Educate Yourself

Week in Review
For the week 1/7/2008 - 1/11/2008
Brian Trumbore
President/Editor, StocksandNews.com

Exit polls in New Hampshire showed the economy as being the #1 issue with voters these days, comfortably over Iraq and terrorism, so as big players like Goldman Sachs jump on the recession bandwagon is it any wonder that confidence is drying up?

But just a reminder from your faithful editor. I have consistently maintained that the big issue in terms of the economy is not the credit crunch but rather the global real estate bust, and despite all the stories on Countrywide Financial, further capital infusions for the investment banks and massive writedowns, you can still break it all down to the Average Joe's number one asset, his home, as being the root of all the doom and gloom.

The problem these days, though, is that in the example of our three-legged stool - the consumer, capital spending and housing - all three are slumping, when for a long spell it was just housing, which is why there were so many bulls who insisted the consumer will pull us through.

Well look at the weight of the evidence in just the past week. Sales at the big chain stores in December were dreadful, with the exception of Wal-Mart, up 2.4% on same-store sales. The others, including Target (off 5%), Macy's (off 7.9%), JC Penney (off 7.5%), Kohl's (off 11%) and Saks (off 2.5%), to name a few recognizable names, took on gas.

Additionally, credit card king Capital One reported a surge in delinquencies as it warned its fourth quarter and 2008 numbers will miss current estimates by a mile. Ditto for another rather familiar name, American Express, which on Thursday talked of growing delinquencies and slowing spending trends with its high-end clientele. Amex, too, reduced expectations for all of '08.

The Federal Reserve released a study talking of soaring credit card debt, as well, while AT&T spoke of rising delinquencies in terms of customers' phone and Internet bills.

The weakness in the retail sector is spreading around the world, especially if you consider Britain a rather large player. It's leading retailer, Marks and Spencer, saw its shares tank 20% in one day on word that same-store (called 'like-store' across the pond) sales for the fourth quarter were down 2.2%, far worse than expected, as "people are financially challenged." Recall that Britain is in the midst of a real estate bubble that has the potential to be worse than ours.

On the cap-ex/business spending front, Xerox's CEO said "the financial services industry is tightening their belts," not that you wouldn't already suspect that, while David P. passed on a comment from a leading Street strategist who said he was at a dinner with tech analysts and portfolio managers and never saw it so bearish. Normally, as this fellow observed, you could view the comments as a contrarian indicator but not this time.

On the real estate front, KB Home's CEO said "2008 is going to be another tough year" as his company recorded a $770 million loss including further land writedowns, while Treasury Secretary Hank Paulson said there was "no evidence" the housing market was bottoming, a rather noteworthy comment coming from the normally exceedingly cautious White House shill.

Then there is the case of the nation's largest mortgage lender, Countrywide Financial. Back in January 2007, the shares traded at $45, but earlier in the week, as the company announced soaring foreclosures, delinquencies and late payments on all manner of loans, there were growing concerns it could declare Chapter 11 as the stock plummeted to $5. Then Bank of America, which had already sunk $2 billion in a then struggling CFC last fall, at in essence $18 a share, decided to save the day, with perhaps a little push from the Federal Reserve, and buy the whole shooting match for a whopping $7. [$4 billion being the reported full price.] It's kind of like one of those Billy Mays commercials for Mighty Putty. "But if you call now, we'll not only give you two sticks, we'll also throw in America's largest mortgage company?.all for just $19.95!"

What an embarrassment. Has Bank of America done the right thing in doubling down? Way too many 'experts' said it was a surefire home run. I'd say, 'Who the heck knows? Do you know what's really under the hood?' We keep hearing about the great due diligence team at Bank of America, but it's the same one that stupidly paid $18. And late Friday, it hit the tape that economist Robert Shiller offered, "There's a tendency for people to underappreciate the risk of the housing market. I might have a lower valuation of Countrywide than Bank of America does."

But wait?there's more; as in the word out of California that Gov. Schwarzenegger, in an attempt to close a $14 billion deficit, is closing about 48 state parks, cutting back on school and welfare spending, as well as care for the elderly, and releasing tens of thousands of non-violent prisoners. Some say the Governator is doing all this just to prepare the state for a massive tax increase, as everyone begins to bitch over cutbacks in their pet projects or services. Regardless, this story isn't conducive to economic growth, suffice it to say, and will be repeated in countless other states and municipalities.

