Educate Yourself

Week in Review
For the week 2/20/2006 - 2/24/2006
Brian Trumbore
President/Editor, StocksandNews.com

The week started off with news that Iran wanted Britain out of Basra (which is on the Iranian border) because, according to the mullahs, the British were destabilizing the region. Basra city officials, though, said the Brits stay.

Next, frustrated over the inability of Iraq's elected officials to come to an agreement over a new government, outside of the reappointment of Prime Minister al-Jaafari, U.S. Ambassador Khalilzad said he was not going to waste the resources of the American people and that the Iraqi government would lose U.S. support unless it forms a unity government that includes Sunnis. Further, Khalilzad said the Defense and Interior ministries must be non-sectarian and not tied to militias, adding, "Iraq faces the risk of warlordism that Afghanistan went through for a period."

The Shiites were furious, saying Khalilzad's denunciation of the process was interference in the affairs of a sovereign state.

Vali Nasr, a professor at the Naval Postgraduate School, wrote the following in an op-ed for the New York Times:

"Among the Shiites, such threats (such as Khalilzad's) carry an ominous tone; not only because they view their militias as the only force now protecting them from car bombs, but also because Shiites see the overt American push for a national unity government as nothing more than coddling the Sunnis and, worse yet, rewarding the insurgency.

"Shiites also see American policy as unduly influenced by Sunni rulers in Jordan and Saudi Arabia, who have been aggressively lobbying Washington for a greater Sunni role in running Iraq. This has led many Shiites to talk of a 'second betrayal' by the United States, a sequel to what occurred in 1991 when the Shiites rose up against Saddam Hussein only to be butchered as American forces refused to intervene."

The following is a gross generalization, but it's important to draw a distinction between the Sunni and Shia faiths in order to understand the disaster at Samarra.

Sunnis, 90% of Muslims worldwide, accept the Koran as Prophet Muhammad's spoken word.

Shia believe the true successor of Muhammad was Ali (not recognized by Sunnis) and the Shia base their faith on the pronouncements of a succession of holy men, Imams.

The Golden Mosque at Samarra was one of the holiest sites of the Shia faith and was said to be the tomb of Imams Ali bin Mohammad and Hassan bin Ali, the latter the father of Mohammad bin Hassan, who believers say will one day return as "the Mahdi" before Judgment Day.

Understand, then, that the bombing of the Golden Mosque was akin in many respects to bombing St. Peter's Basilica. Whoever did it (most likely al Qaeda) perpetrated a crime of enormous magnitude and the shockwave will reverberate for years.

The violence that followed the bombing was horrific, with 47 peace protesters, in one instance, pulled from their buses and summarily executed. A leading female journalist for al-Arabiya was shot. Over 100 mosques were damaged or destroyed as of this writing. At least 200 in total killed, including seven more American soldiers.

Jordan's King Abdullah warned of a Shia crescent, from Iran and Iraq to Lebanon. What is he referring to?

Iran is 90% Shia?but the history of the Iran / Iraq war stands in the way of a united Shiite population between the two?at least for now.

Lebanon is 34% Shia, 21% Sunni (the rest Christian and Druze; the latter having broken off from a Shia sect, the Ismailis)

You get the picture. Any civil war in Iraq, or Lebanon, will easily spill over into neighboring countries.

The ceasefire that Iraqi leaders are attempting to maintain won't last forever and the curfew will have to be lifted shortly. Grand Ayatollah al-Sistani, the great moderate, has lost his patience with the constant slaughter of his fellow Shiites and the desecration of the faith's holiest shrines. At a moment's notice he could let his people loose in earnest. Shia cleric Moqtada al- Sadr already has in some respects, though this chameleon wants the world to believe he's reining them in at the same time.

The leading Sunni parties have pulled out of talks on the formation of a new government and many of the Iraqi troops and national guard that the U.S. has been training stood idly by while Shias exacted their revenge.

Many Shia also blame the United States for the bombing, as irrational as that may be, and tens of thousands of Lebanese Shiites have been protesting, shouting anti-U.S. slogans. "America is the enemy of Muslims" and "America, you are the Great Satan."

