Educate Yourself

Week in Review
For the week 3/13/2006 - 3/17/2006
Brian Trumbore
President/Editor, StocksandNews.com

Much has been made of the latest White House survey on national security, mandated by Congress, but some of the accounts aren't painting an accurate picture.

Under the topic "Prevent Our Enemies from Threatening Us, Our Allies, and Our Friends with Weapons of Mass Destruction":

"To forestall or prevent such hostile acts by our adversaries, the United States will, if necessary, act preemptively in exercising our inherent right of self-defense. The United States will not resort to force in all cases to preempt emerging threats. Our preference is that nonmilitary actions succeed. And no country should ever use preemption as a pretext for aggression.

"Countering proliferation of WMD requires a comprehensive strategy involving strengthened nonproliferation efforts to deny these weapons of terror and related expertise to those seeking them; proactive counterproliferation efforts to defend against and defeat WMD and missile threats before they are unleashed; and improved protection to mitigate the consequences of WMD use. We aim to convince our adversaries that they cannot achieve their goals with WMD, and thus deter and dissuade them from attempting to use or even acquire these weapons in the first place."

The change in policy from the last report, 2002, may be slight but it's significant and nowhere near as hardline as some are presenting it.

Back on 6/28/03 in this space, I quoted George Will, who weighed in on the search for weapons of mass destruction in Iraq, three months into the conflict.

"Americans seem sanguine about the failure - so far - to validate the war's premise about the threat posed by Hussein's WMD, but a long-term failure would unravel much of this President's policy and rhetoric."

"We may face no greater challenge from a single country than from Iran. For almost 20 years, the Iranian regime hid many of its key nuclear efforts from the international community. Yet the regime continues to claim that it does not seek to develop nuclear weapons. The Iranian regime's true intentions are clearly revealed by the regime's refusal to negotiate in good faith; its refusal to come into compliance with its international obligations by providing the IAEA access to nuclear sites and resolving troubling questions; and the aggregate statements of its President calling for Israel to 'be wiped off the face of the earth.' The United States has joined with our EU partners and Russia to pressure Iran to meet its international obligations and provide objective guarantees that its nuclear program is only for peaceful purposes. This diplomatic effort must succeed if confrontation is to be avoided."

A far cry from the pre-Iraq bombast; rhetoric which I supported 100% in all fairness. Our credibility is shot and the last thing the Bush administration wants is military confrontation.

"(We) will continue to take all necessary measures to protect our national and economic security against the adverse effects of their bad conduct. The problems lie with the illicit behavior and dangerous ambition of the Iranian regime, not the legitimate aspirations and interests of the Iranian people. Our strategy is to block the threats posed by the regime while expanding our engagement and outreach to the people the regime is oppressing."

So the United States seeks regime change, as all supporters of a saner world do, but British Foreign Secretary Jack Straw argued this could only occur from within. In the meantime, the brain drain continues in both Iran and Iraq and it's hard to see how a mass uprising can take place to replace the mullahs.

"The Supreme Leader (Ayatollah Ali Khamenei) noted that the U.S. administration thinks it can realize its global goals through the use of weapons or money. 'But they will never succeed, just as they didn't in the Middle East, particularly in Iraq, Afghanistan, Lebanon, Syria, and Palestine.'"

"What 'known knowns' could justify regime change in the eyes of the international community?

"Well, there is Tehran's desire to wipe Israel off the map 'like a stain of shame on Islam's purity,' to quote President Mahmoud Ahmadinejad. Next week, Tehran will host a vast gathering of 'rejectionists,' including leaders of Hamas, the winner of the recent Palestinian elections. On the agenda is 'an Islamic strategy to destroy the Jewish state and recover Palestine.' The terror jamboree includes a seminar with more than 100 'scholars' from 40 countries to prove that 'the Holocaust is a Jewish fabrication to generate sympathy for Israel,' to quote Ayatollah Mesbah Yazdi, the regime's rising ideological star.

"The 'international community' may dismiss all that as also 'no business of ours,' since the only target appears to be Israel. But then what about what the Islamic Republic is doing in Iraq and Afghanistan, to mention just two examples of Tehran's attempt at exporting its Khomeinist ideology?"

"We will not bend to a few countries' threats as their demands for giving up our nation's rights are unfair and cruel. We know well that a country's backing down one iota on its undeniable rights is the same as losing everything."

I was reading a ridiculous op-ed in the International Herald Tribune, wherein the author said according to U.S. experts Tehran is a decade away from having a nuclear weapon. I pray those sentiments aren't widespread. They don't appear to be in the White House and they certainly aren't in Israel.

But for now it's all in the hands of the UN Security Council. We are victims of our past and shoddy intelligence, as George Will foresaw. And for its part Iran continues to brilliantly play its version of the four corners offense, stalling for time and icing the opposition.

This week President Bush touted U.S. success in training Iraqi forces, though he admitted the police and security units had been infiltrated. Later we learned just how close to disaster we came.

"As car bomb attacks and suicide bombers creep ever closer to the heavily fortified Green Zone?Iraqi insurgents are testing the security of the country's seat of power in preparation for a large- scale assault, U.S. military sources said."

Thankfully, the coalition was on the ball as we learned a plot to attack the U.S. and British embassies in the Green Zone was foiled. Iraqi Interior Ministry officials were implicated. I wrote back on 1/28, "one catastrophic attack in the Green Zone could represent the final tipping point in maintaining our forces there at significant levels." Sources say we were very close to this happening. After all, the latest NBC / Wall Street Journal poll showed 61% disapprove of the president's handling of Iraq and the same number want the United States to reduce its troop levels.

