Educate Yourself

Week in Review
For the week 1/2/2006 - 1/6/2006
Brian Trumbore
President/Editor, StocksandNews.com

What a world we live in. This was a horrible week for those seeking peace in the Middle East and elsewhere there were other troubling signs of global instability. While I normally steer clear of making bold market pronouncements, week to week, and recognizing what I'm about to say isn't one of them, nonetheless if you are heavily allocated in stocks you should think about paring back your exposure soon. This week's intense rally on Wall Street showed signs of unwarranted euphoria and most of you have seen this act before. No doubt, though, these periods can last a while and I've looked foolish for long stretches, as I did in 1999 and early 2000, but what's different about today as opposed to then is the geopolitical framework. There certainly weren't a lot of positives in this regard the past few days.

To begin with, Israelis are rightfully scared following the demise of Prime Minister Ariel Sharon. This is a man with many enemies, but he was the only Israeli leader capable of advancing some semblance of a peace process. Sharon had also garnered the respect, albeit grudging in many quarters, of other leaders in this volatile region. Yet today it's not an issue of Israel being unable to defend itself - no one can ever doubt its resolve - but rather who can now bridge the deep divides whose origins often extend centuries or more? Certainly not Benjamin Netanyahu, the early favorite to replace Sharon following March's elections.

One of the more underreported stories of the week was the chaos at the border crossing between Gaza and Egypt where hundreds of armed Palestinians confronted Egyptian forces, surging through a self-made breach in the wall and killing at least two Egyptian soldiers. That's hundreds of potential terrorists whose identity Israel doesn't have a clue on. And as the chaotic Israeli election campaign gets underway, who will attempt to take advantage of the power vacuum? How will acting Prime Minister Ehud Olmert, a former mayor of Jerusalem, deal with it all? What will Netanyahu say in the coming weeks to further roil the political waters? He's a master of manipulation and scare tactics, but this is hardly a time to ratchet up the rhetoric. Nonetheless, more so than ever, Israelis need to prepare for the worst.

Like in dealing with Iran. Early in the week the mullahs announced they would restart their nuclear program, including uranium enrichment-related activity. Iran also continues to bar International Atomic Energy Agency inspectors from some of the most sensitive facilities. Then on Thursday, Iran failed to show up as promised to a meeting of the IAEA in Vienna; an incredible act of belligerence that warrants an immediate reaction from the civilized world, though none is likely to be forthcoming. Any analyst with half a brain has to assume Iran is very close to having at least a rudimentary nuclear device. And as I wrote last week Israel now realizes it will have to act alone since the U.S. and Europe aren't likely to. The question, as always, is about intelligence. Can they target the right facilities?

And then there was the barbaric action in Iraq this week, as close to 200 died between Wednesday and Thursday, including 11 American soldiers. The low-grade civil war that has been ongoing now for about a year is escalating rapidly. One more act, either a call to arms by a leading cleric or the assassination of same, is all that's needed to light a fire that could easily spill over the border.

I'm tired of the sycophants on the right who write of how security in Iraq has improved. I generally respect Ret. Lt. Col. Ralph Peters, who writes an op-ed column for the New York Post. Not the following analysis.

"Over the last 12 months, the pessimists called every major development wrong. But that won't stop them from doing everything they can again this year to devalue freedom, discredit democracy, drive Iraq toward civil war, encourage the terrorists and, above all, embarrass the Bush administration?.

"The Sunni Arab insurgents lost steam (in '05). Attacks still make headlines, but Iraq's major cities are far more secure than they were a year ago. Major combat operations moved from big cities to smaller cities - and then down to dusty border towns."

"On December 22 Tony Blair paid his Christmas call on British troops in Basra to tell them how much things were improving. This time he said security was 'completely changed' from last year. What he meant was unclear. It was as if Gladstone [ed. a respected British prime minister in the late 1800s] had visited Gordon during the siege of Khartoum. Did it not seem strange to Blair that he could not move outside his walled fortress, could not drive anywhere or talk to any Iraqis? Did he wonder why British troops have withdrawn from two anarchic provinces? Was he really told that security is transformed for the better? If so he is horribly deceived.