"These heinous acts are committed by a group of Zionists and occupiers that have failed. They have failed in the face of Islam's logic and justice. But be sure, you will not be saved from the wrath and power of the justice-seeking nations by resorting to such acts." [Daily Star]

And all we can do is sit back and watch what happens next. The bombing of the Golden Mosque may have unleashed the whirlwind.

The only encouraging development on the Iranian nuclear weapons program front was the fact Russia now knows, firsthand, how brilliant Iran's stall tactics are and for the first time the Kremlin seems a bit disconcerted.

Russia has proposed to enrich uranium for Iran, but only if Iran stops its own production first. A high Russian official told the Moscow Times after talks between the two broke down this week, "Unfortunately, Iran so far has not shown significant goodwill." Welcome to the real world, comrades.

Iran knows that in dragging out these fake negotiations, it prevents the U.N. Security Council from levying sanctions. It's working. But time is running out for Tehran as the International Atomic Energy Agency prepares its final report for the UN Security Council on March 6. Even China is now leaning on Iran, but my guess is Iran will once again find a way to avoid any severe action and its scientists will soldier on.

The Israeli government froze $55 million in customs duties and taxes to Hamas and the Palestinian government; a devastating maneuver since this accounts for about ? of the Palestinian Authority's payroll. Palestinian President Mahmoud Abbas told Hamas, "You cannot accept any questioning of the (1993) Oslo accords' legitimacy?and you must resume negotiations according to international and Arab initiatives." Hamas replied, "Negotiations with Israel are not on our agenda."

Hamas' political leader, Khaled Meshaal, met with Ayatollah Khamanei in Iran and the Iranian grand mullah urged all Muslim nations to chip in with aid, as Iran will. The Muslim Brotherhood, 20% of Egypt's new parliament, launched its own funding drive.

For its part, Israel continued to go after terrorists in the West Bank and Gaza, killing at least five.

I commented to a friend the other day that when you look around the world at the true hot spots, there is zero cause for optimism these days. I hope over the coming months we can begin to feel otherwise. But then another bomb will probably go off.

I am for the acquisition by Dubai Ports World of some terminal operations in New York, New Jersey, Philadelphia, Baltimore, Miami and New Orleans. Many in Congress are deserving of scorn in the way the debate that has flared up has been handled, but it's also primarily President Bush who let this situation get totally out of control and, potentially, we could be paying a price for years to come. Following are two opinions.

"There are at least three issues here. One is the specific concern about the deal itself; another is disquiet over the administration's approach to homeland security; and the last is a larger pattern of American unease about the changing global economy. What the potential deal highlights most of all is that the U.S. cannot have it both ways: We cannot both advocate a global system of free trade with low barriers of entry and then cry foul when foreign companies try to buy U.S. assets.

"On the first point, what the disparate opponents have insinuated is that there is a relationship between the government of Dubai (which controls Dubai Ports World) and terrorist groups - and that therefore the purchase of the port operator will endanger U.S. security. There are serious and legitimate concerns which must be addressed, but halting the deal is not a solution."

"In short, there is no evidence this deal will do any harm. But it is certain that the xenophobic hysteria will come back to harm the U.S.

"The oil-rich nations of the Middle East have plenty of places to invest their money and don't need to do favors for nations that kick them in the teeth. Moreover, this is a region in the midst of traumatic democratic change. The strongest argument the fundamentalists have is that they are engaged in a holy war against the racist West, which imposes one set of harsh rules on Arabs and another set of rules on everybody else. Now comes a group of politicians to prove them gloriously right.

"God must love Hamas and Moqtada al-Sadr. He has given them the America First brigades of Capitol Hill. God must love the folks at Al Jazeera. They won't have to work to stoke resentments this week. All the garbage they need will be spewing forth from press conferences and photo ops on C-Span and CNN."

Both Republican and Democratic leaders leapt on the issue in an election year, catching the White House totally off guard. Then President Bush stepped forward and said if any legislation is promoted that blocks DPW's takeover of the port facilities from a British company, "I'll deal with it with a veto"; this from a man who hasn't vetoed one bill in his entire presidency.

Bush did add "(Lawmakers need to) step up and explain why a Middle Eastern company is held to a different standard?.DPW has played by the rules?(UAE) is an ally in the war on terror, and it would send a terrible signal to friends and allies not to let this transaction go through?.I am trying to conduct foreign policy now by saying to the people of the world, 'We'll treat you fairly.'"

