Week in Review 
For the week 9/01/2008 - 9/05/2008
Brian Trumbore
President/Editor, StocksandNews.com

The Plight of the Little People

“Children of special needs inspire a very, very special love.”
--Governor Sarah Palin 

If you watched Gov. Palin’s acceptance speech on Wednesday and weren’t touched by this comment as I was, then you don’t have a pulse. 

But I take the line to mean far more than just loving those with disabilities. I imagine the governor didn’t intend it as such, but when I heard it I immediately thought it was brilliant on a different front. It is…I submit…a defense of all the little people in the world, the class I have done my best to champion over the years. 

It’s the little people who always suffer the most in natural disasters, for example, whether you’re talking of the annual flooding in Bangladesh and India, the current suffering in Haiti as a result of this catastrophic run of tropical storms we’re in the midst of, or, say, the victims of the Sichuan earthquake. The little people are also the victims of the genocide in Darfur, to cite yet another example.  

The use of the word “children” by Gov. Palin can also be easily taken to read “all God’s children.” To then not care about those less fortunate, in all walks of life and every country, is to be heartless. 

But take it one step further. The little people are often not only treated with a lack of respect, which I too often see in the wealthy area in which I live, but they are also continually the victims of abuse of power, and in this regard I am talking not just politically but also on Wall Street; the latter having continually taken advantage of the little guy, either through shoddy investment products and fraud, or through massive layoffs when some private-equity type decides to take over a firm and lay off hundreds or thousands in order to suck out dividends for themselves, leaving the newly levered company in debt up to its eyeballs and teetering on collapse come the first downturn in business. [See a further note below in “Street Bytes”.] 

Aside from abuse of power in Washington and on Wall Street, there is no clearer example of a regime that seeks only to squash the little people today than Russia. Its deceitful leaders and barbaric military are deserving of universal condemnation. 

This week the war of words between the United States and Russia heated up as the Kremlin once again exhibited its total disregard for human rights and a free press. Start with the death of an opposition leader in Ingushetia, Magomed Yevloyev. Stepping off a plane in Nazran, where he had flown from Moscow, Inguish police arrested him and forced him into a car, whereupon Yevloyev supposedly struggled with an officer (true details are unknown) and he was shot in the head. Yevloyev’s body was then found lying near a hospital and he died soon after. There were large protests following Yevloyev’s burial and the situation here bears watching. 

Another journalist who had written critical articles of the Kremlin was killed in Dagestan, shot while sitting in his car, and a third this week was nearly beaten to death and now lies in hospital with a fractured skull. Like in the previous death of journalist Anna Politkovskaya and countless others, the Kremlin’s bloody hands are all over these cases. 

President Dmitry Medvedev said that Russia would defend “the life and dignity” of Russian citizens “no matter where they are located.” Medvedev was referring to the likes of South Ossetia, which is a joke because understand both there and in Abkhazia, the Kremlin handed out Russian passports as a precursor to saying it was rescuing Russians! Of course by this theory Medvedev and Putin can make up an excuse to invade any nation where a handful of actual or fake Russians live. The main concern here would be Ukraine, where up to 17% are legitimately ethnic-Russians.  

And so it should be no surprise that in a trip to Azerbaijan, Georgia and Ukraine this week, Vice President Dick Cheney fired back, declaring in Tbilisi that “Russia’s actions have cast grave doubts on Russia’s intentions and on its reliability as an international partner.” Cheney then added that “Georgia will be in our alliance (NATO).” A day earlier, the Bush administration committed another $1 billion in aid to Georgia, not yet of the military variety but rather towards reconstruction, which further provoked the Kremlin. Even NATO’s leadership this week spoke of shoring up the Baltics as a way of blunting the Russian threat, this as Medvedev said Russia would preserve its “spheres of privileged interest” on or near its borders, while Russian Foreign Minister Lavrov said the U.S. made a “mistake of truly historic proportions” in supporting Georgian leader Mikheil Saakashvili, whom Medvedev declared was a “political corpse”….in case you doubted the Kremlin’s ultimate goal of regime change in Tbilisi, or that these are truly ugly people. 

