Week in Review 
For the week 7/28/2008 - 8/1/2008
Brian Trumbore
President/Editor, StocksandNews.com

Wall Street

The housing bubble has been the root of virtually all the problems on the economic front, particularly in the developed world, whether it's the U.K., Spain, Ireland or the Land Down Under, where Australia's New South Wales, home to Sydney and much of the population, just hit a 54-year low in home construction.

In the U.S., Oppenheimer's superstar analyst Meredith Whitney, who really should have her own bobblehead doll night at Shea or Yankee Stadium, she's been that good, said that when it comes to the financial sector, even after Merrill's dreadful news (discussed in depth below), "valuations remain uncertain" and that, yes, it continues to be all about housing. The S&P/Case-Shiller 20-city index for May revealed that housing prices fell 15.8% year over year, with Las Vegas and Miami down over 28%. Foreclosures continue to skyrocket, up 140% in my state of New Jersey in the second quarter.

Yet all the pundits, egged on by CNBC, are trying to pick a bottom, as my friend Trader George was bemoaning the other day. PIMCO's Bill Gross was among those saying that in the case of California, where home prices are now off 30% to 40% in the hotter markets, the bottom may well have been hit.

For my part, I've never said I knew where the bottom would be but that when we did hit it, we'll sit there for an extended period, which would continue to eat away at consumer confidence. Trust me, there is no reason to rush into a purchase of a home if your sole purpose for doing so is that you think we've bottomed. Take a deep breath. There will be no V-shaped recovery for the sector?period. It certainly doesn't help that the labor picture remains punk, at best, as July saw the 7th-straight month of job losses, off another 51,000, with the unemployment rate rising to a 4-year high, 5.7%, as we increasingly learn those who do have jobs have part-time ones at that.

But as for the confusing housing relief / Fannie-Freddie rescue package signed into law by the president, the bill establishes a $300 billion fund under the Federal Housing Administration that may allow up to 400,000 distressed families to obtain more affordable, government-backed mortgages and get out from the killer adjustable rate mortgages they can no longer afford. The banks, however, have to agree to play and seeing as the program doesn't go into effect until Oct. 1, and won't be in full force until early next year, a lot can happen between now and then to influence the lenders' attitudes as hundreds of thousands are forced into foreclosure beforehand.

[Eligible borrowers must have spent more than 31% of their monthly incomes on their mortgages as of March 1, 2008, and the troubled loan must have originated no later than Jan. 1, 2008, and be on the borrower's primary residence, according to an AP analysis.]

As for the Fannie/Freddie aspect, the measure for the first time explicitly gives the government's backing to the two, while in essence encouraging them both to take on more risks by increasing the size of loans the two can buy, up to $625,500.

But bottom line, few expect all of the above to have that much of an impact, while the cost to the government to backstop Fannie and Freddie, deemed to be manageable today by proponents of the legislation, could easily escalate were housing to take another header.

Martin Mayer / New York Times

"Congress has given the Bush White House yet another chance to operate outside the Constitution. Unsurprisingly, the administration has taken it. Treasury Secretary Henry Paulson now has the go-ahead for his two-part plan to salvage Fannie Mae and Freddie Mac, the government-sponsored mortgage companies - a blueprint that violates fundamental American principles in two worrisome ways.

"First, the Treasury will be allowed to advance money to Fannie and Freddie (and even to buy their stocks) in unlimited quantities to keep them afloat - in any fashion Mr. Paulson sees fit. Yet the Constitution requires that 'no money shall be drawn from the Treasury, but in consequence of appropriations made by law.' Even in wartime, budgets for the military specify how much is to be spent for what purposes.

"Second, as an alternative to increasing the national debt, Mr. Paulson wants to let the two mortgage lenders become preferred customers of the Fed's discount window, with the authority to pawn their own securities for cash. But only Congress has the constitutional power to borrow on the credit of the United States. Wright Patman, who headed the House Banking Committee from 1963 to 1975, liked to say that the Constitution gave Congress exclusive power to coin money and regulate its value, and that power was merely 'farmed out' to the Federal Reserve.