"Reliable reporting from Iraq is now so dangerous that the level of insecurity can be gleaned only from circumstantial evidence. Baghdad outside the American green zone is now all 'red zone,' off limits to any but the most reckless foreigner. The death rate and the number of explosions are rising. [ed. Jenkins also wrote this before Wed. / Thurs.] While some rural areas are relatively safe there is no such thing as national security. Iraq's borders are porous. Crime is uncontrolled. The concept of an 'occupying power' is near meaningless.

"The Americans cannot even protect the lawyers at Saddam's trial, two of whom have been killed. Iraqis are meeting violent death in greater numbers probably than at any time since the Shiite massacres of 1991. Professionals are being driven into exile, children are kidnapped, women are forced indoors or shot for being improperly dressed. Those Britons who preen themselves for 'bringing democracy to Iraq' would not dare visit the place. They have brought three elections, but elections without security do not equal democracy."

Last week I wrote of how oil tanker drivers were being threatened. This week a convoy of tankers was attacked with 20 destroyed. I did not see what the casualties were but you can be sure new drivers aren't exactly lining up for positions today.

And speaking of the brain drain Jenkins alluded to, and as I addressed a while back when it comes to the dwindling Christian community, Newsweek reported that physicians are increasingly being targeted with 65 killed last year. Health care has never been worse.

As for oil, the critical revenue source, in December average production was less than half pre-war levels due to ongoing sabotage and badly needed investment will not be forthcoming without security.

So about now long-time readers are thinking, but Brian, I thought you were a supporter of the war? I still believe in the cause but I cannot escape the facts. At this point, though, one has to wait to see what emerges when the government is finally formed.

I also can't help but conclude this segment without commenting on President Bush and his meeting Wednesday with his defense team (as opposed to Thursday's farce with the former secretaries). There he was, standing with some of the generals, when Bush said "I want to tell the American people how impressed I was with the generals. They're smart?."

It was shades of "Brownie, you're doing a heckuva job." History will not be kind to the generals, starting with Tommy Franks. In the meantime they'll do all they can to burnish their images before they pass on, because that is what historical figures do, but eventually the truth catches up with them.

Lastly, there is Syria. The government of Bashar Assad is demanding treason charges be brought against former Vice President Khaddam, who claimed in an interview in Paris (where he's now probably hiding in the sewers) that Assad severely threatened Rafik Hariri before the former Lebanese prime minister was assassinated. The UN is demanding a meeting with Assad himself for questioning.

"None of this is new, but it is all very significant for two main reasons. The information Khaddam provided corroborates numerous facts and allegations already gathered from other sources by the UN-run international commission investigating Hariri's murder. For corroboration to come from such a high source inside the Syrian political system is a major push forward for the investigation. Khaddam had been a senior political thug in Syria for 35 years, but in such cases a thug's testimony is very useful - assuming it is factually correct?.

"The second important thing about Khaddam's behavior is that it seems to represent the first major political crack or defection in the top-level Syrian solidarity system that has long defined the regime in Damascus. Whether this is the crack in the dam that soon widens into a political torrent remains to be seen. However, its significance should not be underestimated. Khaddam's pointing fingers at Assad and his security chiefs is the equivalent of Dick Cheney in the United States saying in a press interview that President George W. Bush knew all along that Iraq had no weapons of mass destruction, but was determined to overthrow the Saddam Hussein regime using any pretext."

"The implications of Khaddam's disturbing insinuation of communal symbolism do not bode well for Lebanon. From the moment the Syrians left the country last April, it became apparent that two contending visions would come to define the aftermath: one defined by the Saudis and Saad Hariri, speaking for most Sunnis, which sought to complete what Rafik Hariri had been unable to. Friendly to the West, impatient with militancy, pursuing free markets, this vision clashes daily with a second one, the more militant, statist, anti-Western outlook of Hizbullah, which for better or worse speaks for many in the Shiite community. This face-off transcends the Sunni-Shiite religious dichotomy and involves broadly defining the post-Syrian Lebanese state. It need not turn violent; however both sides will have to make fundamental concessions to avert this?.