But at least the Iraqi Parliament finally met?for all of thirty minutes. Simply stirring. And since I was blasting General Tommy Franks when it wasn't cool to do so, I have to note the comments this week of New York Times columnist David Brooks concerning the first few weeks of the Iraq war back in March 2003 when the administration, and Franks, put their blinders on.

"The week of March 24 ('03) is vital because if Rumsfeld had made adjustments to the new circumstances then, much of the subsequent horror could have been averted.

"But it is also a reminder of the reality one sees again and again: Debate inside any administration is less sophisticated and realistic than the debate among experts outside. The people inside have access to a bit more information. But they are more likely to self-censor for fear of endangering their careers. Debate inside is much more likely to be warped by the egotism, insecurity, power lust and distracting busyness of people at the top.

"That's true in general, and it's true in spades in Donald Rumsfeld's Pentagon. (The book) 'Cobra II' makes Rumsfeld and Franks each seem like Barry Bonds: a formerly intimidating figure who now just seems pathetic. Those two were contemptuous of the armchair generals and the TV kibitzers. But at the crucial moment in their lives, they got things wrong, and the pundits often got things right."

"Three years after the beginning of the war in Iraq, what have we accomplished? The honest fact is that we don't yet know the answer to this question - and because we don't know, the war remains unpopular.

"For example, we don't know yet whether the war we're fighting against al Qaeda in Iraq has made the United States safer because we've tied down terrorist assets and distracted terrorist attention from the homeland. This was not the purpose of the war at the outset, but world-changing conflicts take twists and turns no one can foresee.

"What we do know is that 4 ? years have passed since 9/11, and we have not been hit again. To be sure, others have - Spain and Britain and Indonesia most evilly. But we have not. Is the war in Iraq part of the reason? The question will have an answer - not now, but eventually."

"Call your broker, sell your real estate, buy stocks!"
--Jim Cramer, "Today" show, 3/17/06

Forget that this same man was down in the dumps on stocks just this past Monday. That's Manic Jim for you.

But to be fair, there was a lot to like this week. The consumer price index was tame, with the core rate (ex-food and energy) up just 2.1% year-over-year. The Federal Reserve's regional survey of economic activity (the Beige Book) showed the economy to be growing at a modest pace with inflation contained. Retail sales for February were down, which was good after a super hot, weather induced surge in January (meaning the Fed has less pressure to keep hiking interest rates), and housing starts for February, while off 7.9%, were actually better than expected. Plus wages are finally growing, but even here not yet fast enough to worry the Fed, or so we're told.

Yes, if you haven't figured it out after all these years, I'm a victim in bull markets of focusing too much on geopolitical events. It can be perfectly sunny, but I'll find that little cumulous cloud that may contain enough rain to ruin the best of parades. It's a philosophy that's actually helped me hold onto my cash, even if at times it's perhaps "too rational." But especially today, until I see clarity on rather important issues such as Iran and Iraq, let alone North Korea and the war on terror in general, you'll never convince me the best course is to throw caution to the wind and have 80% of your money in stocks.

But there's something else on my mind this week, and it has to do with the growing inequality, not just between the upper and lower classes in America, but around the world. For example, David Pilling wrote in the Financial Times this week:

"During Japan's heady bubble, when land prices could only go up and sprinkled gold was a culinary imperative, a full three- quarters of the population considered themselves middle class. Now, a Nikkei survey says, only 54 percent feel that way - and a once-unthinkable 37 percent classify themselves as lower class.

"The country that last week officially emerged from a decade of deflation is not the same one that entered its prolonged economic crisis in 1990."

I was rather shocked by this. And before you go off saying, "Goodness gracious, editor, are you going liberal?or worse? Democrat on us?" fret not.

But I couldn't help but draw some conclusions after reading of the likes of Goldman Sachs, which reported the largest quarterly profit in the history of Wall Street and sees the outlook as being as "favorable" as it's ever been. Goldman earned $2.48 billion for the three months ending 2/24 and while there are easily identifiable reasons for the success that the average investor can espy, chiefly the surge in mergers and acquisition activity across the globe, there was another reason?Goldman Sachs is reaping huge profits gambling with its own capital. The "Black Box" is working, but I would remind you the last time we heard this term so prominently was before Long-Term Capital Management went under, almost taking the rest of us with them.

Don't worry. It can't possibly happen again (he smirked), but look at some other trends.

Just this week I read of $2 billion being raised for a hedge fund by two former senior executives at Morgan Stanley, $6 billion (raised recently) by former Harvard endowment chief John Meyer for his new fund, and $10 billion for a new venture fund run by Bain Capital. In all, hedge funds are expected to bring in $150 billion in new money this year, on top of $134 billion in 2005.

There's nothing wrong with this on the surface, but it's just further evidence of the mammoth amounts of money being made at the top, and the massive liquidity in markets across the globe.

At the same time, while Wall Street and corporate executives with $185 million paydays (see the CEO of NorthFork Bancorp, recently acquired by Capital One) play, our government is taking on debt like there really is no tomorrow?i.e, spend it now before Armageddon.

