Educate Yourself

Week in Review
For the week 3/6/2006 - 3/10/2006
Brian Trumbore
President/Editor, StocksandNews.com

"I suspect America will pay a steep price for Congress's rejection of this deal. It sent a message that for all the U.S. rhetoric about free trade and partnerships with allies, America is basically hostile to Arab investment. And it shouldn't be surprising if Arab investors respond in kind. One could blame it all on craven members of Congress, if the opinion polls didn't show that Americans are overwhelmingly against the deal - and suspicious of Muslims in general. Those poll numbers tell us that America hasn't gotten over Sept. 11, 2001. If anything, Iraq has deepened the country's anxiety, introspection and foreboding?.

"President Bush tried to do the right thing on the Dubai ports deal, but he got rolled by a runaway Congress. The collapse of the deal was a measure of Bush's political weakness?.The ironic fact is that the UAE is precisely the kind of Arab ally the United States needs most now. But that clearly didn't matter to an election-year Congress, which responded to the Dubai deal with a frenzy of Muslim-bashing disguised as concern about terrorism. And we wonder why the rest of the world doesn't like us."

"What's especially dangerous here is that we're seeing the re- emergence of the 'national security' protectionists. They were last seen in the late 1980s, when Japan in particular was the target of a political foreign-investment panic. The Japanese were buying Pebble Beach and Rockefeller Center, and so America was soon going to be a colony of Tokyo?.Those fears seem laughable now. But here we go again, with new targets of anxiety.

"Going well beyond Dubai, House Armed Services Chairman Duncan Hunter (R-Calif.) says he wants Congressional oversight of all foreign purchases of 'critical infrastructure.' Mull over that one for a minute. If you think corruption on Capitol Hill is bad now, wait until foreigners need approval from Congress for every multi-billion-dollar investment. The current investment review process was designed by the Reagan Administration to be discreet, and to keep Congress out, precisely to avoid such politicization."

"They spend drunkenly, they fail at oversight and they can't stop the administration from abusing detainees or tapping phones. But never call the members of Congress powerless?.

"Of course, the speed of the announcement (that Dubai Ports World would throw in the towel) illustrates a critical point: that this investment always was a business decision, not the early stages of a covert attack on Baltimore. Quite rightly, the company and its Dubai-based owners - who are stunned, apparently, by the unexpected reaction to what they thought was a routine business deal - didn't want their country's and their company's names dragged through the mud, so they cut their losses?.

"But our brave new Congress has achieved more than the irrational spiking of one business deal. It has also sent a clear message to the Arab world: No matter how far you move along the path of modernization and cooperation, Americans may be unable to distinguish you from al-Qaeda. Dubai welcomes hundreds of ship visits every year from the U.S. Navy and allied ships. It has worked with U.S. agents to stop terrorist financing and nuclear cooperation. But none of that mattered to the craven members of Congress - neither to the Democrats who first sensed a delicious political opportunity nor to the Republicans who then fled in unseemly panic. As to long-term damage to the United States' security, economy and alliances? Not of concern to the great deliberative body.

"No one should underestimate the potential damage. Any government in a Muslim-majority country will have to ask itself: Why take the risk of friendship? If governments find no good answer to that question, the fight against radical Islamic terrorism will suffer. Meanwhile, Arab investors may think twice before putting their money in a country where their companies risk expropriation. With the price of oil so high, Arabs are rapidly becoming a major supplier of foreign capital. This isn't a good moment for Americans to discourage foreign investment, given the nation's dependence on foreign capital (see: Congress, drunken spending by)."

"Surely, his enemies say, this is curtains for Bush. Republicans are fleeing from him, he can't keep his troops in line - and he can't work his will. He's become a lame duck, they say.

"Wrong. Just as with his last serious political miscalculation, Bush has actually been saved by the very forces in his own governing coalition that are opposing him.

"When the president foolishly nominated the clearly unqualified Harriet Miers for the Supreme Court, conservative intellectuals and pundits were so relentlessly negative that they forced him to withdraw Miers' name and appoint Samuel Alito in her place. That move simultaneously helped reenergize and calm a key part of the Bush coalition.