So, yes, we will have that recession, if we aren't already in one, and once again there is nothing the Federal Reserve can do to stop it. Oh, you'll see some days where the stock market soars as the Fed lowers rates further, but any sustained rallies will be limited by the reality of what will be sharply lower corporate profits as 2008 rolls on and as the world begins to catch our cold.

--Just another lousy week, as the markets have now registered the worst start to a year since 1982, as measured by the S&P 500, down 4.6%. The Nasdaq and Russell 2000 are both off 8% already. For the week the Dow Jones lost 1.5%, the S&P 0.8% and Nasdaq 2.6%. Even McDonald's had its single worst day on Friday in years over fears its business is slowing in line with the overall economy.

And if you follow the theory that as the first five days of January go, so goes the year, try record losses of 5.3% and 5.1%, respectively, for the S&P 500 and Dow.

This week Ben Bernanke said in a speech that economic activity has worsened to the point that the "downside risks to growth have become more pronounced." Nice of you to catch on, Clueless Ben. "We stand ready to take substantive additional action as needed to support growth and to provide adequate insurance."

Golly gee, thanks Ben. What impact will that have on the dollar, especially when the Bank of England and European Central Bank are holding their own line on rates over inflation concerns, the same ones we have here?

--For the archives, a survey of economists for the Wall Street Journal calls for an economy expanding at a 2% clip for all of 2008, with the 10-year Treasury finishing at 4.40%.

--PIMCO's Bill Gross is calling for a 3% Fed funds rate by mid- year. Goldman Sachs, as part of its recession forecast, sees 2.5% in basically the same time period. The rate is 4.25% today.

--Moody's is projecting that junk bond defaults will rise fivefold in 2008, but this is off a 26-year low rate in 2007 of just 0.9%.

--Do you want some good news? DuPont raised guidance due to its agriculture-related businesses. Speaking of which soybeans hit a record, corn reached an 11-year high, and wheat rallied amid government reports that production isn't keeping pace with rising global demand. Ergo, it's all inflationary.

--Economist Alan S. Blinder, in an op-ed for the New York Times on globalization.

"Many Americans are justifiably distressed about rising income equality, but foreign competition gets far too much of the blame. In fact, the best and most comprehensive studies of the inequality question assign international trade only a bit part in the drama. The main protagonists are all domestic, including changes in technology, the decline of unions, failures of public policy and changing social attitudes toward inequality.

"Americans who want to stop the world fear that the nation either already is or is destined to become a victim of globalization. Such pessimism seems downright un-American. It is also fundamentally illogical. After all, much of globalization amounts to Americanization - as numerous foreign critics have ruefully observed. The United States has long been the biggest, most open, most market-oriented and most competitive economy on earth. Globalization is now spreading these practices to the rest of the world, creating a huge, open, competitive global marketplace. But Americans are past masters of this game. How can we lose if the rest of the world decides to play on our field?"

--A government survey in China revealed that the rising cost of healthcare topped citizens' concerns. But then I saw another one that said inflation was number one, though they are obviously related. And the government just announced another freeze on energy prices, including oil products, natural gas and electricity, as well as on public transportation. But this was tried last fall and it was short-lived because China's energy producers cut production in protest. My contact in China says the current price freeze will only carry through Chinese New Year, Feb. 7.

"I saw this story in Friday's South China Morning Post and I believe it could be a real biggie once it's better known.

" 'Mobile phone batteries labeled Motorola or Nokia exploded during safety tests done by the Guangdong provincial government.

" 'Only 60 percent of the 40 batteries tested passed, with three types labeled 'made by Motorola in China' and one claiming to have been made by 'Sanyo Energy in Beijing' exploding while charging?.

" 'A welder died in Gansu last month when his mobile phone battery - which was labeled Motorola - exploded. It was believed to be the first fatality on the mainland caused by such an occurrence.

" 'Mainland media reports said that the battery was a fake. Reports of the accident have sparked widespread concern among mobile phone users.'"