How else can you rationalize the fact the Republican-controlled Senate just approved a $2.8 trillion budget outline (details to be wrangled out later) that included spending of $11 billion ($16 billion by another calculation) more than the president recommended? And Congress raised the national debt ceiling this week to $9 trillion.

I last raised the issue of the interest on this national debt back on 2/11/06 because it continually amazes me no one seems to care. It's the single biggest item in the federal budget that should jump out at all of you.

So this week George Will brought it up and my old Wall Street friend Mark R. and I were discussing the topic. I mean for crying out loud, the interest on the debt is $220 billion, 8 cents on the dollar, and heading to $300 billion in short order, or 10 cents at that point. And yet we bitch and moan if a pet program is eliminated that costs $1 billion.

And then there's the current account deficit, the broadest measure of the flow of goods and services plus business investment. It's now a record $805 billion, having risen 20% in a single year! As the Washington Post observed in an editorial this week:

"Put another way, Mr. Bush has managed to rack up more new debt during his five years in office than the entire debt amassed by the United States through 1988."

The president will point to the war on terror and Katrina and the like, and we'll just sit back and shake our heads, "Yup, yup, yup," like the village idiot.

Yes, I'm the one who said from the time of 9/11 on that we must spend what it takes to win the war, like on port security, and yet we're finding ways to spend funds that should be allocated to it in other ways, including the fact our ill-conceived war plan in Iraq is now costing us $9.8 billion a month (including Afghanistan) because we need to spend another $3 billion each month going forward to replace broken and aging equipment.

What does it all mean? Once again we're partying like it's 1999. At least the top 1% is. And just as in '99, as the Nasdaq Bubble was preparing to burst, there are signs the little guy is now rushing back into stocks. [See my comments on Charles Schwab below.]

I have tried hard not to continuously bring up how the government is living on borrowed time and, don't worry, when the dollar crisis hits, or there's another terror attack that totally saps confidence, the last thing I'll do is say "I told you so."

So instead treat me as that little voice sitting on your shoulder, urging restraint and caution. Give me a 20% weighting to go along with the 80% 'bull' talk you are constantly hit with.

I started out this diatribe discussing the difference between the haves and have nots in today's society. There's no reason to explain any further. The division is widening, but history shows these things have a way of equaling out in the end; not that this will necessarily be good for all of us.

One topic I broached last week that worsened this past one is the collapse in some emerging markets, particularly in the Middle East. On Tuesday, the Dubai stock market plummeted over 11% and the Saudi exchange is off some 25% in just a few weeks. I'll be writing of this in "Wall Street History" no doubt over the coming years because it is a classic bubble bursting.

Dubai was up 132% in 2005 and Saudi Arabia soared 104%. Other bourses in the region were up similar amounts.

But by my reading of the situation, it's only the last six months or so that the little guy has been rushing in; again, just like 1999, and they are absolutely getting crushed. Much of the buying has been with virtually 100% leverage.

It's easy for those of us in the U.S. or other developed nations to say 'so what?' in this instance. But market manias that end badly almost always reach others' shores. For starters, that's less money available to fund our deficits.

Emerging market equity funds have seen flows of $20.9 billion this year, according to Bloomberg News, eclipsing the record for all of 2005. Much of this is flowing into Asia, as well as Latin America, and adherents would argue emerging market economies are expected to grow at about a 5.5% rate in 2005, vs. roughly 4% globally.

Sorry to keep repeating myself, but we've seen this act before, too. And frankly I've been incredulous at how well some Asian markets have performed since this is probably where bird flu first mutates to human to human transmission, if ever. It would shut these economies down cold, and quickly the rest of the world's. That doesn't mean you rush to the exits, but geezuz, a little caution is perhaps warranted.

Finally, amidst this seeming state of nirvana Wall Street and its overseas brethren appear to be living in, much was made this week of this goldilocks economy of ours?not too hot and not too cold. The kind that keeps the Fed at bay.

It's never that easy over the long haul. Either growth accelerates and the Fed has to slam on the brakes even harder, thus causing a recession, or the economy slows to the point where earnings begin to disappoint in earnest. That's how I see it. But who knows what even the next seven days will bring?

--Great week for equities as the Dow Jones finished up 1.8%. At 11279, the index is less than 500 points from its all-time high of 1722 set on 1/14/00. The S&P 500, up 2% to 1307, is still a sizable 220 from its 3/24/00 peak of 1527 and as for Nasdaq, also up 2%, well, you don't really want to be reminded how far it needs to go.

Earnings guidance and / or actual numbers from the likes of Union Pacific, Sears Holdings and DuPont were big factors, as was the rally in the bond market on receding Fed fears.

Bonds rallied on the growing sentiment it's "one and done" come the March 27-28 Fed confab. Just remember this tune has been sung before, though some Fed governors expressed the sentiment this week that the board needed to be concerned about "overshooting."

"Leadership in a democratic society requires a willingness and ability to challenge and change public opinion when it is based on misinformation, no information, prejudice or stupidity - as it was in this case. There never was a genuine security problem. The Dubai company wouldn't have 'taken over' the U.S. ports. It simply would have run some terminals. Cargo would still have been handled by American, unionized longshoremen. The Coast Guard and the U.S. Customs and Border Protection agency would still have been responsible for port security.