"Republicans in Congress did Bush an even bigger favor. The president may have been right on the economic and foreign- policy merits of allowing the government-owned Dubai Ports World to manage stevedore operations inside the United States. But he was clearly wrong when it came not only to the politics of the deal, but also to its symbolic significance in the midst of the War on Terror.

"The politics part is simple: No Republican running for re- election in 2006 was going to hand a challenger a stick the size of the Space Needle to bash him over the head with. And there could have been no easier or juicier Space Needle than 'My esteemed opponent voted to give an Arab country that has supported terrorism control of our ports.'?.

"(In) handing the president his hat, his party did him a service. Republicans have made certain that a few months from now most Americans will barely remember the whole business, which really did threaten the continued viability of his presidency.

"More important, the public reaction to the ports deal indicates that the American people are still very much committed to the War on Terror. They understand that Arab nations of the Persian Gulf cannot be and should not be deemed reliable colleagues in our struggle against militant, extremist Islam.

"I have no doubt that Dubai has given us some assistance in pursuing al Qaeda. But it is still a cowardly emirate that will not do or say anything publicly to advance the fight against bin Ladenism, and while it may not be an enemy, it is neither a friend nor an ally."

So there you have both sides. It shouldn't surprise you that I have been a supporter of DPW. If you've glanced at my "Hott Spotts" column the past few months you've noticed I posted some speeches from moderate leaders of the Islamic world, my own small attempt to promote a more realistic dialogue.

But here I sit in a dwindling minority in America. To say I'm depressed about the future is an understatement, and it doesn't help that over these next three critical years we have a president who is floundering on all counts; a man who doesn't even have the guts to shake up his staff, many of whom have failed him miserably.

The collapse of the Dubai Ports World transaction is a foreign policy disaster. Americans may have short memories and attention spans, but if you've learned nothing else these past few years it's that folks in the Middle East, both friend and foe, don't.

The question is always asked in opinion surveys, "Is the country headed in the right or wrong direction?" Unequivocally I would answer the 'wrong' one, but not for the reasons most people would give these days. Not because of the economy and our massive deficits (though of course this worries me too), nor because of globalization and job insecurity, but rather because our nation seems incapable of taking a pragmatic approach when looking at the world outside our borders.

We do not live in a "one size fits all world," no matter how much those on the far right and left would have you believe. And unless we can accept the fact that not all Muslims are like Mahmoud Ahmadinejad and Zarqawi, and encourage those moderates who seek many of the simple things in life we do, we're doomed.

Tehran's nuclear program has been referred to the UN Security Council and the issue becomes will Iran be given a deadline to stop enriching uranium. The rhetoric is heating up.

Vice President Dick Cheney warned the "international community is prepared to impose meaningful consequences," while Secretary of State Condoleezza Rice reiterated her line that Iran is the "central banker for terrorism."

But Russia, with its veto in the Security Council, is already on record as saying sanctions don't work and that Iran should still be allowed to make small quantities of nuclear fuel on its own soil, which is in direct conflict with the U.S. and Europe; while the International Atomic Energy Agency's Mohamed ElBaradei is also in the appeasement camp.

For its part, Iran's top nuclear negotiator, Ali Larijani, warned that if Iran was referred to the Security Council, "We will not accept suspension of our research program." Iranian President Ahmadinejad added:

"Some powers have become accustomed to giving orders that others obey, but they must realize that today is the time of the sovereignty of nations.

"If they think they can block Iran's progress by making political threats, they are mistaken. They must realize that the Iranian nation has chosen its path consciously and will continue on this path with strength." [Tehran Times]

According to an ABC News / Washington Post poll, 52% say the U.S. should begin withdrawing forces from Iraq. And three years into the war, it would appear we are still re-fighting the consequences of those first few critical weeks and months.

Former House Speaker Newt Gingrich, in an op-ed for the Washington Post, offered that the big mistake was in disbanding the Iraqi army and went on to defend Secretary of Defense Donald Rumsfeld.

"There is no evidence that more troops would have accomplished anything more than what was accomplished in Afghanistan?. Additional troops weren't sent (because) we did not want to create an even bigger footprint leading to greater alienation and hostility on the part of the Iraqi people."

