Week in Review 
For the week 8/25/2008 - 8/29/2008
Brian Trumbore
President/Editor, StocksandNews.com

Return of the Czar, part IV

In case you’re wondering why I’m starting with this topic and not our presidential race it’s because neither Barack Obama nor John McCain are actually occupying the White House and so have little influence in shaping debate on the primary issue of the day, that being Russia, until next January.

And so speaking to CNN on Thursday, Russian Prime Minister Vladimir Putin, a k a Czar Vlad the Great, said the U.S. was responsible for the war between his country and Georgia.

“The fact is that U.S. citizens were indeed in the area of conflict during the hostilities. It should be admitted that they would do so only following direct orders from their leaders ….The American side in effect armed and trained the Georgian army. Why…seek a difficult compromise solution in the peacekeeping process? It is easier to arm one of the sides and provoke it into killing another side. And the job is done. The suspicion arises that someone in the United States especially created this conflict with the aim of making the situation more tense and creating a competitive advantage for one of the candidates fighting for the post of U.S. president.”

Oh brother. Bush spokeswoman Dana Perino called the charge irrational.

This was a week where once again the Kremlin showed its true colors as it issued one lie after another, many of them egregious, such as the continuing charge that Georgia committed “genocide” when all the independent evidence shows the reverse.

In addition, Moscow recognized the two breakaway republics of Abkhazia and South Ossetia which in turn had declared their independence, though on this matter, forget the West labeling the move ‘dead on arrival’ when it comes before the U.N., even China told President Dmitry Medvedev that it was none too pleased by Russia’s recognition of the two because it has its own problems with separatist regions and hardly wants to see such a precedent.

It was a week that also saw a near confrontation between the Russian and U.S. navies as at first Washington was thinking of docking a warship containing humanitarian aid in Poti, where Russia has illegal checkpoints and warships of its own, but then the White House opted to dock in Batumi, away from the main conflict. Putin has warned the West not to press its luck in the Black Sea.

There remains little the West can seriously do at this point beyond levying economic sanctions, though in this instance they could be effective. U.K. Foreign Secretary David Milliband said “We need to reexamine the nature, depth and breadth of relations,” while French Foreign Minister Bernard Koucher called the situation “very dangerous.” 

Georgian President Mikheil Saakashvili: “This story is no longer about my small country, but the West’s ability to stand its ground to defend a principled approach to international security.” 

Editorial / Washington Post
 
“In time with Russia’s unilateral recognition of the independence of the two Georgian provinces it invaded this month, President Dmitry Medvedev issued a statement, penned an op-ed and granted an unusual flurry of interviews. His intent was to justify Moscow’s latest provocation of the West, which has been united in condemnation – as was demonstrated yesterday by a statement by the Group of Seven industrial nations. Instead Mr. Medvedev merely revealed the dangerously arrogant and reckless mood that seems to have overtaken the Kremlin in recent weeks. 

“What’s striking, first of all, is the spectacle of a leading head of state making statements that not only are lies but that are easily shown to be such. Over and over, Mr. Medvedev told interviewers that Georgian forces were guilty of ‘genocide’ in South Ossetia. Yet by the count of an official Russian commission, the Ossetian dead numbered 133. In contrast, independent human rights groups have reported that Georgian villages both in and outside Ossetia have been subject to a violent ethnic cleansing campaign, and that thousands of civilians have been killed or driven from their homes by the Russian military offensive. 

“Mr. Medvedev flatly asserted that Russia had not violated the cease-fire deal he signed two weeks ago. But that agreement contains a provision calling for international talks about the status of South Ossetia and Abkhazia – and those talks had not begun when Mr. Medvedev abruptly issued the decree recognizing the provinces’ independence. The president insisted that Russian troops had withdrawn from Georgia and were not blockading the port of Poti, though any observer can see the checkpoints Russian troops continue to operate there and throughout the country. He also claimed that U.S. ships that have been delivering humanitarian supplies were delivering weapons, a statement quickly dismissed as ludicrous by the White House. 

“The gross misstatements were accompanied by the assertion of a breathtakingly belligerent doctrine toward Russia’s neighbors. Mr. Medvedev was asked by more than one journalist whether Russia’s aggression might be directed at other neighboring states, such as Ukraine, Moldova or the Baltic members of NATO. He answered by noting that millions of Russians live outside the country, and he asserted the right as ‘commander in chief’ to ‘protect the lives and dignity of our citizens.’ He stated to the BBC: ‘In certain cases I have no choice but to take these kinds of actions.’ 