"It isn't a good idea to authorize the Treasury secretary to spend unlimited amounts of taxpayer money, even accepting the administration's argument that Mr. Paulson will probably never have to use it. Even worse is the notion that the Fed's portfolio of assets - assets that back our currency - should be polluted by the inferior stuff of collateralized mortgage obligations."

[Mr. Mayer does say, however, that Secretary Paulson can spare the Treasury by dipping into a little-known pool of money called the Exchange Stabilization Fund, but I won't get into that today.]

Lawrence Lindsey / Wall Street Journal

"The new law actually reduces the amount of competition in the mortgage securitization business going forward by solidifying the special position for the two leading players, Fannie and Freddie, while competitors scramble to get capital.

"The legislation also creates long-term uncertainty with regard to the extent and form of government assistance. In effect, Treasury Secretary Paulson now has an open-ended mandate to bailout the nation's troubled housing finance market, the largest single capital market in the world.

"If any other country announced that its finance minister could print unlimited debt to do something similar, financial markets around the world would dump both the country's debt and the country's currency. It may well be different because this is the United States of America. But certainly, to take such a risky and unprecedented step, a better crafted and considered piece of legislation should have been created."

Lastly, the news on the trade front was disturbing as the Doha Round collapsed in a sea of recrimination, specifically between the United States on one side, and China and India on the other. For seven years, Doha was headed towards a satisfactory conclusion on issues such as agriculture, but just when China and India were prepared to lower their tariffs on industrial goods in exchange for European and American subsidy cuts on farm products, the two demanded a "safeguard" clause that would allow them to reinstitute tariffs on crops such as cotton and rice if there was a sudden surge in imports. This wasn't a deal breaker and the United States was set to approve the trigger at a 40% jump, but then China and India said, no, we want it set at an absurdly low 10% level. As these things go, the demand was off the charts.

U.S. trade representative Susan Schwab said "In the face of the global food crisis, it's unconscionable that this came down to how much countries could raise their barriers to imports of food."

I was reading an account in the Wall Street Journal and the reporter offered that despite the severe setback, the world is not "on the edge of the kind of protectionist wave that ended the last period of globalization in the early 20th century and contributed to two world wars, analysts say." I beg to differ. As the global economy continues to grind to a halt, trade will become the #1 target of the people and protectionism is a natural byproduct.

From an editorial in the Washington Post:

"China's role in the demise of the Doha Round is particularly dismaying, considering China has reaped huge benefits from global trade in the seven years since it joined the organization - with strong U.S. support. Chinese exports have quadrupled from $300 billion in 2002 to $1.2 trillion in 2007, thanks in large part to free access to the U.S. market. U.S. supporters of Chinese inclusion in the WTO argued that drawing China into a system of multilateral give-and-take would mute its nationalistic tendencies. Evidently, the Chinese see the matter differently. They, and the world, will be poorer because of it."

I was one of those backing Chinese membership in the WTO. I may have been wrong.

Street Bytes

--Stocks finished as mixed as you can get, with the Dow Jones dropping 0.4% to 11326, the S&P 500 tacking on 3 points, or 0.2%, to 1260, and Nasdaq finishing unchanged at 2310. With about 75% of companies in the S&P 500 having reported their earnings, the report card isn't good, no matter how you slice it, ex-financials, ex-energy, or ex-GM. The bottom line is as a group they are down about 20% vs. year ago levels and there is little cause for optimism the 3rd quarter will be much better.

--U.S. Treasury Yields

6-mo. 1.86% 2-yr. 2.51% 10-yr. 3.94% 30-yr. 4.56%

The White House is now projecting that the budget deficit for fiscal '08 will come in at $389 billion, while next year's is forecast to explode to $482 billion amidst the slowing economy, declining tax receipts, costs for the wars, and the ever-growing impact of Medicare legislation signed in 2006, if I recall correctly. The record deficit is $413 billion set in F '04, after which it shrunk to $162 billion by '07 before rocketing anew.

--On Friday, General Motors posted a $15.5 beeellion (channeling Carl Sagan) loss for the second quarter, the third-worst quarterly loss in the automaker's history. Revenue was down a massive $8.5 billion, while on the cash burn front, at first blush it appears GM can get through 2009.

