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

Wall Street

To paraphrase Linus during the Christmas pageant, I bring you tidings of great joy, for unto you, this week, was delivered some historic news on sentiment?if you're a contrarian.

You know those sentiment readings I deliver to you each week down below, which many a time I'm forced to explain just why I keep doing so?

This week everyone was talking about them, but I can virtually guarantee you won't find anyone, even the grizzled veterans, who has been keeping these figures, handwritten, since March 1990.

The Investors Intelligence reading measures the sentiment of newsletter writers; bullish, bearish and those calling for something in between, a correction. But this week the figures were 27.4% bulls, 47.3% bears, and as I've told you this is but one tool any investor should be cognizant of, a contrarian one.

So here's some information others have missed. While reporters discussed the extremes, as in the # of bulls was the lowest since July 1994, and the # of bears the highest since September 1998, they didn't give you any of the other facts.

Regarding the bulls and July 1994, the Dow Jones was about 3700 then and proceeded to run up to 4500 by June 1995, and obviously far higher later.

As for the bears, in September 1998 the Dow was at 7800 and two months later was 9300.

That's how a contrarian indicator such as this one can sometimes give you a signal. But, again, this is just one barometer and these days there are some real fundamental reasons why the market is now firmly in bear market territory.

First and foremost this week was uncertainty over the fate of the two largest originators of mortgages in America, Fannie Mae and Freddie Mac. The stocks like all the others in the financial sector have been sliding precipitously, but then you had former St. Louis Federal Reserve President William Poole say in an interview, "Congress ought to recognize that these firms are insolvent." Uh oh???.[Put on your best Howard Cosell imitation of the Frazier/Foreman fight]

"Down goes Fannie! Down goes Freddie! Down goes Fannie!"

And down?and down?and then on Friday morning the New York Times ran a story that the government was going to bail out these two giants with combined liabilities of $5 trillion, with a 't', as in terrifying. At week's end Treasury Secretary Hank Paulson and Federal Reserve Chairman Ben Bernanke reassured us that Fannie and Freddie were sound and well- capitalized, though more capital would be needed we could all guess, but suddenly the 'implicit' guarantee behind these government-sponsored enterprises was likely to become an 'explicit' one, at least in terms of ensuring the companies' survival, even as equity holders are left like sparrows, picking at the dirt on the sidewalk.

Congress created Freddie and Fannie in 1970 to promote home buying but never came close to truly supervising them and now, in one shape or another, every single person in this nation is paying the consequences, if nothing else in reduced share prices of other issues that happen to be caught in the downdraft, as well as higher mortgage rates across the board.

Of course the story of these two doesn't end here, it's only just beginning and we'll learn far more over the coming week or two, but for now what is known is that they cannot be allowed to fail and the American taxpayer could be paying a steep price over time to bail them out, depending on just how much more pain we have to endure in the housing sector, i.e., how many more properties will fall into foreclosure.

Meanwhile, the Fed said it was extending its program of low-cost overnight loans to the nation's investment banks into next year, a program that was first put into place to address liquidity problems on Wall Street emanating from the Bear Stearns debacle; a sign that many read to mean the Fed believes the credit crisis is going to linger well into 2009.

Nonetheless, shares in Lehman Brothers, for one, plunged amid rumors of a collapse, forcing PIMCO and hedge fund giant SAC Capital to deny they were cutting their relationships with the investment bank. The shares, $74 a year ago, were $13.30 on Friday before closing at $14.40.

All of the above relates to the Big Picture and housing; as in foreclosures nationwide rose another 53% in June over a year ago levels. Josh P. was updating me on one of the Ground Zeroes in the story, the Inland Empire of California, and not only are prices back to 2003 levels (meaning a ton are underwater), but sales of new homes are down 92% by one reading. [Don't be deceived by some of the sales figures you read. Often these include sales of foreclosed properties. Josh notes, for example, that 57% of Riverside County home sales are via this route.]

Separately, after a two-day downdraft in the price of crude from roughly $145 to $136, oil resumed its uptrend and finished the week basically unchanged, thanks largely to saber-rattling between the West and Iran, as described below.

But last week I wrote "There is no way you can validate $145 oil, no matter what anyone says on the supply/demand front? (and that) there is no doubt speculation has played a role in the high price just like speculators bid up the price of some tech stocks during that bubble."

What ticks me off to no end is how lazy some reporters and strategists are. There is a difference between "speculation" and "manipulation," as I've written countless times before. Manipulation is illegal, though seldom punished. Speculation is in no way illegal, though if there are rules in place against it, i.e., "regulation," then it becomes illegal and manipulation. You can not intermingle the two terms like they are one and the same. Otherwise you greatly cloud the argument.