"The Syrians should remember that while Lebanon is vulnerable to sectarianism, it also has the means to absorb its worst repercussions. But does Syria? From Paris, Khaddam impertinently tossed that disturbing question Assad's way."

Meanwhile, Hizbullah hides out on the border with Israel, plotting how best to take advantage of Israel's political chaos.

Stocks soared following release of the minutes from the Federal Reserve Board's Dec. 13 meeting and never looked back as they staged their broadest rally since last May. The major averages are now all at 4 ? year highs, the breadth of the advance being a major positive, as the Dow Jones gained 2.3% to close at 10959, the S&P 500 added 3% to the 1285 level and Nasdaq picked up an even 100, 4.5%, to finish at 2305. Yes, it was an awesome way to start the new year and as I'm not "short" the market, god bless us, everyone. Even my three remaining equity holdings have been acting better of late and it's been premium beer more often than not for the kid.

But back to the Fed minutes, the governors generally don't see "a significant weakening" in housing activity, they believe inflationary pressures are easing, and the overriding debate was over how much more tightening was justified at this point. Well the market interpreted the discussion to mean just one more hike of 25 basis points (1/4%) is in the offing on Jan. 31, Chairman Alan Greenspan's last day before retiring to the tub.

As for the hard economic data this week, the jobs report for December, when combined with an upward revision for November, was solid. Not great, but not dreadful?just the way Wall Street likes it. ["Great" translating into further rate hikes, "not great" presaging lower earnings.]

But I declare victory on my Christmas shopping season forecast because it's apparent we did not hit the 5-6% estimated sales gains. Instead, three leading retail barometers had sales up 3.2%, 3.5%, and 4.4%, while Wal-Mart's same-store figure for December was just 2.2%. Some specialty retailers bucked the trend, but the bottom line is Christmas was so-so at best.

The Wall Street Journal released its semi-annual survey of economists' predictions and the consensus is for 3.5% growth in GDP for the first half of 2006 and 3.1% in the second. Should this pan out and the geopolitical scene I worry about improve, well I'll probably be very wrong on my outlook for stocks this year. But the economists reiterated what everyone else believes; housing is far and away the biggest concern and it needs to be repeated from time to time that ? of the job growth we experienced the last five years was housing related. So as housing begins to take it on the chin, not only are many losing their jobs (the process has already started with a vengeance in the mortgage origination industry), home equity loans and refinancings will no longer serve to bolster consumer spending. And as I detailed last week, where the hot spots really come into play is in CEO confidence and the willingness to give it up on the capital spending front.

But this was a week for the bulls and I've already done enough raining on their parade. Where I do admit I'm currently very wrong is on growth outside the United States. That troubled me in my forecasting last summer, you'll recall, but I'll cover the topic in more detail next week.

For now, if peace breaks out all over the world and the brotherhood of man forms a human chain of love, nay, a love train, as the O'Jays sang, I'll be the first one to place myself next to a reformed Sunni terrorist.

--Stocks totally ignored a soaring price for crude, back over $64, with gasoline futures at $1.80, meaning rising prices at the pump once again. But then you had natural gas which dropped precipitously below $10 to $9.63; a major positive for those heating their homes with the stuff. Why the divergence? On the natural gas front it remains solely about the weather. I do a little exercise myself each week in just glancing at the 10-day weather forecasts for Winnipeg and Minneapolis and we're going to be well into January without the dreaded arctic cold wave. As for the renewed rise in crude oil, it's part speculation and part geopolitics, but there are also legitimate concerns of potential fuel shortages this coming summer as demand is once again surging, thus the rise in gasoline futures.

And a note on the tech front. This week saw the big gadget show in Las Vegas where all manner of companies were presenting their wares; things most of us don't need but if you have the money, and a lot of people do these days, then what the hell.