Overall for the industry in the month of July, while GM's U.S. auto sales plunged 26%, Chrysler's dived 29%, Toyota's fell 12%, Ford's were off 15%, and Honda's 2%. Nissan Motor saw its sales grow 8.5%. But the figures hide even worse carnage, such as Ford's SUV sales plummeting 54%!

--As alluded to above, Merrill Lynch announced it was taking a $5.7 billion further writedown, making it about $46 billion in total writedowns thus far during the credit crisis, while raising another $8.5 billion in fresh capital by selling stock, including another $3.4 billion to Singapore's state-run Temasek Holdings. Temasek had invested $5 billion in Merrill in December and February at $48 per share, but with the stock at $27, Merrill had to pony up $2.5 billion under the original agreement with Temasek then opting to reinvest the funds. [There isn't one outside investor that has made money in the investment or commercial banks requiring capital the past year.] Meredith Whitney made the important point that all of the equity capital being raised during this time has merely been "plugging holes," not fueling growth as equity traditionally does.

Merrill's biggest single action on the writedown front involved the sale of collateralized debt obligations that once had a face value of $30.6 billion for $6.7 billion to private equity vulture shop Lone Star Funds. The 22 cents on the dollar is seen as a new floor on CDOs for the industry and may help exposed players such as UBS, Citigroup and Lehman at least get their own crapola off the books as part of 'moving on.'

--Citigroup and Merrill Lynch were sued by the states of New York and Massachusetts, respectively, as a result of shenanigans in the marketing of auction rate securities, thus joining UBS - previously sued by New York, Massachusetts and Texas - on the hot seat. Long ago I was tipped off this was a big problem at Merrill and having been on the marketing end of Wall Street for 16 years myself, I can just picture how this all went down, with executives who had their own funds in the securities scrambling to get out ahead of their customers?.the height of dirtballdom. [Word of the week.]

--ExxonMobil reported profits of $11.68 billion, the highest ever for an American company, though it missed its earnings forecast significantly and the shares fell. Exxon continues to spend more of its cash hoard on buying back stock rather than on exploration, subjecting itself to even further criticism. Royal Dutch Shell also earned $11.6 billion in the quarter.

--Mexico held a nonbinding referendum that provided some guidance on sentiment concerning this nation's government-controlled petroleum industry. President Felipe Calderon wants to give private firms a bigger role in the exploration and development arena but over 80% opposed the plan, including 90% outside Mexico City. This is a big blow for both Calderon and the rest of us as it's apparent the president will now have a tough time getting legislation to open up the industry approved by a legislature concerned with their own job security.

--The parent of the Benigan's and Steak & Ale chains, with over 310 locations nationwide, filed for Chapter 7 bankruptcy amid rising costs and falling sales. Thousands more thus enter the unemployment line. Very sad.

--Tyson, the 2nd-largest chicken producer, blamed soaring corn and soybean prices for a 90% decline in profits, while Black & Decker cut its earnings forecast on the housing slump.

--Shares in Biogen Idec and Elan plummeted on Friday on word two patients being treated with their multiple-sclerosis drug Tysabri contracted a potentially fatal brain disease. This is the same drug that was once withdrawn over a different safety concern but this time Biogen said it has no plans to recall it or restrict its use. [Elan is the marketing partner.] The benefits for MS patients seem indisputable, despite the risks.

--New York State and the Big Apple are classic examples of the problems faced by states and municipalities. This week Gov. David Paterson said New York's budget deficit will soar to $6 billion next year and $26 billion over just the next three, but while Paterson said it was a time for action, he gave no real specifics. Meanwhile, New York City Mayor Michael Bloomberg spoke of projected deficits of $2.3 billion in fiscal 2010, and $5 billion+ each of 2011 and 2012. Obviously, Wall Street's surging layoffs and collapsing profits are a big issue as well as a fall in real estate taxes.

--Then there is California, where up to 22,000 full- and part-time state workers will be laid off while the pay of 200,000 others is reduced to the level of the minimum wage. But here, as in just about every other state, governments often have only themselves to blame as nationwide, state and local governments increased spending 7.8% in the second quarter compared to 2007 even though revenues rose only 2.5%. Now revenues have gone into reverse.