But I want you to read this, the lead from a Bloomberg piece by Mark Shenk on Friday.

"Crude oil traded near $142 a barrel after rising more than $5 in the last hour of New York floor trading yesterday as prices breached a level that triggered computer-generated buying programs.

"Prices rose earlier yesterday because Iran test-fired more missiles in the Persian Gulf [Ed. this account isn't entirely accurate; initially oil traded lower on the news] and a Nigerian militant group said it will end a ceasefire this week [Ed. an important factor in the move back up from $136 to $145.] The increase accelerated after futures broke through the July 9 high of $138.28 at 2:09 p.m. after approaching it at least five times.

" 'The market was set to rally,' said Addison Armstrong, director of market research at TFS Energy LLC in Stamford, Connecticut. 'We kept approaching the $138.20 area and when prices finally made it through' the high, ' 'length came into the market.' Length refers to bets that prices will rise."

The above just proves my point, sports fans. All of those in this business who say it's all about supply and demand and that speculation has nothing to do with the price movement is full of [I'll let Jesse Jackson pick a word.]

Longer-term, as I write ad nauseum, I'm a Peak Oil guy and, for now, while demand is falling 4% on the gasoline front here in the U.S., it appears it's still being matched on the flipside by the likes of China and India, so whether the price of crude is $140 or a still historically high $100, we have a problem.

Enter oilman T. Boone Pickens, who is spending at least $10 million (and probably far more) of his own money on a plan to wean us away from our crushing dependence on foreign oil, which is currently causing the greatest transfer of wealth in the history of man, as he puts it, some $700 billion a year going from the U.S. to the likes of Saudi Arabia, where women still can't drive. [OK, that last bit is not part of Pickens' campaign but rather a little editorial note from moi.]

Pickens plan is centered around wind and solar power, as well as natural gas, of which America has an abundance. I'll have more on Pickens' proposal over the coming weeks, but for now let me add this.

Boone Pickens is a hero for taking such a public stand and putting his money where his mouth is. Some of the idiots on Wall Street, jealous as hell of his wealth and how he achieved it (Pickens has been both an investor and speculator), said Pickens was "only talking his book," i.e., trying to pump up his existing portfolio of investments.

To which I say, "Who gives a damn if he makes a buck on it because Boone is talking the truth!"

We have a serious energy problem?we need to deal with it?. Pickens, bless him, is at least unveiling a plan while the likes of George Bush have their thumb up their [I call on Jesse Jackson again to fill in the blank.]

I wrote two weeks ago of flying over the Columbia River Basin as I headed into Portland's airport and all the sweeping wind farms that I saw. You know what? This past week, the wind was so strong those wind farms threw off 20% more energy than was required and the power authority actually had to release more water than normal from the hydroelectric plants because the system was overloaded. [Bad for fishermen, alas.]

And get this. On Tuesday, USA Today had a list of the top 20 states for "wind-energy potential," with North Dakota #1, and Oregon isn't even on it! You don't have to be Inspector Clouseau to draw a rather bullish conclusion.

Back to Pickens and the money flowing out of the U.S., once again the Wall Street Journal's Gerald Seib nailed it.

"(Pain) at the pump is only one reason energy now should be the central issue of this year's campaign. Here's the other, more insidious one: High oil prices are shredding America's financial independence and producing a massive transfer of wealth from U.S. pocketbooks into the hands of suspect actors around the world, including Iran, Venezuela and Russia.

"The U.S., in other words, now has an energy problem that is not only draining the bank accounts of its own citizens, but filling up the bank accounts of some who work against American interests around the globe. It's hard to imagine an issue that more deserves campaign prominence.

"To simplify the predicament, high energy prices hurt Americans in three ways. Only the first and most obvious one, the effect of high gas prices on voters' economic health, gets much attention.

"The second way high oil prices hurt is by adding to the country's lack of economic independence. In much the same way the country has been borrowing money from China to pay for more Chinese imports, it increasingly is borrowing money from oil producers to buy more of their oil?.

"At the same time, oil producers are joining other foreigners in buying the U.S. Treasury bonds that finance the federal government's budget deficit. Between 2004 and 2007, (a UniCredit Markets & Investment Banking report) notes, foreigners bought 80% of all newly issued Treasury bills.

"The outflow of petrodollars also translates into loss of financial independence on another front. Oil-producing countries are accumulating piles of excess cash that they can use - and are using - to buy pieces of Western companies?.

"Which leads to the third concern: that some of these mountains of petrodollars will in turn be used to advance anti-American political agendas. (An analysis from McKinsey) summarizes the problem dryly but succinctly: 'The rise of a broader range of countries with sovereign wealth funds heightens concerns about the potential noneconomic motives and political ramifications of their investments.'"