I love how some of my fellow conservatives can't face facts, like how we didn't secure the ammo dumps, for starters; an error that is directly attributable to the loss of hundreds of American lives, let alone thousands of Iraqis.

And you still have right-wing commentators like Ralph Peters who this week wrote in the New York Post, "The media may cling to its image of earlier failures, but last week was a great Iraqi success."

But while Rumsfeld and Co. argue there is no civil war in Iraq, U.S. Ambassador Khalilzad concedes we are on the brink of one.

Here's the bottom line. We're approaching three months since the election and we still have no government. But eventually a new parliament will be called into session, possibly March 19, which would then set in motion a 60-day period in which the heads of state and a cabinet must be selected. This will also represent the turning over of the final hourglass. Iraq gets one more chance?or the United States will be forced to leave, mission not accomplished.

While U.S. equity markets may have sent mixed signals this week, two global trends began to dominate conversation; rising interest rates and potential cracks in emerging markets.

As expected, the Bank of Japan began to put an end to its super- easy monetary policy, though it added interest rates will stay near zero in the short-term in order to make sure the economy's recovery is for real. This sounds innocuous enough, but the BOJ and Prime Minister Koizumi are still at odds over whether or not even this announcement and the coming end of 0% short-term rates could kill the economy.

With the end of free money here, the issue is will Japanese investors who have gone overseas for higher returns reverse course? At the same time, will investors playing Japan's equity market, 50% of whom trade on margin, be forced to pull in their horns due to higher costs?

Again, BOJ's announcement may not seem like much, just as some argue that a 4.5% federal funds rate in the United States is still low, historically. But it's the rate of change that some find unsettling, such as in going from 1% to 4.5% and beyond. Percentage wise it's a big move and so it will be, too, if the Bank of Japan sees fit to move later on this year. Perception and sentiment are as important in shaping asset values as any hard data.

And along the lines of the above this week we began to see cracks in the emerging markets which have performed so spectacularly in recent years. It was in 1997-98 that this sector last cratered and the potential for a debacle today is exacerbated by geopolitical tensions that weren't in existence back then, as well as the soaring debt levels around the world. In Latin America, for example, stocks had their worst day on Tuesday in almost two years and in the Far East one can't ignore the recent political turmoil in the Philippines and Thailand.

But in the Middle East, stocks have been correcting since around the first of the year, with markets in Saudi Arabia and the United Arab Emirates off 15-35% from their highs, to cite two of the more extreme examples. Yet price / earnings multiples in Saudi Arabia remain in the 40s.

Noted market historian Edward Chancellor wrote of the Middle East phenomenon in an op-ed for the Wall Street Journal. His forecast isn't pretty.

"There are several implications of the coming Arab crash. Speculative booms lead to capital being misallocated. Many of today's investments in the Gulf region may appear, in retrospect, as extravagant as U.S. fiber-optic expenditures in the late 1990s. As for Dubai's desire to become an international financial center, it is spookily reminiscent of Tokyo's ambition to rival New York and London in the 1980s. Japan's ambition was shattered by the collapse of its bubble economy.

"The political consequences couldn't be more serious. Arab rulers have deliberately encouraged the boom in the hope that rising asset prices and a strong economy would distract their youthful populations from religious fundamentalism. This strategy could backfire. History teaches that when speculative bubbles burst and the public loses large sums, there is normally a political backlash. This was true of the U.S. in the 1930s, and to a lesser extent in the early 2000s, and of Japan in the 1990s. It's not hard to imagine Islamists capitalizing on a future bust with denunciations of stock market gambling. Some of today's young Arab day-traders could well turn into tomorrow's al Qaeda recruits."

--The major averages finished mixed on the week, with the Dow Jones up 0.5% to 11076, the fourth straight weekly close over 11000, while the S&P 500 lost 0.4% and Nasdaq finished down 1.8% to 2262. Earnings season is largely over and soon we'll be in the pre-announcement mode for first quarter results. If the economy is doing as well as many say it is, then one would expect to see a fair amount of companies guide higher.