Following are a few other related tidbits. 

Economic aid to Georgia is critical, especially since winter is approaching, as with mounting unemployment will come increased need of emergency aid, as well as the chances for unrest, just what Moscow is hoping for. Foreign investment here has obviously dried up post-invasion. 

Russia destroyed or captured more than half of Georgia’s approximately 150 battle tanks. The U.S. must help rebuild Georgia’s military. 

The European Union failed to impose sanctions of any kind on Moscow as a result of the invasion of Georgia, owing primarily to its dependence on Russian oil and gas. Only the Baltic republics, Poland and Britain are in favor of tough action, it would seem. French President Nicolas Sarkozy is due in Moscow on Monday for talks with Putin and Medvedev and it will be interesting to see who actually meets with him. 

Regarding Ukraine, the situation here is unsettling on a number of fronts, not the least of which is the state of internal politics in Kiev as President Yushchenko talked of a coalition that has collapsed, meaning if a new one can’t be formed in 30 days he would be forced to call snap elections, even though Yushchenko has a whopping five percent approval rating; all this as he’s accused long-time rival Prime Minister Tymoshenko of siding with Moscow in the war with Georgia. [There is no ready evidence to support the claim.] 

Yushchenko is also concerned with Russia’s naval bases on the Crimean peninsula that Moscow has leases on until 2017. Ideally, Yushchenko would like to break these. As it stands, it’s as if Russia had a naval base in New York Harbor. 

Russia also has an existing military presence in nearby Moldova, specifically the breakaway region (think South Ossetia) of Trans-Dniester, which borders Ukraine. 

And there is Turkey, a potential flash point I noted last week. On Tuesday, Russian Foreign Minister Lavrov lied when he said strict new import measures were not aimed at punishing Turkey for allowing U.S. and NATO warships into the Black Sea, even as Turkish officials said hundreds of trucks taking exports to Russia (Turkey’s No. 1 trade partner) have been held up since Russian authorities began closely scrutinizing each shipment.  

So what to do? 

Editorial / Washington Post 

“This is a moment for clarity in thinking about Russia, which is forcibly occupying sizable chunks of a neighboring country and claiming it has every right to do so. Some in the West are tempted to agree. After all, the United States and its allies invaded Iraq and attacked Serbia; why can’t Russia do the same to Georgia? Why can’t it have a NAFTA of its own? 

“Here’s why. The United States, Britain and other nations deposed the Iraqi dictator Saddam Hussein because he repeatedly violated his promises to the United Nations, after his earlier invasion of Kuwait, to rid himself of weapons of mass destruction and prove that he had done so. They invaded Serbia to protect the people of Kosovo from mass ethnic cleansing and destruction. In both cases, reasonable people can argue that it was wrong to act without U.N. authorization; they can make a case that the campaigns were unwise on many other grounds. 

“What they can’t argue is that the allies were motivated by a desire for conquest or occupation; as the presidential campaign has shown, the American people can hardly wait to pull their troops out and leave Iraqis to manage their own affairs. NAFTA, meanwhile, was freely entered into by three democratically elected governments. If Canada wants out, the United States will not seize Ottawa. 

“Russia, on the other hand, is seeking to overthrow a democratically elected government precisely because that government does not want to be subjugated to Moscow. Mr. Medvedev’s claim of a Georgian genocide, after his own government published casualty figures of 200 or so, is deliberately preposterous; he is mocking the very idea of humanitarian intervention. As Russia under president-turned-prime-minister Vladimir Putin has become less and less democratic, it has become increasingly aggressive toward neighboring democracies. The more democratic those neighbors become – see Ukraine, Poland, Estonia, Lithuania, Latvia – the more hostile Russia becomes…. 

“Mr. Putin is turning Russia into something very like a fascist state, and its natural inclination will be to replicate itself abroad.” 