"To be sure, the 9 million or so containers arriving annually in the United States do pose security threats. In congressional testimony, Stephen Flynn of the Council on Foreign Relations outlined one danger: a truck driver, sympathetic to al-Qaeda, picks up a container of sneakers in Indonesia; on the way to the port, he diverts the truck so terrorists can load the container with a 'dirty' nuclear device; and the container is shipped to Chicago, where it's detonated. Flynn urged more worldwide electronic and radiation scanning of containers at ports of departure. He estimated that screening would require about a $20 fee per container?.

"People outside the United States hold dollars because they believe the currency maintains its value and offers a wide menu of investment choices. The message from Congress is that the menu is shorter than people thought. Once any investment is stigmatized - rightly or wrongly - as a 'security problem,' Congress may act against foreigners.

"Every country has the right to protect its security interests. But those interests must be defined coherently and not simply as the random expression of political expediency. That's what happened here, as it did last year when Congress pressured a Chinese oil company (CNOOC) to withdraw its bid for a U.S. firm (Unocal). The more this process continues, the more it corrodes confidence in the dollar.

"It will be said that other countries are equally nationalistic and political, so their currencies aren't realistic alternatives to the dollar. Not true. If we imitate the French or Malaysians, the dollar will have compromised its special status. The irony is that the people who are creating all these risks are the very same members of Congress who claim to be protecting us."

"(Hillary) Clinton didn't seem to mind when officials of the United Arab Emirates kicked in up to a million dollars for her husband's presidential library. She didn't seem alarmed when Dubai poured at least $450,000 into her family bank accounts through her husband's speaking business. She didn't object when the Clinton administration approved a deal for a Chinese government firm to run the Port of Long Beach. But when the Dubai ports deal set off Know-Nothing mobs, she made sure she had the biggest pitchfork.

" 'We cannot afford to surrender our port operations to foreign governments,' she roared.

" 'We cannot cede sovereignty over critical infrastructure like our ports,' she insisted.

"All of these statements were deliberately misleading, since there was never any question of ceding sovereignty or security. They played to the rawest form of xenophobia.

"The consequences for the war on terror will be significant. As David Ignatius wrote in the Washington Post, the government of Dubai has done what we've asked all Arab governments to do. It has challenged al Qaeda; supported U.S. forces; modernized the educational system to combat extremism. It even gave $100 million in hurricane relief. We've proved that we may be inept in combating our foes, but we're ruthlessly efficient in betraying our friends."

"Dubai is not a democracy, and it is not without warts. But it is a bridge of decency that leads away from the failing civilization? to a much more optimistic, open and self-confident society. Dubaians are building a future based on butter not guns, private property not caprice, services more than oil, and globally competitive companies, not terror networks. Dubai is about nurturing Arab dignity through success not suicide. As a result, its people want to embrace the future, not blow it up.

"What's ironic is that if Democrats who hate the Bush war in Iraq had actually had a peaceful alternative policy for promoting transformation in the Arab-Muslim world, it would be called 'the Dubai policy': supporting internally driven Arab engines of change.

"That's why Arab progressives are stunned by our behavior. As an Arab businessman friend said to me of the Dubai saga: 'This deal has left a real bad taste in many mouths. I mean this was Dubai, for God's sake! You could not have a better friend and more of a symbol of globalization and openness. If they are a security danger to the U.S., then who is not?'

"So whatever happens with the Iraq experiment - but especially if it fails - we need Dubai to succeed. Dubai is where we should want the Arab world to go. Unfortunately, we just told Dubai to go to hell."

--Chinese President Hu Jintao is coming to Washington in about four weeks and it could be tension city. The White House has finally had enough and with China's ever soaring trade surplus with the U.S., and with increased talk of protectionism and 27.5% tariffs on Chinese goods, this week Commerce Secretary Carlos Gutierrez played pit bull:

"China's failure to address economic frictions will have consequences. Without concrete results, the administration, and the American people, may be forced to reassess our bilateral economic relationship."

Gutierrez then added that with increased talk in Congress for taking action, "Without results?Congress may go down a path that none of us wants."

But Chinese Premier Wen Jiabao earlier ruled out sharp adjustments in the currency, the chief culprit in the growing conflict.

And while we're on this topic, China released its industrial production output for January, up 16.2% year-over-year. That's on top of 16.4% in 2005, 16.7% in '04 and 17% in '03. I mean it's comical. Remember, much of China's figures on the economy are still generated at the regional level, by government lackeys. If one guy reported, say, "We were only up 8%," what do you think would happen to him?

I don't, however, dispute the China boom in general and on the capital spending front, Beijing announced it was up 26.6% for January and February. The target is 18% as China attempts to slow things down, if you can call an 18% rate a slowdown.

--Meanwhile, across the pond, jobless claims spiked in the UK as consumers are slammed by high energy prices. Natural gas is a big issue here due to cold weather along with the closure of some facilities that have led to extremely low inventories.

--The global market for credit derivatives (such as swaps) shot up 39% in the second half of 2005 to $17.3 trillion. But the total derivatives market, all instruments, is $270 trillion. [Bloomberg News, Bank for International Settlements] The 10 largest U.S. banks, incidentally, have a potential risk of $600 billion. So the issues remain the same. Who owns what and to whom? What are the counter-party risks?

--Related to the above, once again Fannie Mae said it uncovered more accounting errors. [I swear this is not a repeat of prior comments in this space.] Internal audits have revealed further improper valuations for certain securities (i.e., derivatives) and Fannie is spending $50 million a month to clean up the mess left by Franklin Raines and his cohorts. But remember, Mr. Raines gave a lot of money to the Kennedy Center!!!