But nothing ever came of this. So what happens this past week? The Wall Street Journal had a headline:

A battery fire in a South Korean notebook computer cast "new light on the public's perception of the industry's struggles with batteries and how to power mobile-communication products." Shares in LG Electronics Co. and LG Chem Ltd. tumbled on the news.

"The fire occurred at a hospital?where reporters were covering the aftermath of a warehouse fire that killed more than 40 people Monday. Reporters noticed smoke coming from the computer bag of a colleague. Several took the computer outside, where the machine exploded in flames."

LG Electronics' biggest customers for batteries are Dell and Hewlett-Packard. But I'm still amazed that the original story involving Motorola seems to have just gone poof!

--Delta Air Lines announced it would pursue merger talks with both Northwest and UAL, parent of United. In response shares of Continental also rose as the industry heads towards another round of consolidation.

--The Federal Aviation Administration is concerned the flight system on the new Boeing 787 Dreamliner can be hacked into by passengers.

--So I was looking at the mammoth townhouse development going up near me the other day and I figure there are about 75 units, with still not one 'sold' sign that I could see. Plus, on a Saturday, I saw only three or four men working vs. at least 20 on previous Saturdays. I guarantee the developer doesn't make it.

It was all so predictable. The developer, an established one in New Jersey, dumped a project planned for 750 townhouses, condos and duplexes - at prices ranging from $400,000 to $800,000 - but only 22 of the 91 constructed had been sold. Kushner Companies was expected to shell out $150 million in total and instead sold the project to a D.C.-based outfit. Just three weeks earlier another developer stopped work on a luxury project in Asbury Park; 224 units that were to range from $400,000 to $2.3 million.

This is classic. Asbury Park (think Springsteen, if you're not familiar with the area) was supposed to be on the comeback trail but with two huge, abandoned projects, who knows what the future now holds. Similar stories are obviously being played out all over America.

--India's Tata is introducing a $2,500 automobile that is small enough to fit in a mailbox and transport one across country for the cost of a first-class stamp????????.well, let's just say it's small, only ten-feet long, and some are already calling it an environmental nightmare as the price puts the Nano into the reach of tens of millions, clogging India's streets with choking fumes.

Meanwhile, Japan's domestic auto sales fell to a 35-year low in 2007, the fourth straight yearly decline. The reason? A shrinking population and high gasoline prices.

--Howard Schultz, chairman and founder of Starbucks, booted the CEO and retook the reins himself in response to anxieties about the company's growth prospects. The shares have fallen about 50% over the past 12 months. Schultz's decision was due in no small part to McDonald's announcement it is installing coffee bars serving cappuccinos, lattes and mochas, similar to Starbucks' blends. As some analysts note, however, the move is a little risky for McDonald's in that it could slow service and tick off customers.

--Bear Stearns CEO James Cayne was forced to step down from his post in light of the firm's disastrous performance. But he's staying as chairman, because he can. Alan Schwartz, president, takes over the CEO slot.

--According to comScore data, Americans are spending less time on the Web than one year ago.

--For the first time since casino gambling started in Atlantic City in 1978, revenue declined year-over-year; a whopping 5.7% decrease in 2007. The downturn was largely due to the opening of slot parlors in Pennsylvania and New York State. Slot revenues in A.C. fell 8.9%, with table games rising 3%.

--Russia's extended New Year's holiday, Dec. 30 through Jan. 8, the day after Orthodox Christmas, cost the economy 2% of GDP according to economists. Said one, "I think that 10 days of pure holidays mean about 20 days of stress and hangovers." I'm tired just thinking about it.

--So I recently told you I'm beginning to hoard traditional lightbulbs because I'm resistant to the new ones the government is foisting on us. I figure I need about 50 to last the rest of my life.

You see, I just believe we don't know enough about the low- energy ones we're supposed to buy, including the mercury contained therein, as in how to clean the bulbs up when you drop them on your floor and all your detectors begin going off.

Well, it's true. You can't use a vacuum cleaner, for example, and you have to pick up the bulb with rubber gloves and then put the debris in a sealed plastic bag, which you really shouldn't just then put in the trash either.

Nope, you have to take the waste all the way to Nevada and Yucca Mountain, and then wait in line for 3-4 months.

And that's why I'm staying with traditional light bulbs, sports fans, until the government comes to my home and brings me up on charges.