While I'm not necessarily as concerned about sovereign wealth funds as Mr. Seib may be, what is clear is that the winner of our election must be able to hit the ground running on the energy topic come next January.

Or as Pickens wrote in a Journal op-ed:

"We have a golden opportunity in this election year to form bipartisan support for this plan. We have the grit and fortitude to shoulder the responsibility of change when our country's future is at stake, as Americans have proven repeatedly throughout this nation's history.

"We need action. Now."

Go get 'em, Boone.

Street Bytes

**After the market closed on Friday, federal regulators swooped in and seized IndyMac Bancorp in one of the largest bank failures in history. IndyMac was a savings and loan with assets of $32 billion.

Time does not permit me to write more except to add for now that Office of Thrift Supervision Director John Reich surprisingly blamed New York Democratic Senator Charles Schumer as "the immediate cause" of the failure. Back in late June, Schumer publicly raised concerns about the bank's solvency. It appears Schumer was acting no differently than any hedge fund operator spreading rumors about Bear Stearns or Lehman Brothers. This is clearly a developing story on many levels.

For now, if you have your account here, the bank is slated to reopen on Monday under supervision from the Federal Deposit Insurance Corp.

--Stocks declined for a fourth straight week, with Nasdaq's losing streak hitting six, the longest in 4 ? years by my records, though a far greater percentage decline, a whopping 11.2% during this time. Early in the week, same-store sales figures for the major retailers generally came in better than expected for June, owing to the ongoing influence of the economic stimulus checks, but then everyone woke up and realized that is probably a last gasp and not the start of something big. While on Friday, General Electric's 2nd quarter earnings were merely in line, nothing more.

[Last week I wrote that thanks to the investment sentiment readings alluded to above, "I'm turning a little more bullish and in another few weeks just may hike my allocation to stocks after sticking with the 80% cash / 20% equities model since 2006." I'm not there yet.]

--U.S. Treasury Yields

6-mo. 2.01% 2-yr. 2.61% 10-yr. 3.96% 30-yr. 4.52%

A Wall Street Journal survey of 53 economists showed "22 believed the Fed should be more concerned by economic weakness than inflation, while 21 said inflation should be the greater concern. The rest said the risks were equally balanced, or declined to answer." [Why those who declined to answer are still on the survey list is beyond me. Fire 'em.]

On average, the economists predicted the consumer price index will rise 4% in 2008, up from the 2.3% they were expecting at the beginning of the year.

But rising wages are not an issue, as was the case in the 1970s, an era often carelessly compared to today's. Lehman Brothers economist Ethan Harris offered, "The average person is saying 'I'm worried about inflation because I can't get a wage increase.' It's not, 'I'm worried about inflation and therefore I'm going to ask my boss for a raise.'"

The economists, however, are raising their estimate of second quarter GDP to up 1.4% from 0.5%, owing to the bigger-than expected impact of the economic stimulus checks. But Goldman Sachs economist Jan Hatzius says, "The stimulus package has softened the downturn but will not change the ultimate outcome."

--According to consultancy RSM McGladrey, nearly 80% of senior executives at small and medium-size U.S. manufacturing companies are pessimistic about the prospects for economic growth.

--Normally I'd put the following review up in my opening, but the picture globally is not pretty. Incredibly, though, some reporters in Britain are just learning "affordability" is an issue and that "Home ownership is out of reach for average earners." This as their bubble bursts. I wrote affordability was a global issue, especially in the U.K., years ago. Look at Spain, too, where thanks to the bursting of the real estate bubble there experts now say the economy will be in recession in the second half.

Separately, Singapore's second quarter GDP slid to 1.9% from a 6.9% pace in Q2, though to be fair this nation's data can be very volatile quarter to quarter as reflected here. In Japan, producer prices, up 5.6% in June, hit a 27-year-high, while in Australia, consumer confidence hit a 16-year low.

--Mexico announced production at its giant Cantarell oil field plummeted by a third in the past year, while total Mexican production has dropped 10%. President Felipe Calderon is urging his Congress to allow more flexibility in the awarding of outside third-party contracts to work with state-owned Pemex in developing new sources. This is critical for our own energy security.

At the same time, the other big source of oil with withering production, the North Sea, has seen its output fall by an average of 7.5% a year since 2002 and due to rapidly rising costs and the difficulty of projects in this area, investment has been on the decline. One industry association believes production in the North Sea could be finished by 2020, though it believes the rate of decline could be lessened with sustained investment.