“Those in the West who persist in blaming Georgia or the Bush administration for the present crisis ought to carefully consider those words – and remember the history in Europe of regimes that have made similar claims. This is the rhetoric of an isolated, authoritarian government drunk with the euphoria of a perceived victory and nursing the delusion of a restored empire. It is convinced that the West is too weak and divided to respond with more than words. If nothing is done to restrain it, it will never release Georgia – and it will not stop there.” 
Bernard-Henri Levy / Wall Street Journal 

“The future of Russia’s excursion in Georgia remains to be determined. But some conclusions can already be drawn: 

“Russian power is extraordinarily brutal in the post-Soviet era, as we have already seen in Chechnya…. 

“The new Russia is indifferent to international protests, admonishments and warnings. The Cold War had its rules, its codes. It was a time when signs were carefully deciphered….In this new-look Cold War, there are no more signals. No more codes. Instead, Russia offers a permanently obscene gesture to ‘messages’ we know will have absolutely no effect…. 

“Russia has no shame when it comes to twisting principles and ideals. It brandishes the ‘precedent’ of Kosovo – as if there could be anything in common between the case of a Serbian province hounded, battered and broken by ethnic purification which lasted for decades, and the situation of Ossetia, victim of a ‘genocide’ that, according to the latest news (a report by Human Rights Watch) consists of 47 deaths…. 

“European – and in this instance French – diplomacy is weak. We expect a great democracy to condemn and sanction the aggressor, without nuance. But in effect the opposite was done….[Ed. Levy is referring to Georgia being forced to ratify a document that has not one word on “territorial integrity of the country.”] 

“Western public opinion fell with disconcerting facility for the thesis advanced – from the very first day – by the Kremlin’s propaganda machine…. 

“We must re-examine all of this. We must analyze in greater depth the mechanisms of a blindness that may, if we are not careful, perpetuate the Western ‘decline in courage’ denounced in his time by Alexander Solzhenitsyn, but which we thought belonged to the past. Reason, if not honor, demands that we go to the rescue of Europe in Tblisi.” 

Ukrainian President Victor Yushchenko / Washington Post 

“Ukraine has become a hostage in the war waged by Russia. This has prompted Ukrainian authorities and all of our country’s people, including those living in the Crimea, to ponder the dangers emanating from the fact that the Russia Black Sea fleet is based on our territory. 

“The tragic events in Georgia also exposed the lack of effective preventive mechanisms by the United Nations, the Organization for Security and Cooperation in Europe, and other international organizations…. 

“The ongoing conflict between Russia and Georgia affects my country’s interests. Military operations have taken place close to our borders, and the Russian Black Sea fleet was directly involved. The question of Ukraine’s national security was acutely raised. Given the activities of the Russia fleet, I had to issue a decree regulating its functioning on the territory of Ukraine. 

“Under these circumstances, Ukraine could not stay silent. We, along with other nations, engaged to seek resolution of the conflict. From the first day of hostilities, Ukraine called for an immediate cease-fire by all parties and dispatched humanitarian aid to victims regardless of their ethnicity…. 

“It is clear that in addition to the political dimensions of issues involving breakaway regions, we need to cope with the social and economic aspects of this phenomenon. Many of these provinces are beyond the control of the respective governments or the international community. In many cases, the absence of monitoring has turned these territories into havens for smuggling as well as illegal trafficking in arms, people and drugs. Corruption and human-rights abuses are rampant. These areas are marked by their lack of democratic electoral procedures and their unfree or biased media. The ethnic dimension of the problem is often exaggerated to help conceal the criminal practices. 

“Moreover, an area home to such activities poses a threat to the prosperity and development of adjacent nations. Official authorities are compelled to counter attacks from separatist paramilitaries. But they are not always successful. Before large-scale combat erupted in Georgia, Russian peacekeepers failed to prevent the shelling of Georgian territory by South Ossetian separatists. Indeed, that activity intensified in the days before the greater conflict. 

“This weekend Ukraine celebrated the anniversary of its independence. This conflict has proved once again that the best means of ensuring the national security of Ukraine and other countries is to participate in the collective security system of free democratic nations, exemplified today by NATO. In accordance with national legislation and its foreign policy priorities, Ukraine will continue following the path of Euro-Atlantic integration. This is the path of democracy, freedom and independence.” 