--Starbucks' troubles continue as the company reported a net loss of $6.7 million for the quarter and the pain has spread to Australia, where 61 of 84 shops are being shut with only locations in Sydney, Melbourne and Brisbane surviving, this as CEO Howard Schultz added that he is souring on Europe as well. But perhaps the best example of Starbucks' ill-considered hyper-growth is Las Vegas, where no outlets existed before 1995 but today number 155. The company is eliminating at least 16. Overall job losses, both in the U.S. and abroad, are now in excess of 13,000.

--Ha! Home prices in the Hamptons fell 12% in the second quarter from a year earlier. Bloomberg quoted one local developer, trying to sell his own home, as saying "We used to think of the Hamptons as insulated and that's not the case." No kidding, Sherlock.

--Alcatel-Lucent finally forced the two executives responsible for the ill-conceived merger, CEO Patricia Russo and chairman Serge Tchuruk, to walk the plank after posting a loss of $1.7 billion for the quarter. The company has failed to turn a profit since it was formed in November 2006.

--SAP, the world's largest maker of business software, kicked butt (read Oracle's) as sales rose 21%, above expectations. While you'd be right in saying the rate of capital or business spending is slowing, for its part SAP has been successful convincing companies that its new product offers a "strong value proposition," in the words of its Co-CEO. As for Oracle's longstanding suit against SAP, alleging theft of trade secrets, first brought in 2005, a new trial won't commence until Feb. 2010. Wake me up when it's over.

--In all my travels, one of the best state newspapers is right here in New Jersey, the Star-Ledger, which this week gave us yet another example of the huge problems facing the industry in announcing a deadline of Oct. 1 for getting 200 of the paper's 756 non-union full-time employees to take a buyout or the paper will be sold.

--Eric Savitz of Barron's had some good comments on the disastrous IPO of GT Solar, a New Hampshire maker of equipment for solar cells, modules and systems. Credit Suisse and UBS led the deal, raising about $500 million on 30.3 million shares priced at $16.50 ten days ago and now $11.90. The payoff, though, was that the day after the IPO, a key customer announced it was defecting to a Chinese competitor. Savitz adds:

"What makes the story so appalling is that the deal didn't raise a single penny for the company. All of the cash goes to an entity called GT Solar Holdings, owned by the venture funds GFI Energy Ventures and Oaktree Capital Management. This wasn't some hyper-growth company that needs cash to fund operations; this was a pair of venture investors who wanted to take some money off the table. Even after the offering, they own three-quarters of the equity; would it have killed them to price the deal a couple of bucks lower?

"To take a solar company public in the current environment, with so many other companies in the pipelines, and to botch the IPO this way hurts both their venture competitors and the companies lined up behind GT awaiting a chance to go public."

It didn't help my own solar holding, either, though the entire sector is now going to have to wait until year end it would seem to see if its tax credits are extended. This is an abomination, as Republicans fight for more drilling, while Democrats want a focus on renewables. As I've said before, I recognize this is one case where the government may have to shell out considerable sums, and we all know how lousy the deficit picture is, but both sides have to compromise. In the meantime, I just hope the company I've invested a fair piece of change in doesn't have its line of credit pulled, an issue with just about every small company in America these days amidst the credit crunch.

--One of the joys of leaving the business world and Wall Street in 1999 was no longer having to go through Atlanta's Hartsfield International Airport on a regular basis, it being among the three worst in the world I've experienced and once again rated the world's busiest in a new study. Chicago's O'Hare and London's Heathrow follow. Atlanta registered 89.4 million passenger arrivals and departures last year compared to O'Hare's 76 million.

And what's the largest cargo airport in the world? Memphis, home of FedEx, followed by Hong Kong and Anchorage. I never would have guessed Anchorage.

--Still no change to my recommended 80% cash, 20% equities allocation.

Foreign Affairs

*As I go to post, CBS News is reporting al-Qaeda's #2, Ayman Zawahiri, has been killed or critically wounded. Beyond that there is no further information at this time.