--In an op-ed for the Washington Post, Gal Luft, co-founder of the Set America Free Coalition, a bipartisan alliance of groups promoting U.S. energy independence, notes that Iran's President Ahmadinejad seems to get it more than we do in America; as in Ahmadinejad issued a mandate for Iran's domestic automakers to make "dual-fuel" cars that can run on both gasoline and natural gas, "a crash program to convert used vehicles to run on natural gas and a program to convert Iranian gas stations to serve both kinds of fuel." More than 100 conversion centers have already been built. "Iranians can drive in with their gasoline-only cars, pay a subsidized fee equivalent to $50 and collect their newly dual-fuelled cars several hours later. Ahmadinejad's plan, which has been largely ignored by the West, means that within five years or so, Iran could be virtually immune to international sanctions."

Luft adds that Brazil is already there in terms of energy independence. 90% of new cars sold this year in Brazil will be flex-fuel vehicles that cost an extra $100 to make but can run on any combination of gasoline and ethanol. [Brazil, as you know, being a proponent of sugar-based ethanol.]

Luft: "Lest anyone think that can't be done in the United States, many of those new cars are being made by General Motors and Ford."

Of course you won't find any natural-gas vehicles on the road here, and Brazilian sugar-cane ethanol is impeded by a 54-cent- per-gallon import tariff, thanks to ethanol's protectionists in Congress.

"The hard truth is that real energy independence can be achieved only through fuel choice and competition. That competition cannot take place as long as we continue to put 16 million new cars that run only on petroleum on our roads every year, each with an average street life of 16.8 years - thereby locking ourselves into decades more of petroleum dependence.

"So let's remember the old saying: When in a hole, stop digging. If every new car sold in the United States were a flex-fuel vehicle and if millions of Americans could plug in their electric cars, gasoline would be facing fierce competition at the pump and the socket. Moreover, our money would have migrated from Exxon to Pepco, from the Middle East to the Midwest - as well as to scores of poor, biomass-producing countries in Africa, Latin America and South Asia, including the few countries that don't yet hate our guts. This, and no other, is the road to independence."

--Along the lines of the above, China's President Hu Jintao made sense at a speech to the Group of Eight on the issue of trade, particularly when it comes to agriculture.

"All countries, the developed countries in particular, should display greater sincerity in the Doha agricultural negotiations, remove trade barriers, demonstrate flexibility over such issues as the reduction of agricultural subsidies, give full consideration to the special concerns of developing members, and deliver duty- free and quota-free market access for the least developed countries."

Trade talks on Doha resume July 21 in Geneva after nearly seven years of prior negotiations.

--Josh P. and I have been exchanging notes on the property tax front. Josh, living in San Diego, appealed his tax bill and won and we were talking about how each such success then impacts all the neighbors. Arden Dale, writing in the Journal, had some good advice.

"Residents of many communities have 30 to 60 days to challenge; the short time frame is intended to protect the municipality from too many challenges?

"When challenging an assessment, it is important to come up with a price you think is fair and not just pick a number out of the air?.[One expert] suggests checking with a local real-estate agent and estimating whether a home's assessed value matches the current market value.

"The next step is to gather evidence supporting your argument. Proof may include documents that show the sales prices of nearby homes that sold around the same time as the assessment. Many property-tax records are public, so homeowners can find out how other homes are valued.

"It is good to keep in mind that an assessment is just an opinion. Some assessors get too stubborn about their valuations, according to Mr. Kramer, who said that his toughest negotiations have been not with homeowners but with staff members who are too inflexible in the face of solid evidence from a homeowner."

--The news out of GM and Ford has been awful these days, but in terms of China, GM's sales there have risen 13% in the first half of the year, while Ford's increased 21%.

--After initially saying 'no' to a takeover bid, Anheuser-Busch appears set to embrace an enhanced bid by Belgian brewer InBev, at a higher price, $70, than the $65 a share first offered as one of Bud's largest shareholders, Warren Buffett, is on board according to reports. For those worried that America is losing control of one of its iconic brands, fear not. This just isn't that big a deal; except a nice pop for shareholders.

--Mr. Buffett was in the news on another deal this week, that being the $19 billion takeover by Dow Chemical of rival Rohm & Haas, as Buffett and Kuwait's sovereign wealth fund help pay for the transaction, leaving him as the single largest shareholder. Berkshire Hathaway will provide $3 billion and Kuwait $1 billion. But some are questioning why Dow Chemical offered $78 a share, or a 74% premium over Rohm's previous share price. Germany's BASF was said to be looking at Rohm as well.

--There is a major security glitch with the new iPhone that prevented buyers from activating them. Seeing as I don't have one, I have to smile.