--My portfolio: Talk about volatility, in the span of the first eight trading days of the year, the solar holding I mentioned last week went from $8 to $16.80 to below $10, before closing the week at $11. I tried to sell some at $16 but didn't get it. As for the biodiesel outfit in China, finally the company announced it had financing for the plant expansion that has always been a key to the story. Unfortunately, the terms weren't great, but for those of you playing along, here's what I plan to do. I do not see the stock taking off until investors are sure the latest production schedule will stick. Certainly there are major incentives for management to hit its targets. But the stock could be dead in the water for a while and the next few quarters will reflect lower earnings per share due to the dilution. So I feel like I'm one year behind on this one, though I'm holding. I will be rewarded.

Israel: President George W. Bush paid his first visit to Israel and proclaimed that a peace agreement would be signed with the Palestinians by the end of his term in office. Bush added:

"The agreement must establish Palestine as a homeland for the Palestinian people, just as Israel is a homeland for the Jewish people. These negotiations must ensure that Israel has secure, recognized and defensible borders. And they must ensure that the state of Palestine is viable, contiguous, sovereign and independent."

Bush did say that Palestinians had no "right of return" to homes taken in the formation of Israel, particularly as a result of the lands seized in the 1967 war, but that Palestinians should be compensated. Israel must in turn end its "occupation" of some Arab territories taken 40 years ago.

"George W. Bush's visit to Israel?has many Israelis confused. Is he coming to advance the peace process begun six weeks ago at the Annapolis summit, that 83% of Israelis see as fruitless? Or is he aiming to fortify Israel against a mounting Iranian nuclear threat that American intelligence services claim no longer exists? The visit spotlights the blurring of the administration's Middle East policies, leaving many of its friends - Israel included - confused.

"Israel's bafflement is deepened by the fact that Mr. Bush's agenda departs from a more than 30-year tradition. Unlike Richard Nixon, Jimmy Carter and Bill Clinton, all of whom visited Israel, Mr. Bush will not address the government on the grounds that that would obligate him to speak before the Hamas- dominated Palestinian Parliament.

"Mr. Bush also abandoned the protocol of receiving the head of the Israeli opposition, in this case Benjamin Netanyahu, who will likely be Israel's next prime minister. And while Mr. Bush's predecessors came to Israel following diplomatic achievements - Nixon after the separation of forces in the Yom Kippur War, Mr. Carter after the Camp David Accords, and Mr. Clinton after the Wye River memorandum - Mr. Bush has none to his credit."

Mr. Oren wrote his piece before Thursday's working dinner at Prime Minister Olmert's residence, where Bush said, incredibly, "Take care of Olmert, so he will stay in power. He's a strong leader. Israeli politics is like karate. You never know when the next chop will come."

Seeing as how Olmert could be forced out in weeks following a report on the conduct of Israel's 2006 war with Lebanon, what the heck is Bush doing interfering in Israeli politics? Then again, this is the same administration that endorsed Dmitry Medvedev for president of Russia in upcoming elections when Condoleezza Rice said she looked forward to working with him.

But with all the talk, and all the editorials of the past week, it's really pretty simple as the formula hasn't changed in years.

Israel must stop building settlements and Palestinian President Mahmoud Abbas needs to dismantle the terror network in his land. For his part, Prime Minister Olmert said he recognized some settlement building must cease, but Israel's right wing doesn't want this and Olmert is trying to save his political skin, while Abbas has no power whatsoever to shut down Hamas and prevent it (or other groups) from launching attacks on Israel.

It's also about how the U.S. is perceived in the Arab world overall, as in is the U.S. an "honest broker"? No, it hasn't been. Any administration could have shut down the settlement process anytime it wanted to by just withholding the money. Then say to the Palestinians and leaders in Saudi Arabia and Egypt, in particular, now do your part. Shut down the terror network. If they then couldn't, well, Israel could do whatever it so pleased and with more support from the rest of the world, I imagine. Look at the attitude right before Ariel Sharon's stroke when he was taking the heroic steps to dismantle some outposts. Opinion of him in the Arab world rose.

But of course it hasn't worked that way since, especially in the case of the Lebanese war. It's why you get statements such as the following from Hizbullah's Sheikh Nassrallah:

"When Hizbullah kidnapped two soldiers, Israel had the right to destroy a whole country, but when a Palestinian defends his home and shoots Kassam rockets, the entire world protests vehemently."