The yield curve flattened, but the 10-year Treasury at one point hit 4.80%, close to the June 2004 high of 4.88%. A 30-year fixed mortgage is now 6.40%, still far from terrible when compared to historical norms but a rate that nonetheless will begin to negatively impact home buying. And according to a Los Angeles Times / Bloomberg poll, more than one-quarter of those with an adjustable-rate mortgage say they aren't sure they'll be able to make their monthly payments if their interest rate goes up. [Tom Petruno and Kathy M. Kristof / L.A. Times]

Meanwhile, Friday's jobs report for February, up 243,000 on non-farm payrolls, had little impact in the bond pits, while the government reported another record trade deficit for the month of January, $68.5 billion, as the gap with China reached $17.9 billion, thus fueling more protectionist talk from the likes of Senators Graham and Schumer who seek a 27.5% tariff on Chinese goods unless the communists mend their ways, including floating the currency.

But on the issue of foreign buying of U.S. securities, which has helped keep interest rates low while masking the impact of the deficits, Federal Reserve Bank of New York President Timothy Geithner warned that today's environment contributes "to a false sense of reassurance" that the deficits won't "crowd out" private investment and hurt growth. The real result being that private investors "raise leverage" and take on more risk. [Greg Ip / Wall Street Journal]

--Back in 1984, Ma Bell was broken up and if it seems as though recent moves point to a resurrection for the old giant of telecom, you wouldn't be far off in thinking so. This week AT&T (SBC Communications) acquired another Baby Bell, BellSouth, in a move that creates a colossus with $130 billion in assets and a dominant position in 22 states. Coupled with ownership of Cingular, the largest U.S. cellphone company, the re-transformed AT&T is going full bore after the cable, wireless, conventional phone and telecom equipment businesses. For consumers the jury is out and it will be a while before a verdict on this new era is rendered. Some say the consumer will pay more but there is hope in the bundling of services.

--After rallying the past few weeks back above $63, oil fell back below $60 ($59.96) on the heels of further inventory gains. Inventories for crude now stand at their highest level since May 1999 and to many it makes zero sense that oil remains so high, even with a significant terror premium. You can talk all you want about tight supply and declining production out of some major fields, but the numbers speak otherwise. So while Saudi Arabia, Kuwait and the UAE have the only available spare capacity in OPEC, and as #2 and #3 Venezuela and Iran can't maintain old production levels due to depleting fields and lack of investment, again, you look at today's sky-high inventory levels, not just with crude but other products, and it's easy to see why some just shake their heads.

I'm going to attempt to break it all down next week. I feel like I need to take a long drive, burn off some fuel, and sort through a few things in my own mind. After all, I'd love the price of crude and energy stocks to continue to correct as they have since the end of January. I missed most of 2005's spectacular advance and I want another chance. Patient investors should be rewarded?.or so I'd like to believe.

--As alluded to above in the discussion of Dubai Ports World and China, protectionism is simmering worldwide these days and this could spell big trouble for global markets. For example, Spain is fighting to defend the nation's largest power company, Endesa SA, from a takeover by German utility E.On AG. "Every nation tries to protect industries it considers strategic," said Spain's industry minister. [Bloomberg News] And last week France put together a merger of two French utilities, Gaz de France SA and Suez SA to prevent a takeover by Italy's Enel SpA.

--As for direct investment in the United States by Arab countries, at the end of 2004 it was just $4 billion, according to Commerce Department data. And as Paul Blustein of the Washington Post pointed out:

"British investors, by contrast, held $252 billion, Japanese investors held $177 billion, Dutch investors held $167 billion and German investors held $163 billion. Their holdings span industries often deemed 'critical,' such as telecommunications (Finland's Nokia Corp. and Sweden's Ericsson Inc.), energy (British Petroleum PLC and Royal Dutch Shell PLC) and utilities (E.On AG of Germany, which controls much of the gas and electricity and electricity distribution in Kentucky)?.

"To be sure, most of the money flowing into the United States comes in the form of Treasury bonds and other financial assets rather than corporate acquisitions. Foreigners held roughly $9 trillion of U.S. financial assets at the end of 2004?.Middle Eastern oil exporters held a modest percentage of that, including about $121 billion in U.S. government securities, the data show.

"But the oil revenue flooding into the Mideast means that the region's financial strength is rising apace. The cumulative trade surplus of Middle Eastern oil exporters, which was $500 billion from 2000 to 2005, will come close to $800 billion by year-end," (economist Brad) Setser wrote recently.