Iraq: Only 11 U.S. soldiers died here in July, the lowest total of the war (with just five being combat related). Contrast that with the worst tolls, Nov. 2004, 137, and May 2007, 126. So President Bush allowed himself to crow and as a supporter of both the war and the surge, I can't argue with his right to do so as Bush also reduced tours of duty from 15 to 12 months thanks to the security gains that have been made.

Iran: President Mahmoud Ahmadinejad claimed Iran was up to 6,000 centrifuges at its main uranium enrichment facility; double its earlier acknowledgment, though Israel largely discounts the claims. Ayatollah Khamenei added that Iran "would continue on its path" of nuclear work.

But today, Saturday, is the deadline for Iran to cease enriching uranium or face further sanctions, assuming Russia and China cooperate with the EU-3 (Britain, France and Germany) plus the United States, though Russia has already said it doesn't believe in deadlines.

Longer-term, like into the fall, Israeli officials continue to rule out no options of their own in dealing with the threat to their very existence and, again, it's important to understand that the leadership vacuum at the top with the announcement Prime Minister Olmert is stepping down in September has no impact on any Israeli plans to confront Iran. Deputy Prime Minister Shaul Mofaz told a Washington audience on Friday "We have to make sure we are prepared for every option." But Mofaz did add the diplomatic track should be pursued. "We don't want war, we want peace. But we will not let the second Holocaust take place."

As for Olmert, his decision to step down in the face of probable indictment in the corruption investigation does impact peace talks with the Palestinians and Syria, neither of which was particularly popular with the Israeli masses anyway because Olmert was seen to be more interested in burnishing some kind of legacy rather than acting in the best interests of his people. Now, all bets are off on these fronts.

Politically, here is what may happen. Olmert resigns around Sept. 17 when his Kadima Party selects a new leader, but if Kadima then can't form a new ruling coalition, an early national election will be called, with Likud leader Benjamin Netanyahu the favorite should this be the case. Otherwise, a general election will not take place until sometime in 2009, it would appear. Current Foreign Minister Tzipi Livni is the favorite to take the helm of Kadima, incidentally, even as Livni has her fingerprints all over the failed Lebanese war of 2006.

But back to Olmert's announcement, I thought this editorial in the Jerusalem Post nailed it.

"Until the very end, Prime Minister Ehud Olmert remained Ehud Olmert: combative, lacking humility, convinced of his own abilities and infallibility. These same traits, which hoisted him up the country's political ladder, eventually brought about his political downfall.

"There was something unsettling about watching Olmert essentially tender his resignation Wednesday night on the porch of his official residence in Jerusalem?.

"Unsettling because, Richard Nixon-like, the prime minister believes that it was not his own faults and missteps chasing him from office, but rather that he was being hounded out by his enemies.

" 'As a citizen in a democratic state, I have always believed that when a person is elected prime minister in Israel, even those who opposed him in the ballot box would want him to succeed,' he said.

"But that was not his case, he added, saying that from day one he was subjected to 'a wave of investigations, probes and criticism,' as if those investigations and probes were merely ways to drive him from office, not the product of any of his actions.

"If Olmert had demonstrated some humility along the way, perhaps the public would have been more forgiving. But he never did. The investigations against him were cooked up to get him. The poorly waged war in Lebanon was someone else's fault - the chief of staff might have had to resign, as did the defense minister, but he could stay on?.

"It was as if he was speaking to a nation that has not been around for the last two years?

"As if the country did not live through the blunders of the Second Lebanon War, and witnessed how the inability to win that war - or decisively stop the rockets from the Gaza Strip - has not bolstered, but rather damaged, Israel's overall deterrence. Here, however, one must give Olmert credit for the strike on the alleged nuclear installation in Syria, which showed that Israel could, and would, strike when it felt its back was against the wall?.

"He talked of a nation that learns from its mistakes, though the second anniversary of the war in Lebanon passed just two weeks ago with numerous reports of a home front still woefully unprepared. And his comments about being on the verge of an understanding with the Palestinians and Syrians are belied by a lack of any tangible progress on either track presented to the public."