One thing I would do if I were the Bush administration is very publicly talk, today, of boycotting the 2014 Sochi Winter Olympics. Sochi is just miles from Abkhazia. Picture holding the Olympics in Sarajevo, after it had been bombed, as a reward to Milosevic, for example. 

I also have to bring up a potential flashpoint I had given little thought to until reading an op-ed in the Journal on Friday by the Hudson Institute’s Zeyno Baran. 

“Will Turkey side with the United States, its NATO ally, and let more U.S. military ships into the Black Sea to assist Georgia? Or will it choose Russia?” 

Baran writes, “Ever since Turkey joined NATO in 1952, it has hoped to never have to make a choice between the alliance and its Russian neighbor to the North. Yet that is precisely the decision before Ankara. If Turkey does not allow the ships through, it will essentially be taking Russia’s side.” 

It’s time to put a map on the kitchen table and go over it with your kids. You have new NATO members Romania and Bulgaria with Black Sea ports and near-NATO countries Ukraine and Georgia. [Plus Moldova, another target of the Kremlin’s down the road.] Then you have Turkey and Russia, Russia being Turkey’s largest trading partner, mostly because of Turkish reliance on Russian gas. Remember, Turkey does have that Islamist government, and so Baran asks: 

“Where is Turkey headed? Turkish officials say they are using their trust-based relations with various sides to act as a mediator between various parties in the region: the U.S. and Iran; Israel and Syria; Pakistan and Afghanistan, etc. It may be so. But as more American ships steam toward the Black Sea, a time for choosing has arrived.” 

Finally, you have the case of jailed former Yukos oil boss Mikhail Khodorkovsky, serving eight years on trumped up charges for fraud and tax evasion. Khodorkovsky requested parole and, no surprise, it was turned down. President Dmitry Medvedev had come into office talking of reforming the legal system. Hardly. 

The judge said in his ruling that one of the reasons Khodorkovsky was denied parole was that Mikhail had failed to cooperate in a prison occupational training program. 

“Since prisoner Khodorkovsky showed no desire to take part in the professional educational program offered him in detention…he does not deserve conditional release,” the judge wrote. Khodorkovsky was offered training as a tailor, but chose instead to work packaging clothing, said the prosecutor. In his testimony, Khodorkovsky said he had never refused the assignment. [You can’t make this stuff up.] 

“The law says that prison authorities have to take prisoners’ education and experience into consideration when choosing work for them,” said one of Khodorkovsky’s lawyers. “He may not have shown any personal interest in the tailoring work, but he didn’t resist either.” 

According to the Moscow Times, “Prosecutors had also requested that Khodorkovsky’s application be denied because he had yet to serve a penalty for allegedly disobeying an order to keep his hands behind his back as he walked from an exercise yard to his cell in October….Igor Gnezdilov, a witness to the incident who has since been granted parole, testified Thursday that Khodorkosvky had not broken any rules.” [Needless to say, Igor is a big-time hero in my book for bravely testifying in the first place.] 

Are these guys a bunch of bastards or what? Never again in my lifetime will relations be as good as they were as recently as five years ago between Russia and the United States. Never. And I can guarantee there will be more than one nuclear scare as a result of missteps by those in the Kremlin. Heaven help us. 

Wall Street 

As summer winds down, many of you commented at one time or another the past few months on how empty our nation’s highways were, as good an indicator as any on the economy. I saw a local item where traffic on the New York State Thruway in June and July fell 5% and 3%, respectively, off of 2007’s pace, a significant sum. [As you also know by now this results in deficits for the highway authorities and less money for maintenance.] 

As an economic barometer the news from Darden Restaurants, parent of the Olive Garden and Red Lobster chains, was also telling. Darden warned earnings would be less than expected at least through the fall. CEO Clarence Otis said “The environment was weaker this quarter than it’s been for a while. We’re not counting on it getting a whole lot better,” either. 

On Friday we learned personal income was down a whopping 0.7% for July, far worse than expected, while consumption was up a meager 0.2% (but down 0.4% on an inflation-adjusted basis). So it’s all about belt- tightening across the board amidst still high gasoline prices, the credit crunch and a housing market in the throes of pneumonia. 