I agree with the president, but consultation with Congress was non-existent and the secret panel that reviews foreign transactions was politically tone deaf as well in not apprising the White House of what was coming down the pike.

But totally lost in the furor are the important facts. I have done a ton of work on this topic, including pieces for my "Hott Spotts" column, as well as in this space over the years, and I put a few of them together for this week's installment of "Wall Street History."

Bottom line, I have yet to see a concise explanation of what Americans should really be concerned with.

For starters, DPW, as manager of the ports in questions, is mostly a bookkeeper and facilitator. Manufacturers and shippers want to send their goods to those ports where the merchandise will be handled most efficiently and where rail and truck transportation is readily available. If I'm Sony and I know a port in New York can handle my televisions in two days, and another port on the east coast would take up to five, I'll probably choose New York. Of course if you're shipping foodstuffs, it's even more critical.

Security at U.S. ports, though, is handled by Customs, the Coast Guard and the Dept. of Homeland Security. Most of you after this week now know all of this. But here's what most reports fail to tell you.

The Bush administration is spending $18 billion on securing our airports and $630 million on our ports. I wrote immediately after 9/11 that we had to spend everything?everything?to secure our country. That means soaring deficits, far higher than today's already lofty levels, and some economic pain, but nothing was more important than preventing a catastrophic attack.

Today, there is no doubt airport security is in much better shape than pre-9/11. If I'm a terrorist, knowing that I have to plan acts years in advance and that funds may be limited to one shot at an operation, I'm not going to chance getting on a large commercial airliner in an attempt to hijack it knowing I could easily get stopped at a security checkpoint, let alone not knowing how many air marshals may be on the plane or if I can even get into the cockpit.

[Putting a bomb on the plane via checked luggage or air cargo is a different story?and that's distressing.]

But when it comes to our 350+ port facilities that can accept goods, we are screening only 5% of the cargo containers. For years, experts like Stephen Flynn have been screaming that we must get this up to as close to 100% as possible, as soon as possible. We have the technology, but we need to spend money not just on more screening machines, but, critically, more manpower. Our Customs and Coast Guard services are stretched to the max, let alone the fact the Coast Guard's aging fleet and equipment is laughable.

But until we get to the 100% screening capability, the issue is, how do you know what is being packed in the containers at the source? Customs, post-9/11, is now supposed to receive the manifests from all ships coming to America before they leave foreign ports, and on this operators such as DPW play a role. At worst, we are made aware of what is supposedly on a given tanker a few days outside the U.S. Customs and the Coast Guard then have the ability to board ships offshore, as has already happened on a number of occasions, if the ship has suspicious registry or a poor track record, such as with arms smuggling or drug trafficking.

It's a monumental task. When I was in Singapore two years ago, taking my trip into the Strait of Malacca to check out tanker traffic in that critical part of the world, I picked up a shipping newspaper. Here are some of the more obscure places from which goods are sent to the mammoth port in Singapore, and from which goods can also transit to the United States.

Abidjan (Cote D'Ivoire), Antofagasata (Chile), Apapa (Nigeria), Balingasag / Cagay (Philippines), Bandar Abbas (Iran), Banjarmasin (Indonesia), Batam (Indonesia), Beira (Mozambique), Bintulu (Malaysia), Buenaventura (Colombia), Callao (Peru), Chah-Bahar (Iran), Chittagong (Bangladesh), Cochin (India), Colombo (Sri Lanka), Concepcion Bay (Chile), Cotonou (Benin).

Da-Nang (Vietnam), Dalian (China), Daman (India), Damietta (Egypt), Damman (Saudi Arabia), Dampier (Australia), Dar Es Salaam (Tanzania), Douala (Cameroon), Felixstowe (U.K.), Fos- Sur-Mer (France), Guayaquil (Ecuador), Honiara (Solomon Islands), Inchon (South Korea), Itajai (Brazil), Jambi (Indonesia), Jebel Ali (United Arab Emirates).