China: 8/8/08 is finally here. The start of the Beijing Olympics, as the government struggles mightily to not only clean up the air, but keep it that way until Aug. 25. Another 100 factories were ordered shut and 90% of the cars have been banned from the roads but the efforts can work one day and then the next the city can be right back in the soup. In just the past week, for example, Hong Kong had a string of days with rare blue skies, but then just a few days later, this past Monday, Hong Kong recorded its worst pollution levels ever, Hong Kong being where the Olympic equestrian events are to be held. [Yes, I check the weather here every day. Thanks to my investment in China, where the facilities lie on the coast, you become a typhoon expert.]

But if China was thinking pollution was its only concern, of course the Games are also about politics, President Hu Jintao's protestations to the contrary. Amnesty International issued a scathing report on the status of human rights in China, concluding China hasn't come close to fulfilling its promises to improve the situation by '08 when granted the Games in 2001. Amnesty said there has been "no progress, only continued deterioration."

So authorities have sought to deflect attention on human rights, while grudgingly lifting some restrictions on press censorship, in talking about the terror threat it faces during the Olympics from Islamists, Tibetan separatists and Falun Gong. The stifling security in Beijing doesn't exactly lend itself to a festival feeling.

But some of us are curious to see how the crowd reacts to the competition. Chinese fans have a history of misbehaving badly, after all. During an Asia Cup soccer game between China and Japan in 2004, Chinese fans sang an old anti-Japanese song and yelled "Kill! Kill! Kill!"

Along these lines I've long argued that should China ever suffer from widespread unrest brought on by a slowing economy, the leaders would be forced to play the nationalism card and go after Taiwan. It's why despite the warming relations between the two today, Taiwan can not afford to let down its guard. Thus it's appalling the way the U.S. has handled the arms sale to Taipei, where the Bush administration has evidently shelved the idea out of fear of offending China.

Matthew Continetti / The Weekly Standard

"America's current Taiwan policy is motivated by fear. We are afraid of upsetting China and afraid, in turn, of what an upset China might do in response. And the consequence of this fear is a weakened position for the United States and its East Asian allies.

"On a visit to Taipei last week, former Deputy Defense Secretary Paul Wolfowitz told reporters that he expected the arms sales will be approved. We hope he is right. Let's not forget, however, that the Taiwan Relations Act also gives Congress a say in the defense assistance provided to Taiwan. Should the White House continue to drag its feet, it will fall to Congress to speak out in support of a democratic ally. And the message Congress might deliver is simple: Who is served when America neglects her friends in a misguided effort not to offend her rivals?"

Russia: The Kremlin continues to play the oil card, further reducing deliveries to the Czech Republic, now just 50% of old levels, over the latter's agreeing to deploy part of the Pentagon's missile defense shield on Czech territory. At least the Czech's had smartly diversified their sources of oil and natural gas back in the 1990s so Russia's supply cut doesn't impact it much.

But then you have the ongoing saga of BP-TNK, where BP's president of the operation was forced to flee two weeks ago and as of this writing hadn't resurfaced.

Editorial / Wall Street Journal

"By now, the jilted investor in Russia is a bear bites man story. No one who puts serious cash in Vladimir Putin's realm, not least in its flush gas and oil fields, can be surprised to find himself fleeced, run out of town, jailed in a Siberian gulag or worse.

"So let's not shed many tears for the latest oil major brought low in Russia, BP. The British company got into TNK-BP - a 50-50 $7.6 billion joint venture with four Russian oligarchs - presumably, with eyes wide open. The initial blessing of Mr. Putin - then president, today prime minister - made the obvious risks easier to swallow. For a while, business was gangbusters, with profit in 2006 alone at $6.6 billion. Then the same old thing happened: Someone in Russia wondered, Why share the spoils with foreigners? And BP found itself defenseless in the wild east?.

"The steady erosion of the rule of law in Russia is a distressing sign of the times there. Mr. Putin complains of not getting proper respect from the West. Forcing the president of a major Western Oil company to literally flee Russia earns respect in no one's land."

Putin has also been working his magic on steel and coal producer Mechel the past few weeks, accusing it of tax evasion. It appears criminal charges are likely, after which the Kremlin can Yukoize the company?just snap up all the assets. Putin has been feuding with $billionaire CEO Igor Zyuzin as Mechel's shares have gone from a May high of $58 to Friday's $20.