--Citigroup sold its German retail operations for $7.7 billion to Credit Mutuel in yet another move by Citi to raise capital. Embarrassing.

--Foreign direct investment in China rose 45.6% in the first half from a year earlier, much of which is viewed as 'hot' money which stokes inflation, while also putting the country at risk of "massive outflows" if expectations for currency gains reverse.

--Revenue at Atlantic City's casinos declined 11% in the month of June. But I thought this was a recession proof business? snickered the editor.

--In a CNBC annual survey of the best states to do business, using 40 different measurements, the top five were:

1. Texas 2. Virginia 3. Utah 4. Idaho 5. Colorado

The bottom five are:

46. Mississippi 47. West Virginia 48. Rhode Island 49. Hawaii 50. Alaska

--The Weather Channel was finally sold to NBC Universal (80% owned by GE) and private-equity firms Bain Capital and Blackstone for $3.5 billion. Storm chaser/anchorman Jim Cantore is now in line to replace GE CEO Jeffrey Immelt.

--US Air is removing inflight entertainment systems on its planes in an effort to reduce weight 500 pounds and thus save on jet fuel. For its part, Northwest is eliminating 2,500 jobs, which at an average weight of 160 lbs. (combined male and female) equals savings of 400,000 lbs.

--Hedge funds turned in their worst performance ever*, losing on average 0.75% for the first six months of 2008. [*Since Hedge Fund Research first started tracking the data in 1990.]

--Be glad you aren't a broker in Pakistan. Their Securities and Exchange Commission, in an effort to halt a slide in share prices that had seen the benchmark Karachi index fall 29% in two months, instituted a rule whereby shares can fall by a maximum of only 1% a day. Since then trading volume has totally dried up, some 90%, after driving away fund managers concerned about an exchange where rules can change overnight. These days brokers sit around and make vacation plans for the Tribal Regions. "Don't forget your flak jacket." "No way. I always bring the green one."

--For the month of May, tourism in China and India both grew 21% over the same month a year earlier, but declined 18% in Japan and 13% in Korea.

--My portfolio: I'm not hiding anything, I simply have not made a move for months now. And I have to tell you, I could be on hold for another 18 months because that is my revised timetable for the few stocks I own. Those of you wondering what I'm doing with my China play, for example, only need to know that whereas I was hoping for good things by this coming December, now I plan to hold on until Dec. 2009, if need be. It could take that long for the story to straighten itself out, particularly on the biodiesel side as China continues to cut back on the subsidies for consumers that have made biodiesel unprofitable at existing levels.

I also have a solar play I've long mentioned. The stock has gotten creamed. But I'm holding it, again, for probably another 18 months. My geothermal and electric car battery stocks? Ditto. They've gone down (though I still have small profits in each as opposed to the other two), but I'm not selling.

Of the four just mentioned, however, I recognize that if the credit crisis lingers well into 2009, all could be in deep trouble. This is my gamble, and there's a decent chance I'll pay for taking it. In the meantime, don't expect a lot more out of me unless I make a move. One thing is for sure these days, I'm not drinking premium. It's Coors Light.

--Legendary fund manager and financier Gerald Tsai Jr. passed away at the age of 79. Tsai put together the building blocks of what would become Citigroup, though he is better known for being one of the early proponents of "momentum investing" while starting Fidelity's first aggressive growth fund in 1958. By 1965, when he established the Manhattan Fund, he was able to raise $247 million, at the time the biggest offering in investment company history. In 1968, he sold it to CNA just as the bull market was ending, making a reported $30 million.

Then in the 1980s, Tsai took stodgy American Can Company and turned it into a financial-services juggernaut, changing the name to Primerica in 1987, making him the first Chinese-American to lead a Dow Jones industrials company. Then, a year later, Primerica and Sandy Weill's Commercial Credit Group merged to become what would later be called Citi Smith Barney. [Brian Stelter / New York Times]

--But another giant of Wall Street passed away, the great John Templeton, 95, and I was astounded how CNBC didn't even mention his death.

John Templeton, in my mind, was the greatest single investor of the 20th century, more so than Warren Buffett. John Templeton was the man who single handedly taught us about opportunities outside our own land. And John Templeton, just as importantly, was one of the world's greatest philanthropists, founding the Templeton Prize in 1972 which recognizes achievement that enriches religious experience.

This was a truly great man. I'll always remember his appearances on Louis Rukeyser's "Wall Street Week," particularly after the Crash in 1987, and he was consistently a voice of reason?and optimism. No doubt, today if he were on the air he would still be very optimistic on the future and I'd take issue with him, short-term, but who could argue with him otherwise?