Anyway, Intel is promoting a new chip, Viiv, that is part of a "wave of creativity" for new consumer electronics that coordinate all your other products into one easy-to-use remote control. Whatever. And Motorola is promoting its new cellphone with a Google function while Yahoo's Go Mobile will use its own content.

My point is; not exactly 'the next big thing' when compared to the PC and the Internet. But lest you think I'm a spoil sport, it's increasingly clear where the real excitement lies and that's in the fields of medicine and biotech. For this we should all give thanks.

--Google, by the way, closed 2005 at $415 and added another $50 to $465 this week. At least I warned not to 'short' this one all last year. Nor do I advise one to do so now.

Despite the euphoria in equities over the Fed's seeming vote of confidence, the bond market's reaction to the coming end of Greenspan's rate hike regimen was muted. Treasuries were essentially flat on the week. As I noted last time, ignore the inverted yield curve talk. It's irrelevant for now and bonds are responding far more to simple supply and demand factors as well as to the belief inflation is tame.

But now China is strongly hinting it will begin shifting out of the U.S. dollar. Currently, it is estimated 70% of its reserves are in dollar assets. Of course this has negative implications, but for now any transition should be reasonably orderly. What I have argued in the past, though, is that just as you've seen Russia now use natural gas as a political weapon, China could use its reserves as one.

--Back to energy, oil stocks soared?9% for the oil service index (OSX) and 7% for the major integrateds (the XOI).

--Ford and GM's sales continue to decline, down 9% in December for Ford and another 10% for GM. But DaimlerChrysler's were up 4% for the month. For all of 2005, Toyota was the big winner, up 10%, GM was down 4.4%, Ford off 4.7%, and Chrysler up 4.5%. The Big Three's market share for '05 fell to another record low, 56.9%, and on Thursday, S&P lowered Ford's credit rating further into "junk" territory.

--In a positive piece of news, federal regulators monitoring government-sponsored entities Fannie Mae and Freddie Mac say both are adequately capitalized and that there are no new accounting errors. A separate investigation reportedly is about to issue a similar conclusion. Fannie's accounting issues in particular have long been seen as a ticking time bomb (and with good reason as the company was forced to admit all manner of deceitful practices), but defusing it should take a major worry off the market in the event of a financial crisis. Derivatives worldwide, however, remain an accident waiting to happen.

--According to an annual survey by the Heritage Foundation and the Wall Street Journal, Hong Kong's economy is the freest for a 12th consecutive year, though increasing interference from Beijing will hurt its future rankings. Other surveys already reflect this fact and have Hong Kong as low as #28.

--Update: I missed an item last week that is important to place in the archives, if for nothing else. ExxonMobil sold its 25% stake in a Venezuelan oil field to Spain's Repsol which then agreed to a joint venture with state-owned PDVSA. A few weeks back I wrote that we were awaiting Exxon's decision since Venezuelan President Hugo Chavez has been forcing oil companies to give up control, with Exxon being the last holdout among the major players. Exxon in essence told Chavez to shove it.

--Margin debt is at its highest level in five years as speculation returns to the market.

--Good piece in the Journal the other day on India and its increasing difficulties in filling positions for its service sector. Despite graduating millions from university each year, the students are "uneven" and there is a dearth of qualified candidates for employment. Wages are thus rising rapidly for the attractive applicants, which in turn means that in today's competitive marketplace countries like Poland have been gaining business at India's expense.

--IBM announced it is freezing its pension plan in 2008, meaning benefits will be locked in place at that time. While this does not affect accrued benefits for current workers upon retirement (nor current retirees' checks), IBM will replace any further add-ons with increased contributions to workers' 401(k) plans. The company claims it will save at least $2.5 billion between 2006 and 2010 by going this now popular route for Corporate America and there is little workers can do about it.

--From time to time I've written on the topic of market volatility, or lack thereof. The New York Times' Floyd Norris had a piece spelling out the latest through year end. In 2002 there were 52 days when the S&P 500 moved up or down 2%. In 2003 there were 15 such occurrences. Incredibly, the last two years there hasn't been one. So much for my concerns over the vast majority of daily activity being of the program trading variety, but I'll have my day in court yet.