Fannie Mae did have some separate comments this week pertaining to the overall real estate environment that are worth noting, seeing that they are a rather large player in the sector (though their share of the mortgage securities market in the U.S. is down to 25% from 45% in 2003).

Fannie sees home sales declining 8% in 2006 with average price appreciation of 3%, while the National Association of Realtors projects new and existing home sales to fall 6-8%, but prices to rise 6% this year. So you add these two up and reach a consensus; a soft landing and far from a disaster. I still say second half of the year begins to reflect a different scenario.

--Staying on this topic, the latest figures for the Southern California, six-county market, show the median home price having risen 12.9%, year-over-year, in February, but sales are the lowest in five years. [L.A. Times]

Then there's Katrina-ravaged Louisiana and Mississippi. In Louisiana, 12% of mortgage holders are 90 days behind on their payments, 8% in Mississippi. These are the highest regional figures anywhere in America since 1972 and compare to 1.33% and 1.77% rates, respectively, prior to the hurricane. So imagine if another one hits.

--The Senate revived prospects for drilling in the Arctic National Wildlife Refuge, but it's uncertain if the House will go along. As for my promised analysis of today's energy picture, it needs to wait another week.

--Lots of stories on copper this week as it continues to reside in record territory. As noted in a story by Patrick Barta of the Wall Street Journal, similar to the supply / demand situation in the oil market, they just aren't producing enough copper to meet demand and it largely goes back to the days when the metal was languishing in the 70 cents area. There were no incentives to develop new mines then.

I was reading a piece on Friday in the Santiago Times and Chile, the Saudi Arabia of copper, can't keep up because even it is faced with far more regulatory demands than in the past in developing new properties (and this is a good thing if you care even one iota about the environment?Chile being a basket case on this front).

Of course the copper story is also about squeezing profit margins, and, aside from increased regulation, many of the mines are in developing nations, such as Indonesia. The other day four security officers at a mine run by Freeport-McMoran Copper & Gold were hacked to death by locals protesting at a property in Papua province, as the people feel the benefits have not been flowing to them. [Similar to the issue in Nigeria's oil-rich Delta region.]

--In a landmark study, high doses of statins were found to reverse chronic build-up of fat in the arteries, the "holy grail" in the fight against heart disease.

--KIA Motors (South Korea) will build its first plant in the United States (western Georgia) and by 2009 should be employing 2,500 workers. And Toyota announced it is adding 1,000 jobs in this country. Yes, there is another side to the auto story.

--General Motors, infected by the Fannie Mae Virus where, due to your mental faculties being sapped, you constantly come up with accounting errors, revised its loss for 2005 to $10.6 billion, or $2 billion more than originally reported in January. The automaker blamed the bankruptcy of parts king Delphi; GM facing a share of Delphi's long-term obligations on the pension and benefits front.

--Azerbaijan reported three humans died of bird flu while the H5N1 virus spread from Sweden to Israel. U.S. Secretary of Health and Human Services Michael Levitt recommended Americans stock up on tuna fish. But remember, sports fans, to buy 'light' tuna over 'white' because it contains less mercury.

--Interesting move in Argentina. The government is banning exports of beef, Argentina being the world's 3rd-largest producer (with exports of $1.4 billion in 2005), because the government wants domestic meat prices to drop?with inflation an increasing concern. Argentinians eat three times more beef per capita than in the U.S.

--The U.S. had its 3rd confirmed case of Mad Cow since December 2003, though we were told this particular bovine never entered the food chain?or so Elsie said in her last words before being put down. What is worrisome, though, is that there could be far more cows in this country with the disease than reported simply because our detection procedures continue to lag those of other developed countries. Nonetheless, I'll continue to use my George Foreman Grill for that seared-in taste in cooking my own burgers.

--In a report by Zachery Kouwe of the New York Post, the U.S. Attorney in Manhattan and the SEC are looking into the possibility Refco (Remember them?) may have had $525 million in fake bonds on its books.

"If the fake bonds prove to be part of the fraud at Refco, the firm could have inflated its assets by nearly $1 billion - or more than double what investigators originally thought."

--Oh, to be a partner of the law firm Wiley Rein & Fielding LLP. It would seem that these fine folks raked in $200 million of the $612.5 million settlement in the Research In Motion (BlackBerry) - NTP patent infringement suit. The other $400 million was divvied up among NTP shareholders and a good time was had by all. [Peter Lattman / Wall Street Journal]

--Charles Schwab issued a bullish first-quarter forecast as client trades in February were up a whopping 52% year-over-year. The average per day was 319,600 last month. By comparison the trough in the cycle was only 101,000 three years ago, while the peak was reached in March 2000 at 347,000. Ergo, this is a tremendous contrarian indicator.

--New York Attorney General Eliot Spitzer has charged H&R Block with fraud for duping 500,000 clients into investing in "Express IRA" retirement accounts where 85% lost money due to excessive fees. The real problem is that most H&R Block tax preparers are not registered securities brokers so this product only offers a government guaranteed money market vehicle with a pitiful interest rate while the fees eat up the normally low client balances. What I was interested in were the incentives for H&R Block employees to push the prospects into the accounts. It turns out they received a bonus of just $5.50, but from my days on Wall Street I can just imagine regional directors putting big time pressure on their 'sales force' to capture these accounts because of the recurring fees. "OK, anyone signing up 10 today gets a box of Omaha Steaks!"