Lastly, watch Cuba. The relationship between Moscow and Havana will rapidly improve and the aid will flow anew as the Kremlin looks to rile up Washington. While no one expects Russia to get too careless and base nuclear-capable bombers there, a la the Cuban Missile Crisis, it’s impossible to know where Putin’s head is at on this front. One thing we do know, however; Vladimir Putin is no champion of the little people of the world. 
---

Wall Street 

The Obama campaign received a huge break on Friday with the announcement that the unemployment rate in this country soared to 6.1% as another 84,000 jobs were lost in the month of August, according to the Labor Department, the 8th consecutive decline. Some attributed the rise to technical reasons, saying the figure was artificially inflated, but there isn’t one non-economist in the land who cares whether this is true or not. It’s about the headline grabbing “6” handle that will lead most newscasts. And if you’re John McCain, you need to understand that there will be only one more employment data point before we go to the polls, that being Oct. 3 and the September jobs figure. Those supporting McCain can only pray the rate ticks back below 6% (though not likely) because otherwise you will find this in virtually every campaign ad or closing argument in Obama’s and Biden’s debates. 

Another thing is clear, the second quarter GDP revision that showed growth running at a 3.3% clip was bogus. [And on this score the McCain people can’t use it because everyone else knows it’s bogus, too.] 

On the retail front, sales have been horrid, unless you’re Wal-Mart, where same-store sales were up 3% in August thanks to it being a category killer, as well as its ability to attract the vast majority of non-Saks buying consumers (who represent the preponderance of Americans these days) amidst trying times. Penny-pinching is in. Excess is largely out. So while Wal-Mart showed an increase for August, others weren’t as fortunate. 

Target -3%; Saks -6%; Nordstrom -8%; JC Penney -5%; Kohl’s -6%; Gap -8%; Abercrombie -11% 

Somehow when I muse about the upcoming holiday shopping season, I don’t think of Burl Ives singing “Have a holly, jolly Christmas,” unless sarcastically. It is going to be death in the malls.  

But of course consumer spending is directly tied to the housing industry, as it is globally, for that matter. And we all know that we have been suffering through three shocks; housing, the resulting credit crisis, and energy. At least the last one has cracked, with oil closing the week at $106, off $40+ from its recent all-time high. With gasoline futures also trading down, now $2.70, pump prices will fall below $3.50 shortly in most areas of the country. [Assuming Hurricane Rev. Ike behaves.] 

But with housing now searching for a bottom, which we will hit sometime early in ’09 after a last spasm of foreclosures, you’re then left with the credit crunch. There are zero signs this is alleviating and it’s certainly of most concern to folks such as yours truly whose few equity holdings will go nowhere, or drift ever downward, unless smaller companies in particular can regain access to credit. [Or get their alternative energy tax credits extended…ahem ahem.] 

Speaking of credit, and raising capital, Business Week had a scary piece talking of the need for financial institutions to raise another $2 trillion…trillion!...on top of the $400 billion or so they have already scarfed up, all of which is underwater. PIMCO’s Bill Gross garnered a ton of publicity this week as a result of his latest “Investment Outlook” (see pimco.com), where along the lines of the Business Week piece he says PIMCO will not make any further commitments to buy that being floated until the situation begins to clear up, either as a result of fresh Treasury Dept. action, like in the creation of “new balance sheets,” or “a fresh and substantial new source of buying power,” without which the “only resort is to sell assets [ed. such as in the case of Fannie and Freddie], which in many cases leads to further price declines, or ultimately debt liquidation/default.” As Gross concludes, “It is the debt liquidation that potentially turns a stagnant/recessionary economy into something much worse.” Or, to close the circle on the Business Week topic, if the banks need upwards of $2 trillion in fresh capital, and $400 billion has been raised, all underwater and with pissed off buyers, just who is going to pony up the next $2 trillion? 

[The $2 trillion is arrived at by considering $200 billion in new capital losses, for which most institutions have $10 in assets for every $1 in capital, all of which, $2 trillion, could then be foisted on the market as the firms attempt to repair their balance sheets, but for which there will be few actual buyers.] 