--Broadway's attendance was the highest in two decades and sales rose 10% in 2005 over 2004's pace.

--The average room rate in New York City is above $290 these days. The highest is the presidential suite at the Mandarin Oriental, $14,000 / night with a 75% occupancy rate. I'm assuming the users still take the soap??.I would.

--A study by Britain's Air Accident Investigation Bureau discovered "widespread" safety issues on British Airways; not that you should go out and change your plans, but if I was going to be over water for five hours?.

--Discount carrier Independence Air declared bankruptcy and shut operations after just 19 months. At least these guys tried to do the right thing with their customers up to the end.

--America's, and the world's, busiest airport is now Atlanta's Hartsfield International with 980,000 takeoffs and landings for the past year vs. 972,000 at Chicago's O'Hare.

--ABC and NBC are raking in the ad revenue with ABC's Feb. 5 telecast of the Super Bowl followed five days later by the start of the Olympics on NBC. According to Theresa Howard of USA Today, ABC "is reportedly 85% sold out and on track for up to $150 million. NBC says it's 90% sold out and should hit its $900 million target."

A 30-second Super Bowl slot is going for $2.4 million, while the Olympic ones are going for an average of $700,000 for prime time. [The Super Bowl has an 88 million average audience, with the Olympics normally coming in around 60 million in the U.S. during prime time hours.]

--The Journal reported that Microsoft shut down a popular Chinese blog site, run by a dissident, owing to Chinese government pressure. A statement read:

"MSN is committed to ensuring that products and services comply with global and local laws, norms, and industry practices in China. Most countries have laws and practices that require companies providing online services to make the Internet safe for local users. Occasionally, as in China, local laws and practices require consideration of unique elements."

Yeah, like in China, if you rattle the cage too much, you could get a bullet to the back of your head.

I have received a lot of criticism when I discuss how some Taiwan businessmen clearly don't act in their nation's (Taiwan is independent to me) best interests. They, like businessmen all over the world, "sell out" when convenient. Microsoft, Google, and Yahoo have proved to be no exception.

--Ben Stein, in an op-ed for the New York Times, on the legacy of Alan Greenspan.

"I am beginning to think that (continuing to raise interest rates) is his way of talking us down from the housing price ledge, and maybe it's working. Certainly, the housing boom is slowing. But it's pretty clear that the rising interest rate cycle is coming to an end - at least I hope it's clear. When it ends, Mr. Greenspan will leave behind extraordinary prosperity, stable prices and moderate interest rates.

"Of course, we still have giant problems of income inequality, a staggering current account deficit - which probably has no cure short of a genuine collapse of the dollar, but that's for another day - and a federal deficit that is too high but is falling. These are real problems, but it's hard to say that they are within the job description of the Fed chairman. What he needed to do - keep the economy on an even keel while moving forward and keep the dragon of price increases in its cage - he did beautifully?.

Russia: As I wrote for the past few weeks, let alone years, President Vladimir Putin has been gearing up to use energy, in particular natural gas, as a political weapon. On New Year's Day he did just that after a dispute with Ukraine over renegotiating a new contract for supplying it in light of the changed pricing environment. Government-controlled behemoth Gazprom shut off sales of gas to Ukraine and that set in motion a chain of events that within 24 hours had threatened the supply for much of Western Europe. Putin had long argued Russia could be counted on to be a "reliable supplier" of energy and suddenly this wasn't the case. It was the first disruption in natural gas supplies on the continent in four decades, but Putin was forced to back down under intense pressure from all angles as Gazprom and Ukraine cut a very complicated deal.

"Western countries should absorb an important lesson. Without a prosperous or technologically advanced economy and with greatly reduced military strength, Mr. Putin hopes to restore Russia's world-power status through its control of gas. That inevitably means manipulating supplies to other countries for political ends. Western countries?should realize that dependence on Russian gas is not consistent with 'energy security.' Instead they should develop alternative sources of supply, or a greater emphasis on nuclear energy."

