliminary efforts to calculate the proportion of risk exposure to tangible financial assets within these institutions suggests a ratio of dozens of dollars at risk for each one in hand. Our economy would be better off if the Federal Reserve focused its campaign for greater transparency on those leveraged giants, rather than making the kinds of pronouncements that encourage them to take on even more risk."

--Ughh. The Dow Jones lost 4.2% to close at 12800, while the S&P 500 tanked 4.5% and Nasdaq plunged a sickening 6.4% to 2504. For the Dow, the loss to start the year was its worst since 1904. So I just opened up my "Encyclopedia of American Facts and Dates" and I see that on May 5, 1904, Cy Young pitched the first perfect baseball game as the Boston Americans defeated Philadelphia 3-0. And a steamship fire swept through the General Slocum in New York harbor on June 16 of that year, killing 900. But I digress. For its part Nasdaq's pummeling was due to fears the slowing global economy will do a number on tech giants such as Intel, which was also downgraded on Friday.

Treasuries staged an astounding rally the first three days of the year on the economic news and the belief the Fed would have to aggressively slash rates further, beginning with the end of Jan. meeting, if not sooner. Look at the figures above. Essentially in one year the 2-year has plunged over 2%.

Shanghai +97%
Jakarta +52%
Bombay +47%
Karachi +40%
Hong Kong +39%
Tokyo -11%
Frankfurt +22%
London +4%
MSCI Europe, Australia, Far East +8.6%

Euro 1.459 in U.S. $
Canada / loonie .993 per U.S. $
China / yuan 7.30 per U.S. $
Japan / yen 111.45 per U.S. $
Russia / ruble 24.57 per U.S. $

--Examples of the destruction in money center banks, brokerage, homebuilders and mortgage insurance shares in '07.

Citigroup?29.44 (12/31/07)?[29.03 - 56.28] 52-week range
Wachovia?38.03?[36.69 - 58.80]
Morgan Stanley?53.11?[47.25 - 90.95]
Merrill Lynch?53.68?[50.50 - 98.68]
Bear Stearns?88.25?[86.33 - 172.61]
Goldman Sachs?215.05?[157.38 - 250.70]?an exception

DR Horton?13.17?[10.15 - 31.13]
Centex?25.26?[17.77 - 56.48]
Lennar?17.89?[14.00 - 56.54]
Hovnanian?7.17?[6.60 - 37.58]
Beazer Homes?7.43?[7.00 - 47.52]

Countrywide Financial?8.94?[8.21 - 45.26]
Thornburg Mortgage?9.24?[7.49 - 28.40]
MBIA?18.70?[18.40 - 76.00]

--Oil hit $100 a few times this week before profit-taking took it back to below $98. As much of a Peak Oil adherent as I am, crude is obviously vulnerable to a global slowdown.

--U.S. auto sales in 2007 were the worst since 1998, 16.1 million new cars and trucks, with December sales abysmal as well. GM's for the month were off 4.4%, Ford's 9.2%, and Toyota's 1.7%. Chrysler's rose 0.5%, while Honda literally had a gain of 14 vehicles.

But for the full year, Toyota moved up to second in sales, pushing Ford to third for the first time since 1931. [Or 1905, depending on how you look at it.]

The best-selling car model for '07 was the Toyota Camry for the sixth straight year.

"China did not, does not and will not pose any threat to the world's energy security," it reads.

Between 1980 and 2006, energy consumption has risen 5.6% per year and the paper says the mainland will seek to increase its use of domestic energy sources, including an increase in its own exploration for oil and gas. But China will still need to rely on imported crude for more than half its supplies by 2010.

And then there is coal. The paper reads, "The energy structure with coal playing the main role will remain unchanged for a long time to come," recognizing this is particularly harmful to the environment. Of course the pollution catches the jetstream and is dumped on us. Thank you, Beijing. [Cary Huang / South China Morning Post]

--China is also increasing taxes on foreign companies doing business on the mainland, with the goal of evening out the difference between foreign and domestic rates at 25% by 2012. The foreign rate in 2008 is going from 15% to 18%, initially, while the domestic rate is being reduced in stages from the 33% level. This could have a particularly devastating effect on Hong Kong manufacturers, some say. [I have to admit I need to find out the impact on my own China holding.]