Related to the above, last weekend we had the announcement that the Bank of China had cut its holdings of Fannie and Freddie by a quarter, or $4.6 billion. Even though this debt is still deemed to be secure and virtually backed by the full faith and credit of the U.S. government, it’s about the uncertainty in the market. Most worrisome in this move, though, is the fact central banks of all stripes have traditionally taken down 30 to 60 percent of new Fannie and Freddie issuance*, so here again we have yet another source of capital that is drying up. 

Back to housing and its import to the Big Picture, Peter Hong of the Los Angeles Times writes, “For every (Southern California) job lost in construction, real estate or banking, three other positions will disappear, according to the U.S. Department of Commerce.” Economist Sung Won Sohn adds, “There’s a multiplier effect with housing” and he further estimates that 1 out of 8 jobs in Southern California is related in some way to housing. 

Of course there is another growing aspect of the housing crisis long discussed in this space and elsewhere, that being declining state and local tax revenues. For example, while data is only available for 2007, in Riverside County, California, ground zero for foreclosures, sales tax collections were down 3.5%. That was last year. Imagine what the figures are today, which means one thing…massive government job cuts…and the vicious circle goes round and round and round. 
Globally, the picture isn’t any better. I’ve long written of Australia and its issues, despite a once booming commodity-based economy. This week the central bank lowered interest rates for the first time since December 2001 in an attempt to give homeowners a break. Recall, the other week I wrote of Sydney being the ultimate example of the haves vs. the have nots. It’s replicated all over the world. Like in Britain, where the government is struggling to come up with a rescue package to address not just the housing crisis, but also the coming winter and what are expected to be humongous hikes in the cost of energy. 

*Note: Late Friday, rumors spread of a pending government bailout of Fannie and Freddie. As I have zero confirmed details, there is nothing I can say at this point, very early Sat. a.m 

Street Bytes 

--Stocks swooned as the Dow Jones fell 2.8% to 11220, the S&P 500 lost 3.2%, and Nasdaq took a 4.7% drubbing, its worst week since the first of the year. Interestingly, the MSCI World Index, in losing 5.8%, had its worst performance since the week following 9/11. 

This coming Monday could be more than a bit volatile given the breaking news on Fannie and Freddie, plus Boeing’s machinists are going on strike, though this stock has already been punished. It’s just that any lengthy job issue here is bad for the country. 

--U.S. Treasury Yields 

6-mo. 1.89% 2-yr. 2.23% 10-yr. 3.65% 30-yr. 4.27% 

The 10-year rallied big time with the yield hitting 3.55% on Friday morning in an ongoing flight to safety as the equity market collapsed amidst further signs of uncertainty in both financials and the global economy, but bonds backed off some later in the day, though the 10-year still rallied to 3.65% from the previous week’s 3.81% level. 

The Fed’s beige book of regional economic activity continued to show that consumer spending was “slow,” thanks to the punk housing market, while wage increases were moderating, good for those of us who took a stand a few months ago that inflation was not going to be an issue going forward. [I said this the very week oil peaked, if you’re new to the site, and nailed the top in that bubble, at least for now.] 

Across the pond, the European Central Bank held the line on rates with its benchmark, at 4.25%, remaining substantially above the Fed’s 2.00% level. But the ECB caused a stir in our markets because it announced it was tightening lending criteria for member institutions, in essence claiming it has been a victim of a Ponzi scheme* and it wasn’t going to take it anymore. Ergo, this was viewed as another sign the credit crisis is far from over.  

*Sorry to be obtuse. I may have more on the topic next time. 

--Former Fed Chairman Paul Volcker told a gathering in Calgary that the U.S. financial system is broken thanks to its dependency on securitization rather than traditional bank loans. 

“This bright new system, this practice in the United States, this practice in the United Kingdom and elsewhere, has broken down. Growth in the economy in this decade will be the slowest of any decade since the Great Depression, right in the middle of all this financial innovation.” 