This is a man who when war broke out in Europe in 1939, borrowed money to buy 100 shares each in 104 companies that were selling at $1 per share or less, including 34 that were in bankruptcy, and only four turned out to be worthless. When he founded the Templeton Growth Fund in 1954, if you had invested $10,000 in it, with reinvestment, it would have grown to $2 million in 1999.

Finally, on a personal note, the Templeton Fund Group, including through its incorporation with Franklin, was always a first-class operation, and rival, while I was in the fund business. I admired and respected them, as I did their founder. You were a true titan, John Templeton, and a tremendous teacher for us all. Rest in peace.

Foreign Affairs

Iran: President Ahmadinejad, speaking at a meeting of Islamist nations in Malaysia, said "Don't worry, there won't be any war in the future." Then Iran launched a number of short- and long- range missiles in a display of force, though, laughably, they doctored the photos and who in their right mind believes Iran's missiles (even if the technology has come from North Korea), would be truly accurate? The problem is, however, that if you stick a nuclear or chemical warhead on them, what difference does it make if the missile is ten miles off target? [During the Gulf War the Scuds were incredibly inaccurate, but one slammed into a U.S. National Guards barrack, delivering the single biggest blow of that conflict.] Therein lies the dilemma for Israel and the West.

After a flurry of diplomatic statements that led one to believe there may be some wiggle room on Iran's stance with regards to uranium enrichment, last weekend Iranian officials of all stripes seemed to say that actual cessation is off the table, despite the Group of Six's package of incentives. And the fact it was the Revolutionary Guard behind the missile tests tells you that hardliners are still very much in control.

So I continue to maintain, as was a prediction of mine last December, Israel will be forced to launch a preemptive strike by year end. Israeli Defense Minister Ehud Barak said his country "had proved in the past that it won't hesitate to act when its vital security interests are at stake" and there is zero reason to feel otherwise at this point. On Monday, Barak begins a tour of Pentagon officials and meetings with the likes of Vice President Cheney where actual Israeli attack plans will clearly be discussed along with the possible repercussions and Washington's support role, such as in keeping the Strait of Hormuz open to oil traffic.

Speaking of oil, Iran suffered a serious blow this week when French energy giant Total became the last Western company to pull out of a key development project for Iran's natural gas holdings, calling it "too risky." Iran desperately needs Western know-how.

Former Clinton administration National Security Council member Daniel Benjamin had the following thoughts in a Washington Post op-ed.

"For all his insistence on moral clarity, Bush has failed to bang heads and create clear policies?

"The outstanding example here is Iran. More than seven years into Bush's tenure, it's still not clear whether he advocates regime change in Tehran or favors a negotiated deal to stop the ayatollahs' suspected nuclear program. The failure to decide has been a guarantee of failure. After all, we can't have it both ways: The Iranians are hardly going to bargain with us to stop developing the ultimate weapon if they think we want to do away with their government.

"But this is just what the Bush administration expects them to do. The United States has joined with European countries to jumpstart a set of negotiations with Iran, even as Washington is appropriating $75 million for democracy-promotion programs that underwrite opponents of the regime in Tehran - which the Iranians understandably view as promoting regime change. The confusion goes to the very top: Last month, Bush derided the notion of talking to the Iranian leaders as appeasement, while National Security Adviser Stephen J. Hadley insisted that the administration was pursuing a 'diplomatic strategy' with Iran. Go figure."

[Benjamin goes on to say there has been a similar dysfunction, my word, with regards to our policy over North Korea.]

Israel: Iran isn't Israel's only worry these days. The government stated that UN Security Council Resolution 1701, passed to end the 2006 war with Lebanon, is on the verge of collapse as Syria continues to rearm Hizbullah. Sources told the Jerusalem Post that Hizbullah now has three times the amount of missiles it had prior to the war, some 40,000 short- and medium-range weapons.

[Friday, Israeli police issued serious new allegations of corruption against Prime Minister Olmert, who is now suspected of obtaining $100,000 from multiple sources before he became leader. Police also announced they were widening the investigation. Olmert has previously said he will resign if indicted. Most experts agree, however, that the disposition of this case will not impact any designs to attack Iran.]

Iraq: As expected the Senate confirmed Gen. David Petraeus as the top commander in the Middle East while elevating his right- hand man, Lt. Gen. Odierno, to replace Petraeus as the chief military officer in Iraq, both having done a superb job. [The only dissenters were Democratic Senators Robert Byrd of West Virginia and Tom Harkin of Iowa.]

The purge of al-Qaeda in the north of Iraq has been "one of the more spectacular victories of the war on terror" in the words of London Times reporter Marle Colvon. There are also far fewer terrorists crossing into Iraq from Syria, though you could say they are heading to Afghanistan and Pakistan's Tribal Region instead.