Neil Buckley and Thomas Catan of the Financial Times, quoting Putin in year end remarks at a televised meeting.

" 'Our welfare at present and, to a great degree, in the future directly depends on the place we will take in the global energy context.' He also issued an assurance - likely to be much repeated during Russia's current presidency of the Group of Eight industrialized nations - that 'energy security' would be a key theme.

" 'Russia treasures its much-deserved reputation of a reliable and responsible partner in the market for energy resources,' he said."

"Russia provides about a third of the gas consumed in Germany and over 40 percent of its gas imports. Experts expect this dependency, already the highest among large western European nations, to reach well over 50 percent by the end of the decade. For months, the International Energy Agency in Paris, the European Commission and the French and British governments have been watching these figures with mounting concern. As Angela Merkel, the new chancellor, prepares to visit Russia this month, German voices are joining the chorus of warnings.

" 'For too long, Germany has only considered energy as an economic and an environmental issue,' [said an MP from Merkel's Christian Democratic Union.] 'We must now catch up with the rest of the EU and start thinking about it in security terms.'"

On the topic of just how the new contract works, thankfully the FT attempted to clear up this confusing issue.

"Gazprom will sell its gas for export to Ukraine for the $230 per thousand cubic meters it demanded - though it will sell it no longer directly to Ukraine but to an intermediary company, RosUkrEnergo.

"Ukraine, by the same token, will not be paying $230?to Russia. RosUkrEnergo will mix gas from Russia with larger volumes of cheaper gas from Central Asia, mostly Turkmenistan.

"That means Ukraine will pay around $95?to RosUkrEnergo for its imported gas. The $95 price, though more than 50 percent above the price Ukraine was paying last year, is exactly what officials in Kiev said they had been holding out for.

"As well as in future handling of all imports of gas to Ukraine, RosUkrEnergo will take over all exports of Central Asian gas via Russia.

"Gazprom had planned to buy that Central Asian gas and export it itself to Europe, but sacrificed that aim to allow yesterday's deal to be stitched together.

"RosUkrEnergo will buy most of its gas in Central Asia for $50?.Since it will sell some into the European market beyond Ukraine, where prices are more than $250?, it can afford to pay the high price for Russian gas, sell to Ukraine at $95, 'and make a profit,' said Wolfgang Putshchek, a RosUkrEnergo executive."

Goodness gracious?need an aspirin? And know this about RosUkrEnergo. It is peopled with organized crime figures. In other words, my European friends, keep building those nuclear power plants and putting up windmills.

One last item on Russia. 12 journalists have been killed here in the past five years and not one of the cases has been solved. [David Satter / Wall Street Journal]

North Korea: Pyongyang reiterated it won't resume nuclear weapons talks unless the U.S. first lifted sanctions. The Orcs, deep in the bowels of Mordor, continue to slave away.

China / Taiwan / Japan: In a New Year's message, Taiwan's President Chen Shui-bian, moving to shore up his base following a poor showing in recent local elections, renewed his call for a new constitution in 2007; one that would declare the "Taiwan republic" to be an independent state. The opposition Kuomintang immediately blasted Chen's remarks as provocative while Chinese President Hu Jintao said China will "push ahead with the great cause of peaceful reunification, (but) never compromise in opposing Taiwan independence secessionist activities." [South China Morning Post] For its part, the Bush administration warned Chen about declaring independence; once again proving what a farce the administration's talk of spreading democracy truly is.

Meanwhile, Japanese Prime Minister Koizumi is tired of the criticism being leveled at him by China and South Korea over his numerous visits to the war shrine where 14 war criminals are honored with the rest of Japan's soldiers. China and South Korea responded that Koizumi just doesn't get it.

But at least Japan tabbed a China expert to be its new ambassador in Beijing in an apparent move to ease tensions, yet at the same time Tokyo is seeking talks with India on a range of diplomatic and security issues to counter China's growing military threat.