Lastly, all of the above pertaining to the Bush visit is nowhere near as important as the conversations he had in Israel related to Iran's nuclear program and Israeli security officials' ideas on how it could be destroyed.

Iran: Speaking of which, there was a little confrontation in the Gulf between three large U.S. Naval warships and five Iranian dinghies.

"Early Sunday morning, the U.S. Navy lost its nerve and guaranteed that American sailors will die at Iranian hands in the future.

"As three of our warships passed through the Straits of Hormuz, five small Iranian patrol craft rushed them. As the Revolutionary Guard boats neared our vessels, an Iranian officer broadcast a threat to our ships, claiming they'd soon explode.

"The Iranians tossed boxes into the water. Mines? Just in case, our ships took evasive action.

"The Iranians kept on coming, closing to a distance of 200 meters - about two football fields. Supposedly, our Navy was ready to open fire but didn't shoot because the Iranians turned away at the moment the order was given.

"We should've sunk every one of them. Not because we're warmongers. But because the Iranians had made threats, verbal and physical, that amounted to acts of war. When will we learn that resolute action taken early saves vast amounts of blood and treasure later?"

The U.S. Navy later released video and the dialogue with the Iranians, much of it ominous from their side, and I saw the Iranians own video version. Ralph Peters asks:

"Does an American commander have the courage to make a decision on his own? When he doesn't have time to deflect responsibility onto his superiors?"

We don't have all the information yet to know whether this was indeed the case on Sunday, but I certainly suspect it is going forward. There is also little doubt Iran's action was a "careless, reckless, dangerous and potentially hostile act that clearly requires an explanation," as the Pentagon said.

What frustrates me, though, is I can virtually guarantee that if the White House had been conducting talks with opponents of Iranian President Ahmadinejad, and if such an act occurred, there would be an immediate explanation. As in, understand that Ahmadinejad is under increasing pressure, internally, from Ayatollah Khamenei and others over his handling of the economy. It would have been nice to have had inside information as to whether this kind of reckless action would have been enough to push him over, because there is no way those in opposition of Ahmadinejad, including both Khamenei and Hashemi Rafsanjani, want war now.

"At Saturday's New Hampshire debate, Democratic candidates were confronted with a question that they have been ducking for some time: Can they concede that the 'surge' of U.S. troops in Iraq has worked? All of them vehemently opposed the troop increase when President Bush proposed it a year ago; both Hillary Rodham Clinton and Barack Obama introduced legislation to reverse it. Now it's indisputable that the surge has drastically reduced violence. Attacks have fallen by more than 60%, al Qaeda has been dealt a major blow, and the threat of sectarian civil war that seemed imminent a year ago has receded. The monthly total of U.S. fatalities in December was the second- lowest of the war.

"A reasonable response to these facts might involve an acknowledgment of the remarkable military progress, coupled with a reminder that the final goal of the surge set out by President Bush - political accords among Iraq's competing factions - has not been reached. It also would involve a willingness by the candidates to reconsider their long-standing plans to carry out a rapid withdrawal of remaining U.S. forces in Iraq as soon as they become president - a step that would almost certainly reverse the progress that has been made.

"What Ms. Clinton, Mr. Obama, John Edwards and Bill Richardson instead offered was an exclusive focus on the Iraqi political failures - coupled with a blizzard of assertions about the war that were at best unfounded and in several cases simply false. Mr. Obama led the way, claiming that Sunni tribes in Anbar province joined forces with U.S. troops against al Qaeda in response to the Democratic victory in the 2006 elections - a far-fetched assertion for which he offered no evidence."

Nor are the candidates adjusting their positions to reflect the realities on the ground.

"Every American should feel a debt of gratitude to Gen. (David) Petraeus and the great American troops fighting under him for us. This gratitude is due not simply for the extraordinary progress they have accomplished in Iraq, but for what they have taught us about ourselves.

"If the mismanagement of the Iraq war from 2003 to 2006 exposed our government's capacity for incompetence, Gen. Petraeus' leadership this past year, and the conduct of the troops under his command, have reminded us of our capacity for the wisdom, the courage and the leadership that has always rallied our nation to greatness.