Kaohsiung (Taiwan?2nd largest city), Karachi (Pakistan), Khorramshahr (Iran), Koh Sichang (Thailand), Kopervik (Norway), Kota Kinabalu (Malaysia), Kuala Belait (Brunei), La Spezia (Italy), Labuan (Malaysia), Lae (Papua New Guinea), Laem Chabang (Thailand), Latakia (Syria), Lautoka (Fiji), Libreville (Gabon), Lome (Togo), Luanda (Angola), Male (Maldives), Manaus (Brazil), Manzanillo (Panama), Matadi (Zaire), Mombasa (Kenya).

Napier (New Zealand), Nhava Sheva (India), Ningbo (China), Nouakchott (Mauritania), Noumea (New Caledonia), Odessa (Ukraine), Papeete (French Polynesia?Tahiti), Paranagua (Brazil), Pasir Gudang (Malaysia), Piraeus (Greece), Pointe Noire (Congo?yes, it has a port), Port Elizabeth (South Africa), Port Harcourt (Nigeria), Port Moresby (Papua New Guinea), Port Osim (Saudi Arabia), Pusan (South Korea).

Quinhon (Vietnam), Rio Grande (Argentina), Saipan (N. Mariana Islands), Salalah (Oman), Sampit (Indonesia), Savona (Italy), Semarang (Indonesia), Sharjah (UAE), Sokhna (Egypt), Sriracha (Thailand), Taichung (Taiwan), Takoradi (Ghana), Tanga (Tanzania), Tartous (Syria), Tema (Ghana), Tilbury (U.K.), Tincan (Nigeria?hope the ship isn't), Truk (Micronesia), Ulsan (North Korea), Valparaiso (Chile), Victoria (Cameroon), Yangon (Myanmar?i.e., Rangoon / Burma), Yantian (China), Zeebrugge (Belgium).

I got a big kick out of all the congressmen talking about DPW and the dangers that someone could infiltrate one of the ports they would control if the deal goes through, someone with ties to al Qaeda.

For crying out loud, you just need two or three people to blow up the Mall of America, or any chemical plant in this country. On Friday, Saudi Arabia thwarted an attack on its major oil facility. The fear there is that it's an accepted fact al Qaeda has infiltrated some facets of the Saudi petroleum industry, so at what time does it strike with full force?

So looking at the above list, how easy could it be to place three operatives in any one of those ports, fudge the shipping manifest, U.S. Customs receives it, thinks nothing, and it's not one of the 5% of the containers then scanned? There's your problem. Not DP World.

That said, what the U.S. government needs to do is station as many agents as possible around the world, such as it will do in Dubai. Our people are already in many key ports, but to do more requires strong diplomatic relations and it's here where the backlash engendered by the DPW mess will have an impact.

Lastly, as I go to post, I see that former 9/11 Commission co- chair, Thomas Kean, announced he is against the deal. I have a tremendous amount of respect for my former governor here in New Jersey, but you need to know his son is running for the U.S. Senate and has already said he is against DPW as well. In other words, I hesitate to call it a conflict of interests, because of the personalities involved (I'm supporting the son), but weigh it all in forming your own conclusion.

Oil rose on increasing tensions in Nigeria, Iran's intransigence, and then the aforementioned attempt to damage Saudi Arabia's leading oil facility. Crude finished the week back over the $60 level?$62.91.

Nigeria, OPEC's 5th-largest producer, is threatening to implode. Forget the fact the militants in the oil-rich delta forced the shutdown of at least 20% of Nigeria's oil production this week after launching a series of attacks on oil platforms and kidnapping at least nine foreign workers. Nigeria is on the verge of a true civil war, between Christians and Muslims. The latest violence started over the cartoon flap and has blown wide open. An estimated 150 have died in rioting thus far.

As for Saudi Arabia, security forces thwarted a suicide bomb attack, opening up on two cars that sought to break through the first of three lines of defense. Saudi security at its facilities is now so tight, as alluded to above, the only way for al Qaeda to wreak havoc is to have at least a handful of insiders. Friday's attempt, though, still came far too close for comfort, especially considering the targeted site processes 7% of the world's oil.

Meanwhile, there was an interesting story in the Wall Street Journal that individual investors are streaming back into the market with volume way up at discount brokerage firms; by some indicators to the highest levels since early 2000. The reason is growing disenchantment with real estate and bonds, but contrarians know this is a sure sign we're approaching a market top; let alone the geopolitical concerns that need to be at the forefront of every investor's mind.