--China has recently been letting its currency rise steeply against the dollar as Beijing yields to international pressure, but those in opposition are concerned about the potential for civil unrest if mainland manufacturers are in turn forced to layoff workers due to what could be slowing exports?at least in theory. In practice, though, exports continue to surge, up 23% in November over the year earlier period.

--And our last bit from China concerns another study, this one from the Chinese Academy of Social Sciences, which speaks to the growing income gap on the mainland. For example, the average disposable income of urban residents, ex-inflation, rose 13.2% the first three quarters of 2007 to 10,346 yuan, compared to 3,321 yuan for the average farmer. The biggest immediate issue, though, is reining in soaring food prices, called "the foundation of social stability" by the author of the report.

--Venezuela's Hugo Chavez introduced a new coin, the "locha," based on the old Spanish "pieces of eight," in an attempt to restore confidence in the economy with the inflation rate here running at a whopping 21% in November. Consumers are also dealing with shortages in staples such as milk, eggs and sugar. Venezuela is yet another example of the failure of price controls, in place since 2003, which have discouraged investment.

--Zimbabwe is also having problems with its currency, thanks to inflation; as in an 8,000% inflation rate. 8,000. So imagine the chaos when the central bank suddenly said you must exchange your $Z200,000 bills ($9 or $10U.S.) for new notes. The government had to extend the deadline, though the central bank feels the introduction of new notes will help fight inflation, which as one economist on the scene noted, "Under hyperinflation, any introduction of a new currency will not make a difference as the new denomination loses value within days." [Agence France Presse]

--David Streitfeld of the New York Times had a good piece on how homebuyers need to be very careful when moving into developments under construction. It may seem obvious to most these days, but as I've been writing about the complex going up down the road from me, if the developer goes under, as is increasingly likely, either your deposit is going to be in limbo or you could be one of just a handful living in a very unattractive place, with quoted amenities nowhere to be found.

--A giant of the advertising industry died, Philip Dusenberry. He oversaw the teams at BBDO that coined taglines such as "The choice of a new generation" for Pepsi, "We bring good things to life" for General Electric and "It's everywhere you want to be" for Visa. He also co-wrote the screenplay for the baseball movie "The Natural."

--Barron's Jim McTague had an extensive piece in the 12/31 issue on farmland prices and whether or not it's a bubble. It's correctly titled "Don't Bet the Farm." Of course it's a bubble, with Ground Zero being Iowa. I saw that firsthand this past August in my travels there.

--We wish the parent of the Weather Channel, Landmark Communications, luck in selling the network. Some say it could fetch as much as $5 billion. The Weather Channel rocks!

--Estimates by the International Air Transport Association show that air travel in 2007 was the safest it's been in 44 years, despite all the close calls you hear about. On a related issue, for the third year in a row Atlanta International is the nation's busiest, with O'Hare number two.

--The New York Times reports that Intel has pulled out of the consortium making the $100 laptops for the developing world, championed by Nicholas Negroponte. "One Laptop Per Child" was evidently seen as a future competitor for both Intel and Microsoft. Intel said there were "philosophical" differences. I saw the headline and was hoping Intel had said "It's all about safe drinking water?not computers?you idiots!"

--Eugene Plotkin, a former Goldman Sachs associate, was sentenced to almost five years in prison for masterminding an insider-trading conspiracy that reaped about $6.5 million, most of which developed from tips from a former Merrill Lynch analyst, as well as a scheme involving stories from BusinessWeek before they went to print.

--I was going to congratulate PIMCO's Bill Gross this week for his superb performance with the core Total Return Bond Fund, up 8.6% on the A shares in '07, thus slaughtering its benchmark and the competition, but then Morningstar named him (and the PIMCO team) 'Fixed Income Manager of the Year' for a third time. I just know my friends at PIMCO will rock and roll with this news on the sales side as the marketing staff is undoubtedly a beehive of activity, putting the sales pieces together. This is when going to work should be fun, mused the former national sales manager.

--And congratulations to Fidelity Magellan. I have to admit I wasn't following it all year but the ship has been righted, up a stupendous 18.8% for '07 vs. the S&P's total return of 5.5%.

--Excluding digital singles, album sales were down 15% in 2007 from a year earlier. Josh Groban had the best-selling disc, "Noel," while Disney's "High School Musical" was second and the Eagles' comeback album, "Long Road Out of Eden," was third.