"As Americans, we have repeatedly done what others said was impossible. Gen. Petraeus and his troops are doing that again in Iraq today.

"The war for Iraq is not over. The gains we have made can be lost. But thanks to the courage of our troops, the skill and intellect of their battlefield commander, and the steadfastness of our commander in chief, we have at last begun to see the contours of what must remain our objective in this long, hard and absolutely necessary war - victory."

But the reality on the ground also reveals that few, if any, of President Bush's benchmarks for Iraq, as spelled out on Jan. 10, 2007, have been met. And while Bush said Iraqi security forces were to take over responsibility for all 18 provinces by now, the number is nine.

At the same time, though, while there has been virtually zero progress at the national level in meeting political goals, there has been substantial progress at the local level, but at what cost? Violence is down to a great extent because the neighborhoods have been cleansed of sectarian strife.

Kenya: The situation continues to deteriorate as the main opposition party of Raila Odinga called for mass rallies across the country in the wake of President Kibaki's failure to not only resolve the election dispute, but also his move to put together a new cabinet without a single member of Odinga's party. All attempts to mediate the crisis thus far have failed miserably and now it's up to former UN chief Kofi Annan to give it a try. Not only have more than 600 been killed, but over 250,000 have been displaced in what is rapidly becoming a humanitarian catastrophe.

"(In) Kenya, as in much of the continent, (a) resurgence of investor confidence has lived alongside grimmer realities too easily ignored in the rush to erase Africa's image as a repository of man-made disaster. It is as if sleek new airports, homogenous hotel luxury, internet access and BlackBerry networks that can now be found in so many African capitals have blinded development consultants, investment bankers and politicians to the despair found outside the bubble.

"The headline statistics - Kenya's economy grew 7% in 2007 - often mask widening inequalities and an underclass with little to lose by hurling stones and lighting flames when aspirations are frustrated.

"Or take Angola. The champions of recent Africa optimism point out that it, not China, is the world's fastest growing economy - yet its rapacious elite makes Congo's look like mere pickpockets and its billionaires, like Nigeria's, live amid unemployment and poverty so widespread there are no reliable statistics to describe it.

"For every cosmopolitan university graduate living in a comfortable suburb, there are dozens in slums and villages with no access to electricity, clean water or education.

"There will be some who argue that the events in Kenya will prove a rite of passage in the transition to greater prosperity and more accountable government. There are still grounds to hope that permanent damage to the social fabric can be avoided.

"But there is a danger that these signs of fresh disaster will stoke belief among investors that the billions being raised in western capital to meet African demand for infrastructure and corporate growth are misplaced. Rather, the crisis in Kenya should serve as a reminder that a continent so huge, complex and beset with challenges will remain vulnerable to setbacks whenever politicians have only their own interests at heart, and so long as the majority live on barely a dollar a day."

Pakistan: The New York Times floated the story that the White House and senior military officials are itching to aggressively pursue al Qaeda in Pakistan, more so than they already have been, but President Musharraf said on Friday that any unilateral action by U.S.-led coalition forces against terrorists in the border region with Afghanistan would be considered an invasion.

Of course the above was for public consumption as there has already been substantial cooperation (though not enough, obviously) in terms of attempting to identify al Qaeda and Taliban targets.

Meanwhile violence continued ahead of the now rescheduled parliamentary vote in February, while the late Benazir Bhutto's Pakistan People's Party put forward her 19-year-old son, Bilawal, at a press conference in England that was aired on the BBC. Recall that Bhutto's will supposedly named her husband Ali Zardari and Bilawal as co-chairmen upon her death, though there are some questions as to whether this was truly the case, and Bilawal said he wanted to be left alone while he finished his studies at Oxford, after which he would assume control of the family empire.

At which point a BBC reporter noted that not only had Bilawal never stepped foot in Pakistan, but "What on earth do you have to offer this country?" Bilawal just kept repeating that "in this moment of crisis we needed to show a united front."

"(It) is time to look forward. In profound sadness, the torch of leadership in the Pakistan People's Party has been passed to a new generation, to our son, Bilawal Bhutto Zardari. I will work with him and support him and protect him to the extent possible in the trying times ahead. The Bhutto family has given more than anyone can imagine to the service of our nation, and in these difficult days it is critical that the party remain unified and focused. My wife, always prescient and wise, understood that. Knowing that the future was unpredictable, she recommended that the family keep the party together for the sake of Pakistan. This is what we aim to do."