--Stocks were mixed on the week, with the Dow Jones off 0.5% to 11061, while the S&P 500 and Nasdaq each gained 0.2%.

Bonds rallied early on what was perceived by most to be positive news on the inflation front, a core (ex-food and energy) increase in consumer prices for January of 0.2%. But the gross figure was up 0.7%. The Federal Reserve released its minutes from Jan. 31 and traders seemed split on whether or not there was truly light at the end of the tunnel. By week's end yields were back up, slightly, as the inverted curve now shows a spread between the 2- and 10-year of 15 basis points.

But those dabbling in the high yield and emerging markets sectors were spooked this week by a credit downgrade in Iceland, of all places. Iceland has been attracting investors because interest rates here have doubled in two years to 10.75 percent. Those applying the carry trade (borrowing in low-yielding currencies such as the yen to buy Icelandic paper) were burned when Iceland's currency collapsed on the downgrade. Selling begat selling in other markets.

By the end of the week, though, calm was restored, helped in no small part by news from Latin America, where Brazil and Mexico announced they were buying back large amounts of government debt due to their improving economies. S&P also raised its credit rating on the debt of Colombia, another good sign. But this does not change my overall negative opinion of the continent.

--Last week I mentioned what a casino the Japanese stock market has become and the next day the Sunday New York Times had a piece talking about how much day trading is taking place there? 29% of all volume. That pretty much sums it up.

--The Federal Reserve released a study showing average U.S. household income fell in the 2001-2004 period after adjusting for inflation. Growth in household wealth also slowed sharply, though it rose 6.3%. However, this is far less than the 1998-2001 period. Household debt as a percentage of assets also increased to 15% in 2004 from 12.1% three years earlier.

But where Democrats have a real campaign issue is in the fact the data shows increased wealth inequality, with median wealth dropping for those families in the bottom 40%, and rising for higher-income families.

--The independent report commissioned by Fannie Mae's board on the mortgage-finance giant concludes that Fannie's massive accounting scandal was "motivated by a desire to show stable earnings growth" and hit Wall Street's targets.

The report said Fannie's culture was "arrogant," but while noting former CEO Franklin Raines was "ultimately responsible for the failures that occurred on his watch," it "did not find that [Raines] knew that the company's accounting practices departed from [generally accepted accounting principles] in significant ways." [Wall Street Journal]

Ah, commissioners, you can't have it both ways. As Wall Street cheered the fact the report didn't uncover any further abuses by taking shares in the company up this week, one fact remains. Fannie has no clue what its true derivatives exposure is. That's been my story for years and I'm sticking to it.

--Spain's electricity giant Endesa is the subject of a surprise $35 billion takeover bid from Germany's E.On, but Prime Minister Zapatero has threatened to block it. The proposed acquisition is symptomatic of a wave of cross-border transactions on the continent that are shaking up traditional monopolies and native sensitivities. Long term, though, it's good for Europe.

--Venezuela announced it was prohibiting flights to the country from Continental and Delta, as well as severely limiting flights from American, as part of a long-running dispute with the U.S. Federal Aviation Administration which has refused to lift certain sanctions on Venezuelan carriers due to safety concerns. It's tempting to blow this out of proportion, but let's see where negotiations go next week. The FAA can not compromise on safety, while President Hugo Chavez can claim he is sticking it to Washington.

--After decades of discussion, British Petroleum, ExxonMobil and ConocoPhillips have reached a tentative agreement (pending approval by Alaska's state legislature) to build a $20 billion natural gas pipeline from the north slope to Canada, after which it would be funneled to Chicago for distribution nationwide. But the project wouldn't be completed until 2012-2014 at the earliest.

--Sherwin-Williams, the largest paint retailer, saw its shares plummet 20% on word a Rhode Island court ruled it and others could be liable for lead paint exposure.

--Wal-Mart guided lower on earnings for the full year and, separately, announced it was expanding health care benefits for some classes of employees, including part-time workers.

--You can't make this stuff up?H&R Block having to restate earnings going back to 2004 due to accounting errors. Plus it had software issues that prevented it from servicing 250,000 customers in January. All it needs now is an ad campaign with Bode Miller.