--Unreal ratings news?CNBC vs. Fox Business Network. CNBC averaged 254,000 viewers in 2007, up 21%, while "upstart" Fox had an average of about 6,300. You're reading that right. [Crain's New York Business]

--My portfolio: Ironically, I had one of my better weeks ever as one of my major holdings, a California-based solar play, received an endorsement of its technology, in the form of a joint venture. From a company whose stock I rode from $31 to $47 last year, sold, and then watched it continue on to $90! [The other stock went from $8 to $15 in the past three days.]

As for my 2007 recommended mix of 80% cash and 20% equities, the latter as represented by the S&P, it finished up 4.3% vs. a 3.5% increase for the S&P. [To be fair, I have to mention the total return on the S&P was 5.5%.] Anyway, I'm sticking with the 80/20 split, at least the first quarter of 2008. My own portfolio, though, is a little more heavily weighted to equities thanks to the solar position.

Finally, last year I said the major indices would finish up or down 3%. I admitted at the time this was a rather wide range and I've rectified that for '08?.down 3% to 5%. I didn't do all that bad, though.

Pakistan: President Pervez Musharraf postponed the election to Feb. 18 and for now the two main opposition parties have agreed, grudgingly, to go along with the timetable. Benazir Bhutto was replaced at the top of the Pakistan People's Party by co-chairmen Asif Ali Zardari, her husband, and her 19-year-old son Bilawal, as requested in her will. Nice democracy, eh? Yes, it's all about family with the PPP.

The corrupt Zardari (who served 8 years in prison between 1990 and 2005, though was never convicted) is not running in the election, rather he will play the role of kingmaker (while the boy finishes his studies at Oxford) in selecting a new prime minister should the PPP win the vote. The other opposition party, that of former prime minister Nawaz Sharif, may beg to differ.

For his part Musharraf agreed to outside assistance from Scotland Yard on the assassination investigation, while correctly calling Bhutto's actions reckless.

So you no doubt noted last week I wasn't as sympathetic to the whole situation here as everyone else seemed to be, particularly in the first 48 hours after the killing. Following is some further opinion that has emerged since then.

"They have killed a woman. A beautiful woman. A visible, indeed conspicuously, spectacularly visible woman.

"A woman who made a point not only of holding rallies in one of the world's most dangerous countries, but did so with her face uncovered, unveiled - the exact opposite of the shameful, hidden women, the condemned creatures of Satan, who are the only women tolerated by these apostles of a world without women.

"They killed a Jew, Daniel Pearl. They killed Ahmed Shah Massoud, the great guerilla leader against the Taliban, a moderate Muslim, a cultivated man and free spirit. They tried for years to kill a man, Salman Rushdie, who dared say that to be a man is also sometimes to choose your own destiny?.

"From now on Benazir Bhutto will be much more than a chief of state. She has become a symbol. She has become, as did Ahmed Shah Massoud and Daniel Pearl, a standard bearer.

"All those who have not yet given up on freedom in the land of Islam must gather behind that standard. Her name must become another password, bloody but beautiful, for those who still believe that the good genius of Enlightenment will win out over the evil genius of fanaticism and crime.

"It is for us, citizens of Europe and the United States, to mourn, to display the grief that our leaders have, at least for the moment, shamefully avoided."

"But there are other reasons why there might be a division in Western and domestic feelings about certain politicians, particularly when that politician is associated with domestic issues that we either don't know about, don't care about or don't understand. Bhutto, despite her eloquent and sincere defense of democracy on the pages of The Post, was just as well known in Pakistan for the longstanding corruption charges against her and her husband, as well as for encouraging the birth and growth of the Taliban itself during her years as prime minister: Allegedly, she had hoped to make use of the fanatical group's military success in Afghanistan as a tool in Pakistan's long struggle with India for regional dominance. To many Pakistanis, even those who didn't want to see her murdered, these were not insignificant political errors but horrendous, unforgivable, disqualifying blunders."

Referring to Bilawal's statement: "My mother always said, democracy is the best revenge"?.

"Of all the understandings of the democratic idea, none could be more wrong than this one. Democracy at its very core is an antidote to the kind of dynastic revenge young Bhutto was suggesting.