But an emboldened Iraqi Prime Minister Maliki caused a stir this week when he spoke of a "timetable" for withdrawal of U.S. troops as part of any "status of forces agreement" between the two parties. Far more on this in the coming weeks as the White House had initially sought to wrap up an agreement in July, but obviously without a timetable. Iraqi elections are slated to be held this fall and the actual timing vs. our own presidential vote could make this event even more interesting.

I also have to add that as a supporter of the war from the beginning, as well as a supporter of the surge, while many now want to paint the war as a success now that violence is way down, the reporting has to be balanced. And believe it or not, cartoonist Garry Trudeau and his "Doonesbury" strip has been spot on this past week in highlighting the ethnic cleansing that has taken place in Iraq since the war began, particularly in terms of cleansing the country of Christians. Of course Mr. Trudeau and I normally wouldn't see eye-to-eye when it comes to our respective politics, but in its simplicity, Doonesbury has hit the nail on the head. Calling Iraq a success or failure at this point is still very much an open question, and will remain so for at least another few years.

Afghanistan: Violence continues to shift from Iraq to this front it would seem; the latest example of which being a suicide attack on the Indian Embassy in Kabul that killed over 40, while there was a serious similar attack in the Pakistani capital of Islamabad.

North/South Korea: According to a report in Defense News, there are some critics of the Bush administration who firmly believe Pyongyang's nuke declaration was "ghostwritten" by the United States. Can you imagine if this later proves to be true? Bush would be impeached in a nanosecond if he knew of it. It's not that far-fetched, actually, seeing as how the administration is overly eager to strike a deal to cement some kind of legacy, even though it is straining relations with the likes of Japan. Recall, for starters it will take months to begin to verify the amounts of fissile material actually produced, let alone the key issue for some of us; whether Kim and his Orcs will give up the actual weapons produced.

But as for South Korea, President Lee Myung-bak has offered to resume a dialogue with the North, indicating he was willing to reopen the spigots on the humanitarian aid front, but just as he was saying this, you had the report a South Korean female tourist was gunned down by North Korean soldiers after strolling into a restricted area while visiting the North's lone tourist area, Diamond Mountain. South Korea immediately suspended the tour program. For his part, Lee had run on a hardline platform in dealing with the North.

China: Have you seen reports from Beijing recently and the air quality? The Olympic Games open in four weeks and there is little sign the air is clearing up, this despite a ton of rain you'd think would help cleanse the skies as well as intense government efforts to curb industrial pollution by closing factories. Yet by most reports, the level of particulates in the air is still around seven times the maximum allowable level. That can be downright deadly. Clearly, authorities are shocked their efforts haven't been working, though officials continue to issue ridiculous denials. Seriously, assuming the air quality doesn't improve in a big way, who watching the Games will want to travel there? Who will feel truly optimistic about the nation's future and want to invest there? Ironically, the Games could be the worst thing to happen to China, not the best.

Plus you have the ongoing concern over terrorism. This week authorities killed or arrested 15 suspected Uygur terrorists for plotting attacks.

At least leadership received some good news as both Japanese Prime Minister Fukuda and French President Sarkozy have joined President Bush in announcing they would attend the opening ceremonies.

Zimbabwe: Further evidence of Mugabe's torture camps was brought to light, with reports detailing how teenage girls were impregnated by Mugabe's thugs, many contracting AIDS in the process. The life expectancy for women in the country is now 34, the lowest in the world.

The United States and Britain pushed for a travel ban and asset freeze on Zimbabwe's leadership as well as an arms embargo, but then incredibly, both Russia and China wielded their veto in the Security Council to kill the proposal. Russia's ambassador to the UN said "This draft is nothing but the council's attempt to interfere in the internal affairs of a member state."

Friends, in all seriousness this is huge, and immensely frightening on a number of levels. What makes this move any different than any made by Russia or China during the height of the Cold War? What does it say about the prospects for inhibiting Iran? I'll have far more on the ramifications next week.

Russia: Yes, it's also a joke that Russia is a member of the G-8, though it's impossible to boot it at this point. New Russian President Medvedev met with President Bush, after which Bush called him "a smart guy who understands the issues very well." Good god, our president can be truly embarrassing. And look what then happened with regards to Zimbabwe. Today, even John Templeton would be depressed.

Russian dissident Garry Kasparov, in an op-ed for the Financial Times.

"Recently we have witnessed a flurry of high-profile and contradictory statements on the Russian state. In a role reversal, Russia's leaders have been abnormally candid while several prominent western politicians and pundits have lavished undeserved praise.