--The percentage of mortgage loans in this country with one or more payments overdue is now over 6.4%, an all-time high according to the latest from the Mortgage Bankers Association. [Including those actually in foreclosure it’s close to 9%.] 

--Back to oil, it closed at its lowest level since early April, $106.50, and while that’s great news for consumers, it also signals further demand destruction thanks to the putrid global economy. 

Separately, the Wall Street Journal ran a story that commodity-market regulators are looking into potential manipulation of oil-supply data, and thus prices. As reported by Ann Davis: 

“Unexpected drops in oil inventories reported each Wednesday by the U.S. Energy Information Administration can spark price spikes on the main oil futures benchmark on the New York Mercantile Exchange. A company could theoretically underreport barrels in its tanks, for example, at a key hub to suggest oil is scarcer than it really is, and then sell its physical oil at a premium when oil prices jump on misleading news.” 

Evidently, tips have been flooding into regulators on such trades. Manipulating the data supplied the EIA is very much illegal. 

--Auto sales in August were horrid. GM’s were off 20%, Ford’s 27% (SUV sales off 53%!), Toyota’s down 9%, Chrysler’s 34% and even Honda’s declined 7%. GM claimed, however, that with consumers feeling better “as gas prices fall,” the sales environment will improve, while Ford countered it saw a “more challenging” second half than the first. 

--But if you think car sales in the U.S. are bad, Britain’s are now at their worst levels since 1966. On the luxury side, Aston Martin sold 19…19…cars in August and Land Rover suffered a 58% decline. 

--GMAC is closing all 200 offices and laying off 5,000 as it gets out of the mortgage lending business, yet another bad sign for prospective home buyers as less competition leads to higher rates. [GMAC will continue to service existing loans.] 

--All kinds of rumblings on the hedge fund front as Ospraie Management LLC, 20% owned by Lehman Brothers, began to close its flagship offering after losing the staggering sum of 27% for the month of August, and 38% year-to-date. Ospraie’s losses were attributed to the sell-off in commodities….along with its stupid name. 

--And Atticus Capital, one of the larger hedge funds with some $14 billion under management, denied reports it was liquidating positions and shutting down, this as the $7 billion Atticus European Fund plummeted about 33% year-to-date through August, while another smaller fund had declined 25%. [To be fair, the European Fund was up 28, 44 and 63 percent the prior three years.] 

--The benchmark Shanghai Composite index closed the week down 64% from its October peak. In fact this market is now at its high for 2001, meaning every single retail investor, most importantly in China itself, who rushed in at the height of the boom, 2005-2007, is down a bunch. 

--Russia’s benchmark RTS stock index has fallen 33% since July 1. Personally, I love it. 

--Barron’s Andrew Bary has been all over the private-equity industry and his latest column on the topic in the Sept. 1 issue says in part: 

“The formerly booming private-equity industry is in crisis as deal volume dries up and profits collapse at leading firms like Blackstone Group, Apollo Global Management and Kohlberg Kravis Roberts. The old business model – using loads of reasonably priced debt to take companies private – is broken, and no quick fix is in sight. Banks and institutional investors are demanding much higher yields on highly leveraged companies’ debt…when financing is available at all.” 

Blackstone et al loaded up their acquisitions with massive amounts of paper for which the bonds today are often worth less than 50 cents on the dollar. It’s sickening to think that as Bary writes, “Many companies that were the subjects of buyouts (just) a year or two ago are so grossly overleveraged that they’re struggling simply to pay interest.” 

Buyer beware. And yet another reason to despise Wall Street as it tramples on the little people. 

--BP has settled with Russia’s oligarch owners in the TNK-BP joint venture, Russia’s third-largest oil company. The CEO, Robert Dudley, who fled Russia, citing “sustained harassment,” is formally stepping down while the four chief Russian investors, who have been demanding $billions in dividends (yes, with a “B”), have agreed to give up 20% of the company in an IPO down the road. For BP it’s important to stay involved because TNK-BP accounts for almost a quarter of their worldwide output and proven reserves. And now it’s possible Dudley can live out his life without fear of being poisoned. 