"For the Bhuttos, elections are a means for the family to regain power. Benazir was always avenging the death of her father, the former prime minister hanged two years after a coup. Bilawal is now pledged to do the same for his mother's martyrdom. The Pakistan People's Party has always been a wholly owned family subsidiary. Hence the almost unseemly haste with which Bhutto's husband and son were given control upon her death.

"Democracy was meant to be the antithesis of feudalism. Popular sovereignty was to supplant divine right; free elections to supplant dynastic succession (a progression Americans have not completely mastered either). It is clear that Bilawal meant to put the best gloss on his mother's dictum. He, like she, would avenge the political murder of a parent not with violence but through the ballot box. Nonetheless, his unmistakable assumption of aristocratic entitlement clangs against his professed fealty to democratic means.

"His mother was the same. In more than one journalistic profile, she was characterized as 'a democrat who appeals to feudal loyalties.' Part of the reason for the precariousness of Pakistan's democracy is precisely that it remains a largely feudal society practicing democratic forms."

"When, in May 1991, former Prime Minister Rajiv Ghandi of India was killed by a suicide bomber, there was an international outpouring of grief. Recent days have seen the same with the death of Benazir Bhutto: another glamorous, Western-educated scion of a great South Asian political dynasty tragically assassinated at an election rally.

"There is, however, an important difference between the two deaths: while Mr. Gandhi was assassinated by Sri Lankan Hindu extremists because of his policy of confronting them, Ms. Bhutto was apparently the victim of Islamist militant groups that she allowed to flourish under her administrations in the 1980s and 1990s.

"It was under Ms. Bhutto's watch that the Pakistani intelligence agency, Inter-Services Intelligence, first installed the Taliban in Afghanistan. It was also at that time that hundreds of young Islamic militants were recruited from the madrassas to do the agency's dirty work in Indian Kashmir. It seems that, like some terrorist equivalent of Frankenstein's monster, the extremists turned on both the person and the state that had helped bring them into being?.

"Benazir Bhutto's death is, of course, a calamity, particularly as she embodied the hopes of so many liberal Pakistanis. But, contrary to the commentary we've seen in the last week, she was not comparable to Myanmar's Daw Aung San Suu Kyi. Ms. Bhutto's governments were widely criticized by Amnesty International and other groups for their use of death squads and terrible record on deaths in police custody, abductions and torture. As for her democratic bona fides, she had no qualms about banning rallies by opposing political parties while in power.

"Within her own party, she declared herself the president for life and controlled all decisions. She rejected her brother Murtaza's bid to challenge her for its leadership and when he persisted, he was shot dead in highly suspicious circumstances during a police ambush outside the Bhutto family home.

"Benazir Bhutto was certainly a brave and secular-minded woman. But the obituaries painting her as dying to save democracy distort history. Instead, she was a natural autocrat who did little for human rights, a calculating politician who was complicit in Pakistan's becoming the region's principal jihadi paymaster while she also ramped up an insurgency in Kashmir that has brought two nuclear powers to the brink of war."

Lastly, on the issue of nuclear security, I have a piece from the Nuclear Threat Initiative on the threat posed by Pakistan today on my "Hot Spots" link. In addition, Harvard University weapons expert Graham Allison noted:

"A witch's brew that includes political instability, a burgeoning Islamic insurgency, a demoralized army and an intensely anti- American population, puts Pakistan's nuclear weapons at risk." And while Pakistan's nuclear security measures include dispersing weapons components at multiple sites, "these arrangements by necessity increase the likelihood that corrupt officials could successfully divert weapons or material."

Others, such as Leonard Spector of the Monterey Institute, are more hopeful. "This is not a reassuring set of changes that we're experiencing, but on the other hand I think the military for the moment has a lot of coherence and solidarity."

Kenya: So what happened? Here I was writing last week about the prospects for turmoil in '08 in South Africa and I didn't mention this one. Well, it was simply the timetable.

Kenya held its presidential election on Thursday, Dec. 27, but by Saturday morning the final results weren't in so there was nothing to report on. Then by Saturday evening, word was that the opposition candidate, Raila Odinga, was ahead in 159 of 210 constituencies with 3.7 million votes to 3.4 million. This wasn't unexpected, Odinga having been ahead in the polls prior to the vote.

The next morning, though, Sunday, it was announced President Kibaki won the election?and by 231,700 votes. Kibaki took the oath for a second term and all hell broke loose, with hundreds dying thus far in extensive rioting that threatens to rip Kenya apart.