Forget the upward revision in second quarter GDP from 1.9% to 3.3%. While this was good, and due in no small part to what was then a still sick U.S. dollar that made our exports cheaper, that’s not only old news but the currency dynamic probably won’t be playing such a positive role in the future as the dollar has rallied solidly the past six weeks or so. 

No, it’s still all about housing, not just here but abroad as I’ve been pounding the table on for years now. Europe is an absolute mess and authorities there are just beginning to understand it is going to get far worse, with the British government of Gordon Brown probably becoming a victim in the first quarter. Brown’s Labour benchmates are screaming for him to levy a windfall profits tax on energy companies to address what some in his party see as a coming social crisis. 

Here in the United States, while I am now of the belief housing will bottom early next year, economist Martin Feldstein had the following dire scenario in an op-ed for the Financial Times. 

“The precariousness of the situation reflects the very high ratio of individual mortgage balances to the underlying current house values. Because of the decline in house prices that has already occurred, more than 10 million homeowners now have mortgages that exceed the values of their house. This is 20% of all homeowners with mortgages. For half of that negative equity group, the debt exceeds the house value by more than 20%. If house prices fall another 15%, negative equity mortgages will rise to 20 million. 

“Negative equity mortgages are a big source of instability because U.S. home mortgages are generally ‘no recourse’ loans, implying that if an individual defaults on his mortgage the creditor can take the property but cannot claim other assets or income to pay the remaining loan balance. 

“The large and growing number of homeowners with negative equity will increase the rate of defaults and foreclosures and therefore drive the downward spiral of prices. Defaults are likely to accelerate as the ratio of the debt to the home value rises.” 

So while I believe we may hit bottom before Mr. Feldstein probably does, what cracks me up are those who said this week that when it comes to the two biggest mortgage providers, Fannie Mae and Freddie Mac, the worst news is in and that neither would require a bailout. [At least that was this week’s overriding theme as the shares in the two rallied.] How can you possibly make that statement when real estate not only hasn’t bottomed as yet, but clearly foreclosures are going to continue to accelerate as Feldstein posits? You tell me when housing bottoms, like in picking the exact month, and then maybe you can back into more realistic values for all the mortgage securities on everyone’s books.  

But I suppose I should present some facts since we did get some important data this past week. The latest edition of the S&P/Case-Shiller index for June showed prices down 15.9% in the 20 metro areas surveyed and off 15.4% for the second quarter. The authors say values are “stabilizing” but are not calling it an actual bottom. Inventories, however, continue to stand in the 10-11 month range, depending on whether you’re talking ‘new’ or ‘existing.’ That number has to come down significantly before we can think about any kind of ‘all clear’ signal. 

Lastly, while all the above is important, the next 72-96 hours Gustav takes precedence. Pray Mother Nature shears the heck out of it before it hits the Gulf Coast. 

Street Bytes 

--The Dow Jones gave up ground for a third straight week, though this week’s loss, 0.7%, was minimal like the other two. The S&P 500 also lost 0.7% and Nasdaq tumbled 2% on the heels of a highly disappointing earnings report from Dell, which saw its shares plunge 14% in its worst performance since 2000. Dell talked of a slowdown in Europe and Asia, not a good sign for those who remain bullish on the global economic picture. 

--U.S. Treasury Yields 

6-mo. 1.94% 2-yr. 2.37% 10-yr. 3.81% 30-yr. 4.42% 

Minutes from the Fed’s Aug. 5 meeting were released and showed the board to be split on inflation prospects, but fret not; they won’t be hiking rates anytime soon. [Though those of you on fixed income, or large holders of cash, would like to see just this.] 

--If you believe in the Farmers’ Almanac, the outlook for heating bills is dire this coming winter as it calls for below-average temperatures, “numb’s the word,” throughout the upper Midwest and Northeast.  

--Following the Labor Day recess, Congress will be in session a few weeks before it takes off again for electioneering, so your editor will be on pins and needles because an energy package, including both for offshore drilling and extending credits on renewables, will once again be on the docket. My own solar holding I’ve written of was mentioned in a Journal article, citing an analyst who said “X will be one of the companies hit hardest if the tax credit fails to get extended.” Don’t I know this. And not for nothing, but a piece in USA Today this week noted that failure to extend the credits for wind and solar could result in the losses of 115,000 jobs. So sign the freakin’ thing! 