" 'Which is just to say,' he added, 'that there are a lot more Dubai Ports Worlds out there.'"

--From 1982 to 2004, "U.S. corporations earned an annual average return of 7.6% from their foreign subsidiaries - much higher than the 2.2% that foreign multinationals received from their operations in the USA, according to a Congressional Budget Office study." [David Lynch / USA Today]

--Foreign visitors spent $104.8 billion in the U.S. in 2005, up 12% from '04. But the actual number of tourists is still below the 2000 peak and with spreading anti-Americanism the trend will continue to be down on this count.

--In another real estate tidbit, Josh P. tells me home sales are down sharply in the San Diego market, including the once super hot condo sector, with residential real estate of all kinds selling below list price about 5% on average. It's not a crash, but the peak is in. And I just saw a story that after growing at an annual rate of 30% to 40% from 2002 to the middle of 2005, home- equity loans have leveled off?actually down a bit since August. [Wall Street Journal]

--But what's this? The housing market in London is rebounding after a welcome slowdown in much of 2005. Should this trend continue, though, it will put pressure on the Bank of England to raise interest rates, unless consumer spending and the overall economy slow in coming months.

--Former Enron CFO Andrew Fastow told a jury in the trial of Ken Lay and Jeffrey Skilling that Skilling told him to use the off- the-books partnerships that Fastow had devised to "give me all the juice you can" on earnings. But later under cross- examination, Fastow admitted there was no documentation proving Skilling's involvement, leaving it a he-said, he-said proposition for the jury to digest.

--General Motors is freezing accrued pension benefits for 42,000 salaried workers hired before 2001; with the others moving exclusively to defined-contribution plans (401Ks). Separately, talks continue between GM, Delphi and the United Autoworkers in an attempt to avert a crippling strike. One potential provision in a settlement would involve giving Delphi workers lump sums of $25,000 to $50,000 in return for accepting drastically lower wages and benefits?..not exactly hitting the lottery.

--Google has been in the news for all the wrong reasons recently and this week started with an admission from the company that it used 'internal use only' slides during an analyst presentation last week when it forecast $9.5 billion in advertising revenues for 2006. Google has a policy of not providing forecasts and in a filing to the SEC it stated the figure should not be construed as actual guidance. But analysts already had what they needed? sales growth would slow dramatically from 92% in 2005 to 58% this year.

And then you had the burgeoning issue of click fraud. Google settled a class-action lawsuit for $90 million in legal fees and credits on behalf of a small collectibles retailer, representing others, that alleges Google and other search companies improperly charged it for fraudulent clicks. 97% of Google's revenues are generated through pay-per-click advertising so this remains a huge issue for both it and the industry. Some analysts believe click fraud costs Web advertisers over $1 billion annually.

--Using data from a Federal Reserve study, Neil Irwin of the Washington Post writes:

"It has about $3,800 in the bank. No one has a retirement account, and the neighbors who do only have about $35,000 in theirs. Mutual funds? Stocks? Bonds? Nope. The house is worth $160,000, but the family owes $95,000 on it to the bank. The breadwinners make more than $43,000 a year but can't manage to pay off a $2,200 credit card balance."

--Meanwhile, Forbes magazine has identified a record 793 billionaires around the world these days. Bill Gates remains the richest with a net worth of $50 billion.

--And speaking of wealth, Norway's richest man, John Fredriksen (#114 on the Forbes list), acquired Chile's second- largest salmon producer for $1.6 billion, thus making him the world's biggest fish farmer. Just thought I'd give you something to wow your friends with at the next cocktail party. Then again, they may flee to the other side of the room so pick your spot wisely.

"Barnaby, ahem?ahem?, the money spent on your kitchen is indeed quite impressive, but did you know the world's biggest fish farmer??.."

--Hewlett-Packard is facing a shareholder suit over former CEO Carly Fiorina's severance package, reported to be $21.4 million but which could be worth up to $42 million.

--A small piece of good news for President Bush was contained in an ABC News / Washington Post survey. The percentage of those feeling the economy is good has risen to 43% from 35% four months ago.