And now, as reported by the Financial Times, Putin and his gang are looking to monopolize the food export business to turn it into a diplomatic weapon as well. U.S. officials deem the move to control the grain market as a "giant step back" to the Soviet era. More on this dangerous development, no doubt, in coming weeks and months.

Lastly, hate crimes in Moscow continue to soar, up six-fold in the first six months over 2007's pace. Give me an S?Give me a T?Give me an A?Give me an L...Give me an I ?Give me an N??What's that spell? STALIN! Say it again? STALIN!

Turkey: The Constitutional Court voted against banning the ruling Islamic-based AKP, yet the vote was 6-5 in favor of doing so, one short of effecting the change. The court then ordered state funding for the AKP cut in half, though this aspect isn't a big deal. As I've been writing, the court had charged the AKP was rooting itself in Islam in direct opposition to Turkey's secular past.

The country had been on edge ahead of the ruling with a major terrorist attack in Istanbul that claimed 17 lives fueling fears, one of which was that Turkey's economic progress would be derailed, the economy having grown by an average of 6.5% per year since the AKP first came into power in 2001.

India: Over 45 were killed in the latest series of bombings, this time in Ahmadabad, while police stopped another potential catastrophe elsewhere. An Islamist group calling itself the "Indian Mujahadeen" has claimed responsibility. With national elections coming up, the coalition government led by the Congress Party is coming under increasing pressure to keep the nation safe, an atmosphere feeding right into the terrorists' goals of bringing down the pro-West government. That said, the International Atomic Energy Agency on Friday approved an inspections plan for the nuclear technology deal between New Delhi and Washington, which is key to India gaining support from the 45-nation Nuclear Suppliers Group, the next step in the process.

Pakistan: Needless to say, though, Pakistan is not pleased with the above, while separately, co-chair of the 9/11 Commission, Lee Hamilton, said: "The similarities between Afghanistan before Sept. 11 and Pakistan today are striking and deeply worrisome. At what point do you say we cannot tolerate this anymore?"

U.S. officials told the Washington Post they have solid evidence members of Pakistan's intelligence network, ISI, provided logistical support to both the Indian Embassy bombing in Kabul as well as the assassination attempt on Afghan President Hamid Karzai. Along these lines, there are also increasing signs the Taliban is targeting Kabul for takeover.

Serbia: You certainly had a good example of the tensions that exist here as thousands of far-right nationalist supporters of Radovan Karadzic rioted in Belgrade after the war criminal was arrested. The next day Karadzic was deported to The Hague to stand trial. Pro-West President Boris Tadic, however, should fear for his life as there were banners at the demonstration reading "Tadic Prepare To Be Eliminated." Here, all such threats need to be taken seriously.

Britain: What a mess. Prime Minister Gordon Brown has been given an edict by his fellow Labour Party members, shape up in two months or exit stage right. In a recent survey, Labour draws only 24% of voters compared to 46% for the Tories (Conservatives). Supposedly Brown needs to get the figure up to 30% or face revolt.

But Foreign Secretary David Miliband took things too far in openly laying out his own plan for change, so Brown's allies rallied around the boss and Brown demanded Miliband cancel a trip to India as a way of restoring his authority. Curiously, if Tony Blair were to return, poll data shows Labour trailing the Tories 41-32, far better than 46-24.

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Pray for the men and women of our armed forces.

God bless America.

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Gold closed at $917?3rd straight weekly decline
Oil, $124.87?3rd straight weekly close below $130

Returns for the week 7/28-8/1

Dow Jones -0.4% [11326]
S&P 500 +0.2% [1260]
S&P MidCap +0.7%
Russell 2000 +0.8%
Nasdaq +0.02% [2310]

Returns for the period 1/1/08-8/1/08

Dow Jones -14.6%
S&P 500 -14.2%
S&P MidCap -6.7%
Russell 2000 -6.5%
Nasdaq -12.9%

Bulls 30.0
Bears 50.0 [Source: Chartcraft / Investors Intelligence]

Have a great week. I appreciate your support.

Brian Trumbore

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