--Bear Stearns reported record profits, along with brethren Goldman Sachs and Lehman Brothers, but it also reached a settlement in the mutual fund market-timing scandal, to the tune of $250 million. Bank of America paid the largest penalty for permitting late-trading and other crimes and misdemeanors, $675 million, back in 2004.

--Back to Goldman Sachs and its stupendous earnings report, revenues for the quarter were $10.3 billion vs. $6.4 billion a year earlier. Gotta admit?that's pretty awesome.

--Lukoil, Russia's top oil producer, is taking over operation of the gas pumps along the Garden State Parkway here in New Jersey after Lukoil's acquisition of Mobil stations. No one seems to be protesting the move.

--In the Enron trial, Andrew Fastow admitted he hid his theft from Ken Lay and Jeffrey Skilling.

--My portfolio: I have to make note of my largest holding, the carbon fiber play, because of a headline I read. [If you're new to the site, the only individual names I give out involve country funds.]

I don't check out chat rooms, for various reasons, and after reading this comment on XYZ there is a good reason why you all should be highly skeptical of anything you read on them.

From the Motley Fool and an editor (employed by them since 1995) who scanned the message board for "renewable" plays.

"Spectre16 suggested carbon-fiber specialist XYZ. 'While not a pure alternative energy play, it is nevertheless tethered to energy in a variety of ways,' Spectre16 wrote, highlighting the company's role as the leading producer of wind-turbine blades and its deep-sea drilling implications.'"

XYZ does not make the turbine blades, you idiot. It manufactures the carbon fiber composite used in the manufacturing process. And while XYZ is involved in the building of deep-sea drilling rigs, try the word "applications" rather than implications.

Sorry?had to rant on this one. Remember, folks, know what you own before you buy.

--Finally, Robert C. Baker passed away the other day at the age of 84. Baker was an agricultural scientist who was credited in 1982 by Forbes magazine with having invented processed chicken in '63. From an obituary in the New York Times by Douglas Martin:

"McDonald's is often given credit for inventing chicken nuggets in 1979, but the groundwork was laid by Dr. Baker's contributions in the 1960s in developing ways to bind chicken meat together and make the coating stick to the reconstituted meat."

Evidently, Dr. Baker died of a heart attack. Or rather a "broken heart," one can assume; Dr. Baker having seen enough on the bird flu front.

Israel: Mort Zuckerman, publisher of U.S. News & World Report, noted in his weekly editorial for the magazine that Hamas was just buying time to consolidate power. No doubt he's right?it's from Iran's 'How to Stall and Lull Them to Sleep' playbook.

But this week it was all about Israeli troops storming a prison complex in Jericho on the West Bank. Earlier, U.S. and British monitors had left their positions there, frustrated over the Palestinians having released 46 prisoners in the past few weeks and with rumors six key terrorists, including a man responsible for the killing of Israel's tourism minister back in 2001, were about to be let go as well. Both the U.S. and Britain had complained about the lack of security and they had legitimate reasons to be concerned for their own safety.

So Israel moved in and captured the key figure, Saadat, along with his five cronies. Palestinian President Mahmoud Abbas, who is entirely irrelevant at this point, was outraged. The New York Times was outraged. How could Acting Prime Minister Ehud Olmert pull off such a campaign stunt two weeks before Israel's election?

You know, I try to mince my words when it comes to the Palestinians, but these people have had decades to prove they can handle anything responsibly. Any people that allowed Yassir Arafat to plunder $billions, while allowing other terrorists to hold them down and kill their economy, are simply losers. Remember, this is part of Ariel Sharon's great legacy in his final years. Recall his stunning reception at last September's United Nations gathering. The rest of the world now understands, even if for public consumption it still needs to say otherwise from time to time.

And so we also learned this "prison" was really Club Med. The terrorist Saadat kept birds, had flowers delivered, used other prisoners as servants, ordered Cuban cigars, and had cellphones and computers brought in?.plus there was no lock down at night.

India: A few weeks ago I praised the agreement reached between President Bush and Indian Prime Minister Manmohan Singh on the nuclear program front as being an example of the kind of pragmatism I've been seeking in the foreign policy arena. Here is further commentary.

"This agreement is a strategic achievement: It will strengthen international security. It will enhance energy security and environmental protection. It will foster economic and technological development. And it will help transform the partnership between the world's oldest and the world's largest democracy."

[Addressing the concerns that we are breaking protocols related to the Nuclear Nonproliferation Treaty and that it will lead to nuclear weapons proliferation in the region?]

"Our agreement with India is unique because India is unique. India is a democracy, where citizens of many ethnicities and faiths cooperate in peace and freedom. India's civilian government functions transparently and accountably. It is fighting terrorism and extremism, and it has a 30-year record of responsible behavior on nonproliferation matters."

"Aspiring proliferators such as North Korea or Iran may seek to draw connections between themselves and India, but their rhetoric rings hollow. Iran is a state sponsor of terrorism that has violated its own commitments and is defying the international community's efforts to contain its nuclear ambitions. North Korea, the least transparent country in the world, threatens its neighbors and proliferates weapons. There is simply no comparison between the Iranian or North Korean regimes and India."