--40% of global imports are from emerging markets and this percentage is growing. [Wall Street Journal] This is good, and the worst thing the United States and Europe could do right now is turn protectionist.

--The showdown between BlackBerry-maker Research in Motion and rival NTP ended in a draw, for now. U.S. District Judge James R. Spencer said he would rule on shutting down BlackBerry service later, as well as how much RIM owes NTP in its long-running patent dispute. NTP claims RIM refuses to negotiate. Spencer could issue a shutdown order any day. BlackBerry's 4.3 million users wait?thumbs at the ready.

--The New York Times' Gretchen Morgenson reported on an interesting case involving a major WorldCom shareholder, Donald L. Sturm, who recently lost a $900 million securities arbitration case against Citigroup, the largest customer suit ever brought against it. Sturm, who acquired a significant WorldCom stake by virtue of his holdings in MFS Communications (acquired by WCOM in the mid-1990s), claimed Salomon Smith Barney analyst Jack Grubman persuaded him to hold onto his shares, some 21.4 million, even as the company spiraled into bankruptcy in 2002.

But Sturm now says his lawyers have learned since the arbitration ruling that one panelist, David H. Drennen, general counsel for an investment firm, Bathgate Capital Partners, failed to disclose that "Mr. Drennen's firm had won underwriting business to take public a company represented by a law firm that had represented Citigroup and other WorldCom-related defendants. It was the biggest underwriting job Bathgate completed in 2005." NASD Arbitrators must disclose all such conflicts of interest beforehand.

--Worldwide gold sales reached $53.6 billion in 2005, according to the World Gold Council. Jewelry accounted for 3/4s of the volume, while India now accounts for 23% of global "consumer" gold purchases in jewelry, medals, bars, and investment funds. The U.S. is next at 12%.

--My portfolio. Volatile time for my carbon fiber play, but the trend has still been up. Otherwise, I remain content with my large cash position.

Lebanon: Secretary of State Condoleezza Rice, continuing to wrack up major frequent flyer miles, paid a surprise visit to Lebanon to encourage the democracy movement here. Rice met with most of the leading political figures except for President Emile Lahoud, Syria's lackey. Rice offered, "We look forward to the day when Lebanon is free from interference and intimidation...it is about time the country knows peace."

But as noted above, the day she arrived, Thursday, saw major protests in Beirut by Shia extremists, including Hizbollah.

And to give you a sense of local sentiment in Lebanon, here is an editorial from the Daily Star, written before it was known Rice would visit the country and prior to the attack on the Golden Mosque in Samarra.

"As U.S. Secretary of State Condoleezza Rice begins her tour of the Middle East today, she will have a firsthand glimpse of a region that has become immersed in turmoil. And the stark realities on the ground - such as the nonstop bloodshed in Iraq, a defiant Iran insisting on its legal right to enrich uranium, and Syrian President Bashar Assad waging an undeclared power struggle against the United States in Iraq and Lebanon - will no doubt complicate her efforts to promote America's objectives in the region. Also in the backdrop will be the anti-Western fury that has been stirred by the publication of offensive caricatures of the Prophet Muhammad, new images of American abuse of Iraqi prisoners at Abu Ghraib and footage of British troops brutally beating Iraqi teenagers. Add to this Israel's recent decision to enact a series of harsh sanctions against the Palestinian people - measures that many view as the equivalent of ethnic cleansing.

"Very few people would want to be in Rice's shoes right now. All of the rubble of American policy over the past decade is at her feet and piling up quickly. The central thrust of the Bush administration policy in the region has been to promote the right of people to live in free and democratic societies. But while promoting democracy and freedom is a worthwhile goal, this policy begins to unravel at the first sign of hypocrisy. How can America be committed to freedom and simultaneously remain quiet about Israel's continued illegal occupation of Palestinian territories? How can the U.S. promote human rights and at the same time allow the torture of Arab prisoners, many of whom have been held in Abu Ghraib and Guantanamo Bay for years without charge or trial? How can Washington support democracy while encouraging Arab states to sanction the democratically elected government of the Palestinian people? Contradictory policies such as these only play into the hands of extremists.