--If you are buying a diamond for your significant other, or you're a rap artist who wants to ruin a perfectly good tooth by implanting one in your mouth, understand that there is a scandal in the industry when it comes to grading them. The Gemological Institute of America has been suspending appraisers that the organization has discovered accepted bribes in return for higher marks. [Wall Street Journal]

--The Justice Department has latched onto an old investigation involving the FCC and auctions for cellphone spectrums from 1995-2000, filing a civil suit against money manager Mario Gabelli for allegedly scheming to deceive the FCC. Gabelli backed minority interests who were able to purchase the spectrums and then turned around and sold them for huge gains, even though the investors' lack of experience went against the spirit of the rules. It's a hard case to describe but the bottom line is Gabelli is well-known on Wall Street and basically despised by all. No tears will be shed should the government wrestle some $200 million back from him, as is the goal of the suit.

--Pearson's Penguin Press imprint is ponying up a reported $8.5 million for Alan Greenspan's memoirs. I'm thinking I'd rather buy a case of premium lager than pick this one up.

--Gillette's new Fusion five-blade razor is grabbing 55% of new razor purchases four weeks after launch, thereby proving P.T. Barnum's adage that "there's a sucker born every minute."

--Note to the bosses of America. This coming Thursday and Friday, your charges are going to appear to be working intently after noon, Eastern Time. Just understand they're really watching the NCAA tournament, courtesy of CBS which will be broadcasting it free online. If you're smart you'll let it slide, maybe even encourage it in the name of building up morale. Just extract extra hours from them the following week. [Management advice ?another free feature of StocksandNews.]

--Finally, I saw this note too late to include last time but it involves Pfizer suing Procter & Gamble, with Pfizer saying P&G falsely advertised its Crest Pro Health mouthwash to gain an unfair advantage over Pfizer's Listerine. From the AP:

"Pfizer said in the lawsuit that P&G falsely claims four out of five dentists recommend Crest Pro Health for reasons related to the product's efficacy, superiority or other characteristics. Yet, it added, P&G 'has no substantiation for either claim and neither statement is true.'?

"Pfizer (also) said P&G has tried to circumvent a requirement that it obtain substantiation for the claim about dentists by saying the dentists 'would recommend' Crest Pro Health rather than that they do.

" 'But P&G's carefully crafted wording and visuals do not provide P&G with legal immunity for the false and misleading nature of its commercials,' the lawsuit said."

Boy, I may be the only one ticked off at something like this, but I hope Pfizer cleans up.

Israel: Acting Prime Minister Ehud Olmert has set a goal of establishing final borders by 2010, but Hamas' political leader, Khaled Meshall, said "Israel's unilateral disengagement from the Palestinian territories is a declaration of war against the Palestinian people." [Agence France Presse] For his part, Olmert warned that Hamas' prime minister-designate Ismail Haniyah is a "marked man" should there be a single terrorist attack against Israel. The Israeli election is March 28 and while the Kadima Party is slipping, it maintains a sizable lead over both Likud and Labor.

North Korea: Pyongyang fired a few short-range bottle rockets to stir things up, while prospects for a renewal of six-party talks are virtually nil.

Pakistan / Afghanistan: These two had a very public spat, with Presidents Karzai and Musharraf blaming each other for the failure to crack down on terrorists. Karzai said Musharraf wasn't doing enough to go after Taliban using Pakistani territory as a safe haven. But Musharraf countered, "I feel there is a very deliberate attempt to malign Pakistan by some agents, and President Karzai is totally oblivious to what is happening in his own country." Coincidentally, perhaps, Musharraf launched a large-scale operation in Waziristan; one in which at least 125 Taliban were reportedly killed.

China: The U.S. State Department's annual report on human rights in China said repression worsened in 2005, with a trend toward "increased harassment, detention, and imprisonment" of people seen as threats to the Chinese government.

But China struck back in denouncing the U.S. The State Council, China's cabinet, said "For a long time, the life and security of the people of the United States has not been under efficient protection?.As in previous years, the State Department pointed the finger at human rights situations in more than 190 countries and regions, including China, but kept silent on the serious violations of human rights in the United States?.(It is) an act that fully exposes its hypocrisy and double standards on human rights issues." [South China Morning Post]

But over on Taiwan, its military issued a report on the threat posed by the People's Liberation Army. Defense officials offered up satellite photos as proof China has now deployed 784 ballistic missiles capable of reaching the island, while the following conclusion from Taiwan's defense officials may look familiar as I've been writing of this scenario for years.