"Imagine a huge nation, a huge democracy, increasingly prosperous, increasingly powerful and increasingly sympathetic to the ideological and strategic objectives of the United States and its democratic allies around the world. Imagine that this powerful, prosperous, democratic nation sits on the same continent with Russia and China, two huge geopolitical problems waiting to happen. Imagine that this nation possesses a navy capable of helping patrol strategically vital waterways and a military force capable of acting as a deterrent against powerful neighbors. Finally, imagine that this nation, despite its power, has no record of using it for aggressive purposes but has been a remarkably peaceful and often constructive member of the global community.

"Would we or would we not want to have the closest possible relationship, partnership, even alliance with such a country as we head into an uncertain future?

"(The big question) likely to consume endless hours of hearings on Capitol Hill in coming weeks is what effect the (Bush-Singh) deal will have on the problem of Iran. Some will argue that the Indian nuclear deal harms efforts to halt Iran's nuclear weapons program because it erects a double standard: We are willing to let India do what we are not willing to let Iran do.

"The question is interesting in theory. In the real world, it's not that interesting. The notion that the Indian deal will set back prospects for a diplomatic deal with Iran assumes that such prospects exist. All available evidence suggests otherwise. The Iranian government appears committed to building nuclear weapons and will not be deterred by threats - except possibly the threat of removal by military means - or won over by blandishments?.

"Were Congress somehow to reject the administration's deal in some effort to maintain a consistent principle on nonproliferation, it would have no effect on Iran's decisions. But that futile gesture would have a devastating effect on U.S. relations with India. In our less-than-ideal world, where, we are often told, America needs good friends and allies, that would be a terrible bargain."

So now, as expected, Pakistan is fighting back. In an interview with the Financial Times, Pakistan's foreign minister said, "The whole Nuclear Nonproliferation Treaty will unravel. It's only a matter of time before other countries will act in the same way?. Nuclear weapons are the currency of power and many countries would like to use it. Once this goes through the NPT will be finished. It's not just Iran and North Korea. Brazil, Argentina and Pakistan will all think differently."

Brazil and Argentina will not go nuclear, at least that's my guess, and as for Pakistan, well, they're going to continue on the path they're already on?seeking weapons guidance wherever they can find it. President Bush was obviously right in not extending Pakistan the terms he gave India.

This week, China's vice-minister for foreign affairs was in India for a round of high-level talks to resolve the festering border issue between the two nations, but the Bush-Singh deal dominated discussion. Needless to say, China isn't happy. Good. They've been jerking us around enough. Just look at the six-party talks over North Korea where all they have to do is jack Kim Jong-il up against the wall and say, "Look, you little bastard. We have a good thing going here and you're mucking up the works."

This week Condoleezza Rice was in Australia and it gives me another excuse to go back into the archives to remind long-time readers where I stood on my dream of a new alliance with the UK, Australia, India and Japan.

"What you aren't hearing from either side of the political aisle is the following. The United States must act as the world's policeman until such time as it can develop new, more far- ranging relationships, particularly since NATO seems incapable of pulling its share of the load. This is why I keep talking of a new supra-alliance, including Britain, Australia, a re-armed Japan and the largest democracy in the world, India. An alliance that understands shared responsibilities for the protection of human rights and, just as importantly, global trade and economic opportunity."

Now read what Secretary Rice had to say in a speech at the University of Sydney on March 16.

"When I sit and talk with my Chinese counterpart?.it's very clear to the Chinese what our concerns are and what our hopes are?.

"What we want is for China to be responsible, to be a responsible stakeholder in the international system, because a positive and responsible China is going to be terrific for the world - not just good, terrific.

"Now, when we have discussions with Japan and Australia, it's only natural. These are two of our oldest and deepest allies. We share values. We have shared responsibility for the defense of the Pacific over the years. And so I would hope that the Chinese would see that these also are transparent discussions. We're democracies?.And our relationship with Japan and with Australia is a deep one but it is one that is trying to encourage a Pacific region that we would all want to inhabit, including China.

"And then finally on India. India is a remarkable story?.And you see in India that as India is changing its policies toward the world and toward the world economy, it's also a rising economic power. So when the President goes to India and says to the Indians we want to help you develop civil nuclear power to deal with your energy needs, it's also quite transparent?.

"So this is all in the course of taking these relationships on their own terms, using all of these relationships to try to build a broader framework for a peaceful Asia, and recognizing that with some states like Japan or Australia or indeed with India we do share something very special, which is common values and a commitment to democracy."

And so you see how the dream is taking shape. What Bush and Rice would never admit openly, however, is that there is a time issue involved. In the case of all five nations the current governments are basically in agreement when it comes to the chief geopolitical concerns of the day. But this won't always be the case; whether it's 2008 in Washington, next year in London, or a changing of the guard in the other three.

The rest of the world would be offended, no doubt, if the White House convened a summit of the Fab Five, but the heck with them. And for all the grief I have given President Bush over the years, on this front he is deserving of praise and I would urge all of you to remember the strategic implications of the new U.S. - India relationship as Congress attempts to block the nuclear pact. Any doubts, pull out a map.

China / Taiwan: I have a little dialogue between these two on my current edition of "Hott Spotts," but to sum up, Beijing's criticism of Taipei and President Chen Shui-bian has been harsh. Chinese Premier Wen Jiabao told the National People's Congress "We are now carefully following developments and are fully prepared for all eventualities" should Chen pursue independence. But Wen also said "There is no such option that one side will swallow up the other side." Of course any rational person would then reply to this statement, "So why do you have 784 missiles pointed at Taiwan?"