Understand the "family" itself is split on the future direction, and understand that years ago Benazir's own brother was killed after he questioned her leadership?the ISI (intelligence service) was implicated but just who ordered the hit can only be surmised. Guess where I come down?

Also, back in 2003, a Swiss judge convicted both Zardari and Benazir Bhutto of money laundering. But then an appeals court set aside the judgment. The investigation was then reopened on more serious charges which found that Zardari had accepted bribes from Swiss companies looking to do business in Pakistan. Benazir, in this case, was "acting in a criminally reprehensible manner by abusing her role in order to obtain for herself or her husband considerable sums?at the cost of the Islamic Republic of Pakistan."

So I stand by my initial reaction upon her assassination; that being while no one deserves that kind of end, this was no 'hero.' And in death she continues to influence matters in nothing but a negative way.

North Korea: The U.S. is now giving Pyongyang until the end of February to come clean on its nuclear weapons program; this after missing the Dec. 31 deadline. Envoy Christopher Hill also said full dismantlement can be achieved in 2008.

But arms control expert Robert Einhorn, of the Center for Strategic and International Studies, said:

"The declaration issue really could be a show stopper because how can you proceed with a commitment to eliminate North Korea's nuclear program completely if they haven't been transparent about the whole program."

Carolyn Leddy, who worked on counterproliferation strategy for the National Security Council in 2006 and 2007, wrote in an op- ed for the Washington Post:

"(Few) were surprised that the North Korea deal was reached so easily by political and regional officials. But we were assured that President Bush had a personal desire to seek, through the six-party process, an end to North Korea's nuclear weapons program?.

"Ultimately, it became clear that honest assessments of intelligence on North Korea's nuclear program were not of interest to the administration's 'regional specialists.' They wanted a deal. They continue to keep the deal afloat even as North Korean intransigence continues?.

"Secretary of State Condoleezza Rice said last month that she wasn't 'too concerned about whether [the deadline] is December 31 or not.'

"This view is misguided. As with all things regarding North Korea, the devil is in the details. Deadlines matter. I took part in a U.S. delegation's trip to survey the Yongbyon nuclear facility in September. Afterward, it was clear that North Korean officials view all elements of the six-party agreement as negotiable. If the deadline can be overlooked, so can the 'disablement' and the 'disclosure.' This is how the Clinton administration's agreed framework unraveled."

As for the Chinese, who are supposed to be pressuring North Korea to fulfill their obligations, the above mentioned Robert Einhorn's center issued a report detailing that China has contingency plans to dispatch troops into North Korea and secure nuclear weapons in the event of instability. China would supposedly work with the UN but unilateral action was not ruled out. Of course China's other main priority would be to prevent a flood of refugees, but the border is 1,400 km long.

Kosovo: Ethnic Albanian ex-guerilla Hasim Thaci was elected prime minister and has vowed to declare independence from Serbia within weeks, but he is expected to coordinate any declaration closely with the EU and U.S. Then we'll see what Russia does.

Georgia: Russia will also have a lot to say with the future of Georgia following President Mikhail Saakashvili's success in an election necessitated by his roundly denounced state of emergency declaration back in November, on the heels of anti- government protests. Saakashvili evidently picked up 52% of the vote, thus avoiding a run-off, though the opposition says the vote was rigged. International observers say it was largely clean. Regardless, Saakashvili, once a favorite of the West and President Bush, needs time to restore his reputation, even as Russia, through its overt support of two breakaway republics, threatens to roil the waters further.

France: We've been warning President Nicolas Sarkozy; Carla Bruni is a man-eater! Alas, the guy isn't listening and plowing ahead with marriage number three, just months after his divorce from wife number two. The French people aren't that happy about the whole situation, with Sarkozy's approval rating plummeting 7% in a month to 48%. Back in July it was 65%. The French want him to focus on his real job.

Dow Jones -1.5% [12606]
S&P 500 -0.8% [1401]
S&P MidCap -2.6%
Russell 2000 -2.4%
Nasdaq -2.6% [2439]

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