"(Beijing) would be able to launch five rounds of (missile) attacks for 10 consecutive hours at our airports' runways, electricity generation facilities and military, as well as civilian logistic units," according to the head of the military intelligence center, thus decapitating the regime.

Separately, a leader of China's Catholic Church (which means he ministers at the pleasure of the communists) warned that the Vatican's appointment of Hong Kong Bishop Joseph Zen to become cardinal was like the toppling of communism in Poland when John Paul II became Pope.

"Why would you appoint someone who doesn't support communism as a cardinal? Is it like Poland??.China's socialist system comes from God. We should all protect it and obey it. This is what the Bible tells us to do." [AP]

Guess I better pick up my own Bible to refresh my memory. I seem to have missed this.

Russia: In an opinion piece for the Washington Post, Anne Applebaum makes the following observation about Russia and the upcoming G-8 summit.

"(By) going to St. Petersburg, President Bush, Prime Minister Tony Blair, President Jacques Chirac, and the leaders of Italy, Germany, Canada and Japan will in effect place their stamp of approval on the removal of political rights, the harassment of independent groups, the renationalization of energy and the censorship of media that Putin has imposed on his country since he took over from Yeltsin six years ago. They will also give their blessing to Putin's use of gas pipelines to threaten Ukraine, and to his ambiguous role in Iranian nuclear and Middle East peace negotiations. And after Bush goes home, the denizens of the Kremlin - along with Venezuelans, Iranians, Arab leaders and others around the world - will sit back, laugh and agree that the leaders of the so-called West merely pay lip service to the ideals of freedom and democracy; they don't really believe in them. If you have enough oil, they'll let you into their clubs anyway. The long-term result: The American president's ability to speak credibly about democracy and political freedom will be irreparably damaged."

Lebanon: Just two years ago, Druze leader Walid Jumblatt harshly criticized U.S. policies in the region, but this week he was in Washington asking for support in removing Syrian influence from his country.

"It took me a long political trip to come to the U.S. and ask for help against the (Syrian) dictator," he said, adding that if the U.S. fails in Lebanon, the Bush administration's hopes for democracy in the Middle East are doomed "and we'll go back to dictatorships."

But while Jumblatt was in Washington, he was also the cause for a break-up in Lebanon's national dialogue, which was taking place in Beirut, because of his call to disarm Hizbullah, as well as his comments on pro-Syrian President Emile Lahoud.

Kuwait: There are some positive developments in the region. From an editorial in Lebanon's Daily Star:

"On Monday, Kuwait's press, which was already seen as one of the freest in the Arab world, became even freer. The Kuwaiti Parliament passed a new press law that prevents the government from suspending newspapers and allows new newspapers to obtain licenses for the first time in three decades. While critics have said that the new law does not go far enough to protect freedom of expression - journalists can still be jailed or fined for religious offenses, for example - it nonetheless marks an important step in the country's reform process?

"It is also worth noting that the Gulf States' steps toward political liberalization are not an attempt to either emulate the West or to succumb to Western demands for democratization. The need for political reform stems from within these societies as they develop economically. Fortunately for Kuwaitis and Emiratis, their leaders have chosen to respond to these needs as they arise by allowing the rights of citizens to blossom alongside their flourishing economies."

Japan: My hoped for alliance of the U.S., U.K., Australia, India and Japan took another step towards fruition (this is a long-term project I readily note) when the U.S. used Japanese technology in its latest test of the missile defense system. Japan was responsible for a new nosecone and it was successful, as far as I could determine.

Dow Jones +0.5% [11076]
S&P 500 -0.4% [1281]
S&P MidCap -1.9%
Russell 2000 -1.6%
Nasdaq -1.8% [2262]

Bulls 42.7
Bears 31.3 [Source: Chartcraft / Investors Intelligence?. Reminder, this is a contrarian indicator and the bear reading is the highest since April 2003, which was just weeks after the market bottomed?for you bulls out there.]

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