--Three key Central Asian gas suppliers, Turkmenistan, Kazakhstan and Uzbekistan are expected to turn to China, instead of Europe, as their main alternative gas market to Russia. As Michael Richardson reports in the South China Morning Post, while the proven reserves of these three pale in comparison to Russia’s, they are enough to make a difference for the likes of China and much of it courses pipelines already in Russia. The European Union was hoping to gain access to the gas thru a new pipeline to Western Europe going under the Caspian and then through Georgia, Turkey, Bulgaria, Romania, Hungary and Austria, a network that was to be completed by 2013. Now, few believe it will proceed. Score another for Czar Vlad the Great. 

--In Russia, only 0.7% of energy production comes from renewable resources but the government recognizes it must hike this level and solar is slated to be a beneficiary. Incidentally, the International Energy Agency predicts solar power production will grow 60-fold worldwide between 2004 and 2030. 

--I never once recommended investing in the Russian stock market, always talking of the risks involved despite the hyped returns some investors were receiving, so I have to admit I don’t feel in the least bit sorry for those who may be suffering in the slide there the past few months, a collapse exacerbated by the move into Georgia and a sudden flight of foreign capital. I really would like to see this market go to zero. 

--According to the IRS, 47,000 now have a net worth of $20 million or more in 2004, the latest available, up 62% from 29,000 in 1998. The IRS also revealed that Americans finally saw their adjusted gross income for 2006 rise above 2000 levels. 

--The Census Bureau reported that the nation’s poverty rate remained at 12.5% in 2007, but 1.3 million more had health insurance than the 47 million uninsured in ’06. Personally, I’m still reeling over my health plan’s premium increase from $514 to $671 a month. 

--A World Bank report says 26% of the world’s population is now living in extreme poverty (with the benchmark rising from $1 to $1.25 per day), though poverty has been reduced significantly in some regions, particularly East Asia. For example, 1 billion, or 79% of the population there, mostly in China, were living in severe poverty in 1981 but now that has fallen to 337 million. By comparison, while the percentage of people living in severe poverty in South Asia and Latin America has come down, the reductions haven’t kept pace with population growth. In sub-Saharan Africa, the number of poor people soared from 202 million in 1981 to 384 million in 2005.

 --Toyota significantly lowered its 2009 sales forecast worldwide from growth of 5.6% to 2.1%. 

--Southwest Airlines became the latest to begin slashing flights, 200 a day come next January. 

--Reading an Irish paper I realized that if you booked a tour, say, last spring for this winter, you better be careful who your tour operator is. A third one in Ireland has gone out of business with hundreds set to lose their holidays. [500 were actually stranded but the government was going to take care of them.] The issue is the operators established a price and collected the money, but then didn’t plan on having to come up with all the surcharges now being levied. For many the brochures didn’t contain the option of charging the customer, but they certainly will in the future. 

--Shares in bond insurer MBIA soared this week on news it had received a contract to reinsure $200 billion of municipal bonds backed by FGIC Corp. Supposedly, premiums of $741 million would be transferred to MBIA as part of the deal. The stock closed at $16, after touching $3.60 on June 30. Rival Ambac has seen its shares rise from $1.04 on July 2 to $7.25. There has been a titanic battle between bulls and bears over the entire bond insurance industry and obviously some big winners, and losers, among traders. Many expected this segment to go to zero. 

--The New York Times had a piece on the carnage at Fannie and Freddie from an employee stock plan standpoint. Even the two CEOs have taken it on the chin since the lion’s share of their compensation was paid out in stock. But the average employee has suffered far worse, of course. At Fannie, the employee stock ownership plan has seen its assets shrivel from $116 million at year end 2006 to $17 million today. 

--Newspapers continue to take it on the chin as advertising shrivels up. The New York Times said ad revenues plunged 15% in July, while at the Boston Globe, revenues dropped close to 25%. And if you think it’s being made up online, forget it. Total online revenue for the New York Times Co.’s News Media Group rose a mere 0.9%. 

--Phil W. passed along a story from the Charlotte Observer concerning the United Way of the Central Carolinas and the forced resignation of its president and CEO, Gloria Pace King, after her salary and benefits package became public. King was not only earning $290,000 per year in salary, but, incredibly, United Way was slated to pay her “$450,000 to $500,000 for each of the next three years” in supplemental retirement benefits but won’t now. In fact, Ms. King was paid a staggering $822,000 in retirement benefits last year, with the board saying it needed to do so “to make up for short payments in previous years.” Why the hell does someone like this, working for a charity, get a Wall Street type package?! This is yet another reason to target your charity dollars so that you have the most control in where it goes. 