What is so disturbing is how it has turned into tribal warfare. Kibaki, who replaced the despot Daniel arap Moi in 2002, is a Kikuyu, while Odinga, a former political prisoner under Moi, is a Luo.

The Luo, who comprise much of Africa's largest slum in Nairobi (Kibera) have long complained state aid didn't flow to them and instead went to the ruling Kikuyu faction. This is why the Luo were excited by the election prospects, and it's also why the intensity of the clearly rigged outcome is as violent as it's become.

Senegal's president said the election threatens to provoke "unrest and violence" throughout the continent. Kenya had been one of the shining models for development, with an economy growing strongly at 5% a year, but we've seen one glaring example of how tribalism still thrives in Africa; see also Rwanda, Congo, and Uganda, as well as Nigeria.

I do have to add on South Africa that Jacob Zuma's new trial on corruption charges isn't until August, but with Zuma vowing to fight, while accusing current president Thabo Mbeki of drumming up the indictment, unrest here could come much sooner.

Lastly, before violence erupted in Kenya, the International Energy Agency pointed out that the high price of oil has wiped out the benefits of increased western aid and debt relief to Africa. And an American diplomat was killed in Sudan in an apparent terror attack.

Israel: What a mess, and just as President Bush is heading to the region this coming week. So here's what has happened the past few days.

The Palestinians fired a Katyusha rocket more than 10 miles, from Gaza into an Israeli city of 120,000; the farthest one of these has ever traveled. In response Israeli operations in Gaza killed at least 14 in two days.

Separately, Israeli Prime Minister Olmert barred new construction in some controversial settlements prior to Bush's arrival as a way of saying Israel is following the roadmap, while the Palestinian Authority is concerned that Israel will demand its defense forces be allowed to operate inside a future Palestinian state to foil terror attacks.

The bottom line is the situation is as close to totally spiraling out of control as it's ever been.

And then there is the Iran nuke issue. As Peter Brookes of the Heritage Foundation and the New York Post observes:

"Well, within about a year of Bushehr becoming operational, some of its spent nuclear fuel could be stripped of enough plutonium to produce a handful of nuclear weapons if the rods aren't returned to their owner/provider, Russia.

"Because the production of fissile material is the long pole in the nuclear-weapons tent, the diversion of material at Bushehr is potentially as big a problem as the 3,000 centrifuges that Iran has whirring at supersonic speeds, enriching uranium?.

"(Of course) a strike would bring Iranian retaliation, including terrorist attacks by Tehran's allies, such as Hizbullah, as well as missile strikes against large Israeli cities. By association, U.S. interests could come into Iran's crosshairs.

"The new year will likely bring more unwelcome news about Iran's nuclear program as it cascades toward a weapons option. It will also be a fateful year for Israel, one that may require action - no matter what the latest NIE (National Intelligence Estimate) says."

Meanwhile, Michael McFaul and Abbas Milani conclude the following on negotiating with Iran for an op-ed in the Washington Post.

"Greater contact between Iranian and American societies will further undermine the regime's legitimacy, strengthen the independence of Iranian economic and political groups, and perhaps even compel some regime leaders to cash out and exchange their diminishing political power for enduring property rights. Over the past four decades, autocratic regimes have rarely crumbled as a result of isolation but more often have collapsed when seeking to engage with the West. Even the collapse of the Soviet Union occurred not when tensions between Moscow and Washington were high but during a period of engagement.

"Will Iran follow a similar path? We will never know if we do not try. Of course, the mullahs might reject our overtures, but their refusal would embolden the opposition inside Iran. And a serious attempt to engage the Islamic republic now would strengthen the American case for more coercive diplomatic and economic pressure, should they be necessary in the future."

Lebanon: Hizbullah leader Nasrallah has threatened blockades of key roads and Beirut's airport unless the opposition is granted veto power in the next government, blaming the United States in the process. The latest attempt at a vote for president (an office vacant since Nov. 23) is slated to take place January 12.

For their part, Syria and France are in the midst of a diplomatic crisis, with France accusing Syria of not backing a deal in Lebanon that would allow for a vote, while Syria is saying France just wants to blame them for their own failures.

Iraq: For the record, despite the success of the surge the last few months, 2007 was still the deadliest of the war for U.S. forces with 900 killed compared to 850 in 2004.