--Google released a competitor to Microsoft’s Internet Explorer browser, “Chrome,” that Google is promoting as a speedier, safer and more reliable way to navigate the Web. Sanford C. Bernstein & Co. analyst Jeffrey Lindsay told the Los Angeles Times that by rolling out its own browser, Google is trying “to take control of its own destiny. All of Google’s access to its customers and all of its access to its advertisers is dictated through the browser.   If someone else has control, technically Google has a vulnerability.” 

--Oracle CEO Larry Ellison is one of the more detestable people on the planet and a U.S. District judge in San Francisco has now ruled that Ellison deliberately destroyed or withheld e-mails and tape recordings that were supposed to be turned over to lawyers for shareholders suing him. This all goes back to claims Oracle made false statements related to its second-quarter 2001 earnings report. The trial in the case isn’t slated to begin until March 30. 

--And in another example of “Dirtballs Gone Wild,” two former Credit Suisse brokers were rounded up on allegations they fleeced customers in the corporate cash management division tied to the auction-rate securities debacle. Julian Tzolov and Eric Butler are accused of conspiracy and securities fraud for misleading clients, most overseas, into believing they were buying ‘money market alternatives’ backed by student loans (as requested by the customers) when the two were substituting subprime mortgages and other toxic crap in order to generate higher commissions. The brokers then falsified labels for the securities on client confirms.  

--For the archives, I have to note the failure of Integrity Bank of Alpharetta, Ga., late last Friday and omitted by me in the 8/30 missive. Integrity fell victim to an absurd policy of having construction loans comprise 76% of the bank’s total loan portfolio, with a further concentration in one or two developers, if I recall correctly. 

--And this just in…yesterday, the Feds shut down Silver State Bank of Henderson, Nev. The significance here is that Andrew McCain, John McCain’s adopted son from his first marriage, had left the board of the bank on July 26 for “personal reasons,” yet he had been a member of a three-person audit committee. It appears Silver State was yet another institution specializing in construction loans. 

--Reader Chris C. and his fiancé have been going through an intense real estate search in Chicago as they relocate from New York and he has one word of advice. “Bid lower than your first instinct,” especially when looking at foreclosed properties. The banks are indeed desperate to unload them. 

--According to a study by the Conference Board, retail investors owned just 24% of stock in the top 1,000 companies at the end of 2006, the last year for which figures are available, vs. 94% in 1950 and 63% in 1980. Institutions – defined as pension funds, investment companies, insurance companies, banks and foundations – own the other 76% these days. [Further breaking it down, pension funds hold 28.5% and mutual funds 26.3%.] 

--The latest data on bankruptcy filings revealed some very disturbing trends. From USA Today and the AP: 

“Each age group under 55 saw double-digit percentage drops in their bankruptcy filing rates over the survey period, while older Americans saw remarkable increases. The filing rate per thousand people ages 55-64 was up 40%; among 65- to 74-year-olds it increased 125%; and among the 75- to 84-year-old set, it was up 433%.” 

Higher prices for ordinary consumer goods in particular are killing those on fixed income, let alone soaring medical costs.  And it's not as if any of us are able to earn a decent rate on our savings.

--Despite some recent rains, Australia’s drought in its main food growing region has worsened, with water inflows over the past two years at an all-time low. Luckily, July rains will lead to a strong wheat harvest, but it’s the lack of ground water that is killing everything else off. For example, 80% of eucalyptus trees are already dead or stressed in a region (the Murray-Darling river basin) that’s as large as France and Germany combined. 

--Continental Airlines is going to begin charging coach customers $15 for a first checked bag, finally catching up to the competition in this regard. But it doesn’t apply to those who are elite members of its frequent-flier programs. Yippee! Premium beer is on me. 