--Oracle Corp. founder Larry Ellison awarded himself a 38% pay raise to $72 million and shareholder activists are rightfully up in arms. It also needs to be noted that the $72 million doesn’t include the $544 million he made exercising stock options…which he has actually exercised every week for years. Among Ellison’s extra perks was $1.45 million for his home security system and air travel. I imagine the Slomin’s Shield would be less expensive (plus installation is FREE….with the purchase of a long-term service contract), or just chain a bunch of wolverines in the yard. 

--Former Treasury Secretary Robert Rubin was demoted at Citigroup, which dissolved the executive committee he had chaired the past nine years. The over-rated Rubin played no small part in Citi’s $50 billion in mortgage-related losses, though he has been in legacy control mode for the better part of the past year. On the one hand he wanted you to believe he was the Great Oz during good times, but now it’s like ‘I had no responsibility for the mess. Go talk to Chuck.’ 

--Bloomberg inadvertently released an obituary on Steve Jobs, Thursday. The obit included the tidbit that Jobs likes to use disabled parking slots in order to get to his office quicker. 

--Heineken’s profit growth is slumping but at least the brewer is still estimating an increase for all of 2008, thereby proving the theory that even in dire economic times, people still like to treat themselves to a premium beer. Instead of a trip to Monte Carlo, many opt for a six-pack of Heineken. Instead of buying a Lamborghini, others are choosing to buy a case. Adam Smith first defined this behavior in “The Wealth of Nations.” Really.
 
--Shanghai just opened a new international cruise ship terminal, built at a cost of $260 million, but it won’t be able to receive the world’s largest vessels because of a nearby low bridge. I asked Homer Simpson, who sits on my computer, what he thought. “Doh!” 

Foreign Affairs 

Iraq: As part of any status of forces agreement, Prime Minister Maliki continues to reject legal immunity for U.S. troops, a major hang-up.  

Iran: See below note on Venezuela, but otherwise, no real news, which in and of itself is highly significant because I reiterate, with the Russian move on Georgia, focus has shifted away from Tehran and its nuclear weapons program. The Kremlin, obviously, will be totally uncooperative in helping with any Western initiatives, while Israel can only wonder when Iran has truly passed the point of no return in terms of its uranium enrichment efforts. 

Israel: Of course the government here also has its hands full with Hizbullah as their leader, Nasrallah, warned Israel not to launch any kind of preemptive strike on it as a result of Hizbullah having achieved legitimacy in Lebanon’s new government. 

Separately, Israel released nearly 200 Palestinian prisoners as an act of goodwill, while Prime Minister Olmert is still expected to step down in September, thus further roiling Israeli politics at a time when its focus should be elsewhere. 

Lastly, Secretary of State Condoleezza Rice expressed her displeasure [snickered your editor] over further settlement construction in the West Bank. But no U.S. administration has had the backbone on this front to do the right thing. Tell Israel the U.S. is cutting funding unless they stop. There is no way Washington will ever be perceived as an honest broker in the region until this step is taken. [Of course you’ll never find an American politician with the guts to do this.] 

Afghanistan: There have been a number of conflicting reports on the bombing that allegedly killed 90 civilians. The United States is saying no more than five were killed and the rest were militants. President Karzai dismissed two Afghan officers for their role in the bombing and his government is admitting the U.S. and its Afghan army counterparts had received a misleading tip. 

Pakistan: The coalition of Benazir Bhutto’s widower Ali Zardari and former Prime Minister Nawaz Sharif broke up as Zardari, who we’ve learned was suffering from depression just a year ago, runs for the presidency vacated by Pervez Musharraf. The main issue is the status of the Supreme Court judges dismissed by Musharraf that precipitated his downfall. Zardari wants the new judges Musharraf appointed to remain because they would absolve Zardari of old corruption charges, as part of a deal between the two. Sharif wants the original Supreme Court judges reinstated because they would pursue charges against Musharraf, who had deposed Sharif in the 1999 coup. At least I think I have this right. 