But the fact is casualties peaked at 126 in May and were down to 20 in December, while Iraqi civilian deaths went from 2,155 in May to 710 in December, according to the AP, and from 1,930 to 480 by the Iraqi government's count. These are the facts. Next week I need to clear the table on a topic that bugs me concerning the war, that being the still ongoing battle in reporting it between the right and the left, as well as the direction of the war in terror in general.

For now, though, I have to note that the latest terror attack in Turkey, targeting a busload of Turkish soldiers that killed five and wounded 68, is of dire importance when it comes to the hoped for eventual success in attaining stability in Iraq. Turkey can not and will not just sit back and as I wrote last time, when looking at the tensions between the Turks and Kurds, watch how the U.S. treats Kurdish President Barzani, the terror enabler.

Afghanistan: 2007 saw the highest number of U.S. deaths here, 110, while Britain lost 41 and Canada 30.

North Korea: What a joke?Bush administration policy, that is. Not only did Pyongyang blow off the Dec. 31 deadline for revealing all the details on its nuclear weapons program, as the White House dithers, but on Friday the North said it would boost its war deterrent "in response to U.S. attempts to initiate nuclear war," according to a state newspaper commentary. So once again Lil' Kim is thumbing his nose at the United States and gets away with it.

Separately, after my comments last week on the generals that stand behind Kim, the Wall Street Journal had a story that the U.S. was courting these same folks as the administration focuses on an issue I raised long ago. Who are these people? There has been zero senior level contact with one of the commies' leading generals since 2000, and today one can't help but wonder just what influence they have? For example would they even let Kim turn over his nukes because the weapons provide leverage over the U.S., South Korea and Japan? Without the nukes North Korea seems powerless, so is this fact what is behind the latest stalling tactics in revealing all their assets and programs?

China/Japan/Taiwan: In a trip to China, Japanese Prime Minister Fukuda said his nation had the responsibility and obligation to face up to historical mistakes. "(We) should reflect on our mistakes, and be humble and sympathetic to the victims. Only when (we) can treat our past seriously, bravely and wisely make self-examinations in areas that should be examined, can we prevent making the same mistakes," he said.

Fukuda added that "The future of China and Japan is not to choose between cooperation and confrontation, but to search for effective and responsible means to establish cooperation."

But then he added, "Because mutual understandings and trust are not deep enough, many people in Japan and China will still wonder why people from the other side do not understand their feelings. Japan has not prepared for how to deal with a China that has achieved so much in such a short space of time. And, for China, it has a complicated attitude towards a Japan that has greater international political power."

But while Fukuda's trip was hailed as a success, key disputes remain, such as over competing claims to lucrative gas fields in the East China Sea.

Meanwhile, China arrested a leading human rights dissident as part of its pre-Olympics crackdown, it seems, while announcing it was limiting video content across the Internet.

And then China's Standing Committee of the National People's Congress (parliament) said Hong Kong could directly elect their leader by 2017 and their legislators by 2020. This is such a freakin' joke. Recall that Hong Hong became part of China in 1997 under the principle of "one country, two systems," for which China was to have given Hong Kong more autonomy. I'll be writing about Hong Kong not having the vote in 2027, I imagine, barring a cataclysmic revolution.

Back to Japanese Prime Minister Fukuda, and the issue of Taiwan, he told Chinese Premier Wen Jiabao that "We fully understand China's position that the Taiwan issue relates to China's core interests (and) we don't desire tensions stemming from Taiwan's (proposed) referendum (on UN membership)."

Thailand: The party backing former prime minister Thaksin is claiming a dirty tricks campaign by the ruling military and the royalist establishment, following the parliamentary elections that gave Thaksin's party close to a majority of the seats. Now fraud complaints are being lodged against some of the winning candidates in what is seen as a last-ditch effort to ensure a pro- Thaksin administration doesn't emerge. Eventually the situation could deteriorate into massive protests and violence.

Venezuela/Colombia: Well whaddya know. President Hugo Chavez wasn't able to rescue the three hostages held by FARC after all. FARC blamed Colombia's military for not telling where in the eastern Colombian jungles Chavez could land two helicopters to pick up the captives. Colombian President Uribe dismissed the accusations. Regardless, FARC got cold feet.

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