--Speaking of beer, the economic downturn in Britain has led to thousands of pubs shutting their doors as rising prices for beer have forced consumers to buy the adult beverage in supermarkets rather than the neighborhood watering hole. The government, though, is under pressure over the supermarkets’ aggressive marketing tactics, including selling beer as a loss leader, which flies in the face of efforts to reduce binge drinking in the country. In just the last quarter, beer sales in pubs and restaurants declined over 8%, while they rose 5% in the retail outlets. [London Times] 

--Happy Birthday to Google, age 10. 

--My portfolio: I haven’t done a thing in months. Instead, I’m just sitting around, moping, with the few holdings I do have continuing to take on gas. I have conceded in the past that if the credit crisis doesn’t lessen early next year, I’m going to apply for a job as a lawn jockey. [All I ask for is garage privileges.] 

Overall, I haven’t changed my recommended portfolio allocation for at least two years; 80% cash, 20% equities, which has looked pretty good over that time when measured against the performance of the S&P 500. I also stand by my call for 2008 that the major averages will finish down 3 to 5 percent. 

Foreign Affairs, part II 

Iraq: Anbar province was turned over to the Iraqi military, the 11th of 18 as cooperation between the United States and the Iraqi government, as well as between U.S. forces and tribal leaders, most particularly with Sunni tribesmen in Anbar, grows. [I do have to add, however, that the stories on the change in command are a little deceiving. The U.S. will still have 25,000 troops in Anbar, for now.  *On a different topic, the Woodward book, I'll discuss the reaction in Baghdad next time.]

And for all the recent success, it needs to be pointed out that tremendous strains remain between the Shia government and the Sunni minority. We all should agree, however, that it’s much better to have this problem than the alternative that was resulting in far too many casualties. The situation here is certainly a positive for the McCain campaign, though Iraq is far from Americans’ number one concern these days. In all seriousness, mine is Russia, with Iran a close second. And in just another month or so it could very well be this one……… 

Pakistan: Benazir Bhutto’s widower, Asif Ali Zardari, who spent years in prison on corruption charges and is known as Mr. “10 percent” for demanding his take on every government contract, is set to be elected president by parliament on Saturday in a week where Prime Minister Gillani survived an assassination attempt (though he wasn’t in the car that was riddled with bullets) and the government dealt with the first large-scale ground incursion by U.S. troops into Pakistan to battle the Taliban, a move Pakistan protested as it had just declared a ceasefire with the militants for the month of Ramadan. 

Israel: Prime Minister Olmert is set to be replaced as leader of his Kadima Party on Sept. 17, but he could stay in power for months as a caretaker prime minister until Kadima forms a new ruling coalition. In the near term it means any talks with the Palestinians are futile. 

Meanwhile, Syrian President Assad hosted talks with France, Turkey and Qatar, saying he would pursue peace talks with Israel (which Turkey has been mediating), but that he would not severe ties with Hizbullah. “Our attitude toward the resistance is clear wherever it may be; against the occupation in Iraq, Lebanon or Palestine.” Needless to say, Israeli officials were none too pleased to hear this. 

[Separately, Israel is on heightened alert over statements by Hizbullah that it will avenge the death of its terror chief Mughniyeh, with the group’s No. 2 saying “For everything there is a time, God willing. We won’t get into details, but the Israelis will be surprised.” Think Latin America.] 

And on the issue of Iran, Jordan’s King Abdullah II said that if an attack was launched against Tehran, it would fail to meet its objectives. 

“Israel doesn’t have the ability to completely destroy the atomic reactor in Tehran…(and) every military act against it will have serious consequences on all of the Middle East.” 

For his part, French President Sarkozy warned Iran that Israel is bound to attack unless it cooperates on the nuke front.  

Additionally, Russia appears to be close to selling Iran the most sophisticated anti-aircraft system in the world, the S-300. 

North Korea: Pyongyang began removing equipment from storage at its Yongbyon nuclear facility as it made out like it was going to reassemble, and restart, activity there. The North hasn’t come close to revealing all aspects of its nuclear program, including the status and number of actual nuclear bombs in its arsenal, but Lil’ Kim is miffed his nation hasn’t been removed from Washington’s terrorism blacklist. The U.S. is skeptical, though, that the North is really intent on restarting a process that could take as long as a year to complete. 