"These are dangerous and unpredictable times in the Middle East, and an imaginative, trusted and capable U.S. secretary of state is needed to help steer the region toward peace and stability. Fortunately, Rice is all of these things. But the secretary of state cannot come to the region and hope to counter turmoil with a policy so full of contradictions."

That's a moderate view for the Middle East, and you see proof of what I warned of long ago. We needed to fight the perfect war, an impossible task. The consequences of Abu Ghraib, for example, will be with us for decades and there's not a whole lot we can do about it at this point.

Philippines: President Gloria Arroyo proclaimed a state of emergency on Friday following the foiling of an alleged coup plot that was to have been carried out by military and civilian leaders. Arroyo declared in a televised address, "The government has crushed this illegal action. As commander-in- chief, I control the situation." But look for massive protests the next few days and the reaction of the soldiers who will be employed to control them.

Much of the tension in the Philippines goes back to the disputed 2004 election, let alone the fact the majority in this country still live in poverty and various militant factions hold sway over parts of the nation. Arroyo has also done nothing during her rule to combat charges of massive corruption, including in the '04 vote.

China: When Pope John Paul II was elevated to the papacy in 1978, it helped set the stage for the fall of communism in Europe. What his successor, Pope Benedict, did this week could have a major impact on the politics of China over the coming years. The pope named Hong Kong Bishop Zen Ze-kiun cardinal. Cardinal Zen has been a champion of democracy and a critic of the mainland.

"The Catholic Church has always advocated that religious figures should not interfere with politics."

Beijing demands the Vatican first sever its ties with Taiwan before re-establishing diplomatic relations. Taiwan has long expected this to be a price paid if the Vatican can negotiate tolerance for Catholics on the mainland. Cardinal Zen could be a sleeper figure over the next decade.

Meanwhile, it's not too soon to think about President Bush's trip to China in April. With the administration's increasingly hard line on trade, China's ongoing missile build-up across the Taiwan Strait, and Beijing's jerking Washington around on the whole North Korean issue, it could be tension city when Bush arrives. Behind the smiles, the mood is likely to be sour.

India: When President Bush visits here this week, the primary discussion will be over the agreement reached last year between the two nations over the transfer of nuclear technology to India. Congress is insisting the split between India's civilian and military nuclear programs be transparent and that inspections be allowed on military facilities. India says 'no' to this. Of course it's an issue used by Iran for its own propaganda; as in 'The West trusts India to have a peaceful program, though it already has a military one; yet at the same time you won't even let Iran have a civilian program.'

But the Washington Post reported on another issue that threatens to take the spotlight during Bush's trip. Gioverdhun Mehta is a prominent scientist; president of the International Council for Science, an adviser to the prime minister, and a man who has made countless trips to the U.S. Now, some faceless bureaucrat has denied Mehta a visa. This is humiliating and while the White House is trying to backtrack quickly, assuring Mehta all will be resolved to his satisfaction, it's one of those stories that has exploded here.

Serbia: Former Bosnian-Serb general Ratko Mladic has been in hiding for 10 years but this week there were a rash of rumors he was negotiating his surrender. Mladic faces trial at The Hague on charges of genocide and war crimes, including the murder of 7,000 at Srebrenica. It speaks volumes about the Balkans and its future that all these years elements of the Serbian government have shielded him.

Thailand: Talk about simmering under the radar, on Friday, Thailand's Prime Minister Thaksin dissolved parliament and called for a snap election on April 2. Thaksin has been the subject of all kinds of stories concerning his family's extensive wealth and conflicts of interest involving his vast business empire. The prime minister told his nation, "I want the people to decide: do you still want to use this government again, or not? I will respect your decision." Massive anti-government protests were slated for this weekend.

Australia: 200 more troops are being committed to the reconstruction effort in Afghanistan, bringing Australia's total force here to 500.

Dow Jones -0.5% [11061]
S&P 500 +0.2% [1289]
S&P MidCap +0.8%
Russell 2000 +0.8%
Nasdaq +0.2% [2287]

Bulls 45.3
Bears 29.5 [Source: Chartcraft / Investors Intelligence?exact same figures as Oct. 18?when the Dow was at 10285 and the S&P 500, 1178.]

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