"We maintain that the industry should exercise self-discipline and self-management. Websites should convey right messages and information and should refrain from misleading the general public or exerting an adverse impact on social and public order."

Chances are some of my commentary wouldn't fly over there in Wen's perfect world, but thus far the major search engines continue to carry it (as my spot checks from time to time reveal).

Indonesia: Globetrotting Condi Rice was in Indonesia for an important set of meetings with the leadership of the largest Muslim nation in the world, and, the third largest democracy.

"(Amid) the chants telling Ms. Rice to 'go to hell': America's popularity in Indonesia has risen dramatically in the past year - Gitmo, Abu Ghraib and Halliburton notwithstanding.

"That's the conclusion of a remarkable poll conducted last month for the Washington based NGO, Terror Free Tomorrow. Since 2003, the number of Indonesians with a favorable view of the U.S. has nearly tripled, to 44% from 15%. More Indonesians support the U.S. war on terror than oppose it: 40% to 36%, a first for a Muslim country. The number who oppose U.S. anti-terror efforts has also declined sharply, to 36% from 72%. Admiration of Osama bin Laden has dropped, to 23% form 58%.

"The proximate cause for the changed Indonesian outlook has been U.S. relief efforts following the December 2004 tsunami?. In the days immediately after the disaster, it was only the U.S. Navy that could get urgent relief supplies to the affected areas quickly. The U.S. government has since provided $400 million in assistance to Indonesia and directly helped 600,000 people."

I would add there is no doubt the presence of former Presidents Bush and Clinton on the ground helped shape attitudes as well. So there is some light at the end of the tunnel.

"The North Korean regime?poses a serious nuclear proliferation challenge. It presents a long and bleak record of duplicity and bad-faith negotiations. In the past, the regime has attempted to split the United States from its allies. This time, the United States has successfully forged a consensus among key regional partners - China, Japan, Russia, and the Republic of Korea (ROK) - that the DPRK must give up all of its existing nuclear programs?.(The) United States will continue to press the DPRK to implement these commitments.

"The United States has broader concerns regarding the DPRK as well. The DPRK counterfeits our currency; traffics in narcotics and engages in other illicit activities; threatens the ROK with its army and its neighbors with its missiles; and brutalizes and starves its people. The DPRK regime needs to change these policies, open up its political system, and afford freedom to its people. In the interim, we will continue to take all necessary measures to protect our national and economic security against the adverse effects of their bad conduct."

Belarus: Watch reaction to the rigged vote on Sunday, where the dictator Lukashenko will undoubtedly receive 75%, as the leading opposition figure claimed earlier. The security service here, called the KGB, has warned that anyone taking part in anti- government demonstrations will be branded a terrorist.

Over 300 opposition figures have been rounded up, the foreign press has largely been kicked out, European Union monitors were not granted visas, and the government even banned U.S. camping equipment because it was afraid of opponents setting up tent cities a la Ukraine and Lebanon.

But this is a very complex nation of 10 million. The economy is growing, shelves are stocked, and the elderly like the fact their pensions are being paid. Some experts believe Lukashenko's support legitimately stands at 50%, which would be enough to avoid a run-off. In other words, what is this paranoid buffoon afraid of?

Lebanon: There is growing evidence of Iran's influence here, beyond its relationship with Hizbullah.

Thailand: 100,000 protested peacefully in the largest demonstration against Prime Minister Thaksin. Thaksin vows to carry on with the election, a vote of confidence, in April as he relies on his extensive support in rural areas. South

Korea: Prime Minister Lee Hae-chan was forced to resign after he played golf rather than oversee the first day of a nationwide rail strike. Hey, tee times are hard to come by here.

Colombia: After last Sunday's vote, President Alvaro Uribe's party controls sizable majorities in both legislative houses. This is great news, as our prime ally in Latin America is up for reelection in May.

Serbia: Former dictator Slobodan Milosevic was found dead in his prison cell at The Hague on Saturday. Two autopsies reached the same conclusion; he died of a heart attack and was not poisoned. For a few days, though, it wasn't clear where he would be buried and whether or not there would be any unrest. Thankfully, while he was returned to Serbia, his hard-core supporters did not choose the time to wreak havoc. Finally, it would appear the majority of Serbs now see Milosevic for what he was?.one of the all-time thugs in human history.

France: Paris and surrounding environs witnessed another round of extensive, violent protests; though this time it was over Prime Minister Dominique de Villepin's "first job contract." Mr. de Villepin designed the proposal to loosen up France's rigid employment market. From the Financial Times:

"The proposed contract allows employers to dismiss staff under the age of 26 more easily during a two-year trial period. Mr. de Villepin has argued that it would cut France's crippling unemployment. But students say it will bring instability, making them 'the Kleenex generation,' used and then discarded."

On another matter, according to the London Times, "France kept quiet about the discovery of a wild duck with bird flu while it encouraged the EU to soften its safety regime against the killer strain of the infection."

France literally informed Brussels five minutes before the new regulations were to take effect and the official message gave the wrong date for the duck's discovery.

The seven dead ducks were found by a hunter on February 11, who then alerted officials. But while the EU mandates tests be conducted immediately, France waited two days. A spokesman said:

"We put them in storage because at that time the laboratory did not work at the weekend."

Pray for the men and women of our armed forces. In looking at some figures the other day it struck me that in every month but one, Feb. 2004, we've lost an average of at least one soldier per day in Iraq.

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