Meanwhile, U.S. ambassador to the U.N., Zalmay Khalilzad is under intense pressure himself for conferring privately with Zardari on numerous occasions, with many inside the Bush administration extremely upset that Khalilzad would leave himself open to charges that Washington was taking sides in Pakistan’s internal politics. This is a serious deal, particularly if Sharif, who has long been known for having ties to Islamists, emerges victorious. 

North Korea: In keeping with my comments last week that the Bush administration was going backwards on many fronts, this week Pyongyang announced it had stopped disabling its nuclear facilities and was considering restoring the Yongbyon reactor that can make weapons grade material. Some said Kim Jong-il was depressed that Chinese President Hu Jintao made a visit to South Korea right after the Olympics. Kim and his Orcs also aren’t happy Washington has yet to remove the North from the terrorism blacklist. 

China/Taiwan: The Pentagon approved a $90 million contract for 60 tactical Harpoon air-launched missiles for Taiwan as a sign of improving ties between the two on the defense front. These missiles are capable of taking out Chinese warships. But Washington is still sitting on a $12 billion package of weapons as the two weigh the impact on China. Both the U.S. and Taiwan are close to agreement that Taiwan’s military strategy should be all about defense and contain little if no offensive capability in an effort to avoid riling up China. However, this is slightly humorous since it’s China that has over 700 missiles targeting Taiwan. I’d theorize that if those same missiles are still in place at the end of 2009, that is a very bad sign. 

Malaysia/Thailand: Not for nothing but these two neighbors have serious internal problems that could roil the region some. In Malaysia, opposition leader Anwar Ibrahim won a vote that returned him to parliament despite an intense campaign from the ruling party coalition to prohibit this. Anwar, who had been jailed on corruption and sodomy charges, faces a new sodomy charge (a court previously quashed his earlier conviction) and has vowed to topple the government. 

As for Thailand, thousands of protesters have occupied a government compound in an effort to topple Prime Minister Samak, who at first said he’d use force to regain control but has since backed off. Samak is being accused by the crowd of acting as a proxy for disgraced former Prime Minister Thaksin and the protesters don’t want Thaksin to avoid the corruption charges that had forced him out in a coup. 

Zimbabwe: First, opposition members in parliament did an end-run around President Robert Mugabe by selecting one of their own to be speaker in what was seen as an important move psychologically. At the opening of parliament, Mugabe was heckled as his ruling ZANU-PF party no longer has the majority it had held since 1980. 

But in the end, Mugabe retains all the power because he can rule by decree and thus on Friday he announced there was no longer any need for power-sharing talks. Mugabe also said he would form a new government without the opposition. 

Venezuela: Years ago I warned that Hizbullah, through Iran, was building a presence in Venezuela and this week Chris Kraul and Sebastian Rotella ran an important piece in the Los Angeles Times echoing this theory. “(The) deepening ties worry U.S. officials because Iranian spies around the world have been known to work with Hizbullah operatives, sometimes using Iranian embassies as cover.” 

“In March 2007, the intensified ties between Venezuela and Iran led to the start of weekly IranAir flights from Tehran to Caracas…(and the flights are) also featured in recent intelligence gathered by Western anti-terrorism officials. Agents of Iran’s Revolutionary Guard and Hizbullah have allegedly set up a special force to attempt to kidnap Jewish businesspeople in Latin America and spirit them away to Lebanon, according to the Western anti-terrorism official. Iranian and Hizbullah operatives traveling in and out of Venezuela have recruited Venezuelan informants working at the Caracas airport to gather intelligence on Jewish travelers as potential targets for abduction, the Western anti-terrorism official said.” 

Mexico: The news from here just gets more and more gruesome. Twelve beheaded bodies were discovered in a graveyard in a Yucatan city used as a tourist stop on the way to the famous Mayan pyramids. All the bodies had signs of torture. 
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Pray for the men and women of our armed forces.
 
God bless America.
 
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Gold closed at $835
Oil, $115.64
 
Returns for the week 8/25-8/29 

Dow Jones -0.7% [11543]
S&P 500 -0.7% [1282]
S&P MidCap  N/A
Russell 2000  N/A
Nasdaq -2.0% [2367]
 
Returns for the period 1/1/08-8/29/08
 
Dow Jones -13.0%
S&P 500 -12.6%
S&P MidCap -5.0%
Russell 2000 -3.5%
Nasdaq -10.7%

Bulls 39.3
Bears 39.3 [Source: Chartcraft / Investors Intelligence] 

Have a great week. I appreciate your support. 

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