*And just a brief return to China's past. Yao Wenyuan died. He was the final surviving member of Mao's Gang of Four that terrorized the country during the 1966-76 Cultural Revolution. From the South China Morning Post and Joe McDonald of the AP:

"Led by Mao's wife, Jiang Qing, the Gang of Four and its allies inflicted physical and emotional damage that still reverberates in Chinese society?

"Nearly every Chinese city dweller who was alive at the time can tell of a relative or friend who was beaten, harassed or driven to suicide, often by tormentors who took advantage of the unrest to avenge grudges.

"The violence pitted neighbor against neighbor, wrecked the economy and forced a generation of intellectuals to work in the countryside.

"One month after Mao's death in 1976, the Gang of Four members were arrested, marking the end of the Cultural Revolution?.

"Evidence at Yao's televised trial included a diary entry in which he asked: 'Why can't we shoot a few counterrevolutionary elements? After all, dictatorship is not like embroidering flowers.'"

European Union: Austria is now president for the next six months, which means there could be some rancorous debate over Turkey's candidacy. You'll recall Austria sought to limit Turkey to a "privileged partnership," rather than full membership, but acquiesced in the end when promised it would have the ability to question Turkey's progress in the long, 10+ year process, along with advancing Croatia's candidacy for membership, Austria being its leading proponent.

Pakistan: The earthquake recovery effort has largely ground to a halt as winter settles in on the Himalayas. Tens of thousands will freeze and starve to death over the coming months.

Egypt: When I posted last week's piece, some details on the incident involving the Sudanese refugees in Cairo were lacking and I wrote I needed another 24 hours. I've since decided while Egypt is worthy of scorn more often than not, this instance is not one of them.

Bolivia: Evo Morales's first trip abroad found him alongside Cuba's Fidel Castro. Next he met with Venezuela's Hugo Chavez, with Morales saying he would join Chavez's fight against "imperialism."

For his part, Chavez took the opportunity to say the two men are building an "axis of good."

"The axis of evil - do you know who the axis of evil is? Washington - that's the axis of evil. And their allies in the world, who threaten, who invade, who kill, who assassinate. We are creating the axis of good, the new axis of the new century." [BBC News]

Morales later reassured his political supporters in Bolivia that he would indeed nationalize the oil industry.

And then there is Spain's leftist Prime Minister Zapatero, who has made a point of cooperating with both Venezuela and Bolivia recently.

Chile / Peru: There will be a bit of a tussle between these two over the extradition of former Peruvian President Alberto Fujimori. Fujimori made a surprise return to the continent from exile in Japan and seeks to return to power in Peru, but on landing in Chile a while back he was arrested and the Chilean courts will not just hand him over without months of hearings on the charges Peru has put forward. Peru wants him now.

Central America / MS-13?and the United States: I have written frequently of the dangers posed by the street gang known as MS- 13, whose origins are in Central America. In Friday's USA Today, Kevin Johnson writes of how one group raided a rival gang's house in Houston. It was carried off with paramilitary precision, using tactics "including perimeter lookouts, high- powered weaponry (an AK-47 rifle was among the weapons recovered later), and a quick, room-by-room sweep of the house that was notable for its precision and sophistication," said a police spokesman.

"When the MS-13 suspects were challenged by authorities, the result was an intense shootout that killed two suspects." The other four were arrested.

Johnson writes of the assessment of Bob Clifford of the FBI. "The battle symbolized MS-13's development from a smattering of loosely organized cells across the nation to an increasingly efficient and dangerous organization that has become a significant threat to public safety."

As the gang members are deported, they are sent back to Central America where they simply recruit new members and rush back across the border. Hopefully you saw the "60 Minutes" piece on the group a few months ago. It's both a serious domestic as well as foreign policy issue. Imagine them linking up with al Qaeda types?if they aren't already doing so.

Dow Jones +2.3% [10959]
S&P 500 +3.0% [1285]
S&P MidCap +3.4%
Russell 2000 +3.9%
Nasdaq +4.5% [2305]

Bulls 55.7
Bears 23.7 [Source: Chartcraft / Investors Intelligence?volatile the past few weeks, not normally the case.]

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