Japan: Prime Minister Fukuda suddenly resigned less than a year after taking office amidst a faltering economy; growing at 1% or less. In essence it’s now been 15 years of stagnant growth here. Of ongoing concern are the demographics, as the aging population soaks up benefits. 

Taiwan: Tens of thousands of Taiwanese marched to protest President Ma’s efforts to improve relations with the mainland, the first such demonstrations since his inauguration 100 days ago. The opposition is concerned Taiwan could lose its sovereignty and that Ma is acting too quickly. 

Thailand: Prime Minister Samak declared a state of emergency, though his army chief said he will not use force to evict protesters who have been occupying government buildings for weeks now. 

Turkey: President Abdullah Gul is going to attend a World Cup football qualifier in Armenia today, in what is being seen by some as a thaw in relations. Turkey and Armenia have no official ties and their shared border remains closed, going back to the period 1915-17 when Turkey was accused of genocide for the killing of some 1.5 million Armenians, and then the war between Armenia and Turkey’s ally Azerbaijan following the breakup of the Soviet Union in the 1990s. President Gul would be the first Turkish head of state to visit Armenia. Some in Turkey, however, see the move as a betrayal since Armenia is still often referred to as the enemy. 

Libya: I’ll have more on this next time as warranted, but on Friday, Secretary of State Condoleezza Rice became the first U.S. Sec. of State since John Foster Dulles in 1953 to visit the country. In an interview with Al Jazeera last year, Libyan leader Col. Moammar Gadhafi said of Rice, “I support my darling black African woman. I admire and am very proud of the way she leans back and gives orders to the Arab leaders.” Oh brother. 

Britain: Chancellor of the Exchequer Alistair Darling got himself and his government in a bit of hot water, to say the least, when he told the Guardian newspaper the economic slump in Britain is “going to be more profound and long-lasting than people thought” and that current conditions “are arguably the worst they have been in 60 years.” Then he compounded matters by saying “The coming 12 months will be the most difficult 12 months the Labour Party has had in a generation, quite frankly.” 

[This would be like Treasury Secretary Paulson saying “This country and the Republicans are so screwed….”] 

On a related note, Britain’s Home Office, in a leaked document, said “There is a risk of a downturn increasing the appeal of far-right extremism and racism, which presents a threat as there is evidence that grievances based on experiencing racism are one of the factors that can lead to people becoming terrorists.” 

Zimbabwe: President Robert Mugabe has threatened to form his own government should opposition leader Morgan Tsvangirai not agree to share power. Tsvangirai insists Mugabe’s position be reduced to that of a ceremonial leader, but Mugabe demands he control security and the powers to appoint and dismiss ministers. So I say for the umpteenth time, the U.S. and Britain should have taken him out long ago.  

Canada: Prime Minister Stephen Harper has called a snap election for Oct. 14, in contrast to our two year campaigns. Harper is claiming he has to take this step due to political gridlock, though his own Conservative party garners just 33% approval. Canada needs to be preparing for the coming Russian invasion of its Arctic territory, June 2010. [I moved my timetable up a bit.] 

Mexico: More than 100,000 protested drug violence in marches last weekend. As one woman, 72, told a reporter for the AP, “We’re desperate.” 

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Pray for the men and women of our armed forces.

God bless America.

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Gold closed at $806
Oil, $106.48

Returns for the week 9/1-9/5

Dow Jones -2.8% [11220]
S&P 500 -3.2% [1242]
S&P MidCap -3.7%
Russell 2000 -2.8%
Nasdaq -4.7% [2255]

Returns for the period 1/1/08-9/5/08

Dow Jones -15.4%
S&P 500 -15.4%
S&P MidCap -8.5%
Russell 2000 -6.2%
Nasdaq -14.9%

Bulls 37.8
Bears 40.0 [Source: Chartcraft / Investors Intelligence] 
Have a great week. I appreciate your support. 

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