"Russian President Dmitri Medvedev was bold enough last week to state that democracy is irrelevant to the Group of Eight leading nations. It is sad to see that some of Europe's leaders seem to agree with him. He also accidentally told the truth by saying that while political competition could be a good thing. It must be 'competition correctly built,' a phrase of which George Orwell would have been proud.

"Despite broad acknowledgement that our March presidential elections were neither free nor fair, Terry Davis, the Council of Europe secretary-general, recently expressed his admiration for Prime Minister Vladimir Putin and President Medvedev. His comments about 'growth' and 'progress' make it clear that, to the council, the importance of liberty and democracy in Russia is inversely correlated to the prices of oil and gas. Such behavior helps legitimize fraudulent elections and the dictatorial regime that runs them.

"It is a pity for Robert Mugabe that Zimbabwe does not enjoy a surplus of oil and natural gas. Without those assets his election victory is denounced as a sham and nations around the world call for him to be ousted. At this week's G-8 summit, George W. Bush, U.S. president, denounced Mr. Mugabe while sitting next to Mr. Medvedev, whose hold on power is similarly counterfeit ?.

"An EU-Russia Centre survey has found that 50% of Russia's best-educated and most prosperous citizens would emigrate if they could. The top reasons were instability and danger from law enforcement. Some 83% said they did not believe they had the ability to influence the political direction of the country."

But the White House did conclude an agreement with the Czech Republic to house part of the U.S. missile defense shield, after which Russia's Foreign Ministry office said "If the real deployment of an American strategic missile defense shield begins close to our borders, then we will be forced to react not with diplomatic methods, but with military-technical methods."

So what has already transpired? In yet another still developing event, Russia appears to be cutting off the oil supply to the Czechs.

Our friends the Russkies?.members of the Group of Eight.

Sudan: The International Criminal Court is prepared to seek an arrest warrant on Monday for Sudanese President Bashir, charging him with genocide and crimes against humanity related to the violence in Darfur. It would be the first time the tribunal in The Hague charged a sitting head of state with such crimes. Some, though, believe this would only complicate matters, possibly triggering a military response against the 10,000 peacekeepers in the region. At least seven were killed in an ambush on Tuesday.

India: In a sudden reversal, it now appears the U.S. and India will sign a nuclear technology cooperation agreement after all, a good thing, as Prime Minister Singh was able to find a new coalition partner to replace the Communists, who were blocking approval and have now withdrawn from the government. After a number of steps, the U.S. Congress will vote 'yes', hopefully in early September.

Turkey: Gunmen killed three policemen outside the U.S. consulate in Istanbul (the Embassy is in the capital of Ankara), with police then taking out the three gunmen in a worrisome development amid heightened political tensions in Turkey; sparked by an investigation into an alleged plot to overthrow the government, at the same time the Supreme Court has sought to ban officials from the ruling Islamist AKP party.

Mexico: Depending on what article you are reading, killings related to the drug war have taken anywhere from 1,400 to 2,000 lives already this year. In Tijuana 14 were gunned down in three days. In another attack on Thursday in the state of Sinaloa, gunmen killed 12 in broad daylight, including three police officers.

Britain: In the first survey of attitudes in the British Armed Forces, 47% said they are ready to quit, owing to repeated tours in Afghanistan and Iraq and the stresses these place on families. The British military is 5,000 troops short of where it should be which only compounds matters.

Meanwhile, the war of words between Britain and Russia continues over the murder of Kremlin critic Alexander Litvinenko. A British security agent, appearing on the BBC, said "We very strongly believe the Litvinenko case to have had some state involvement." The BBC also reported that MI5, one of Britain's intelligence agencies, had thwarted an attempt by Russian security services to murder exiled Russian tycoon Boris Berezovsky, another Putin critic, in 2007.

The G-8 Summit: Who cares? The first day these guys said they had a climate change agreement to reduce greenhouse emissions by half come 2050 and the next day we learned that China and India balked so it was 'never mind.'

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Pray for the men and women of our armed forces.

God bless America.

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Gold closed at $960
Oil, $144.80

Returns for the week 7/7-7/11

Dow Jones -1.7% [11100]
S&P 500 -1.9% [1239]
S&P MidCap +0.1%
Russell 2000 +1.4%
Nasdaq -0.3% [2239]

Returns for the period 1/1/08-7/11/08

Dow Jones -16.3%
S&P 500 -15.6%
S&P MidCap -8.2%
Russell 2000 -11.9%
Nasdaq -15.6%

Bulls 27.4
Bears 47.3 [Source: Chartcraft / Investors Intelligence]

Have a great week. I appreciate your support.

Brian Trumbore

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