Week in Review 
For the week 3/27/2006 - 3/31/2006
Brian Trumbore
President/Editor, StocksandNews.com

Iran, Iraq and Israel

The five permanent members of the UN Security Council (U.S., Britain, France, Russia and China) agreed on a statement demanding Iran cease its uranium enrichment activities within 30 days. But Russia and China were adamant that the International Atomic Energy Agency handle the issue and so after this period the IAEA will report back for possible action among the full Security Council.

In other words, don't hold your breath looking for sanctions and the threat of military action. Iran is sitting pretty and their brilliant delay game has worked to perfection; especially since the IAEA's Mohamed ElBaradei said on Thursday that the country's nuclear program did not represent "an imminent threat" and that it was time to "lower the pitch" of debate. [L.A. Times] ElBaradei went on to tell a forum in Qatar:

"There is no military solution to this situation. It's inconceivable. The only durable solution is a negotiated solution."

But earlier in the week, the Los Angeles Times reported that IAEA officials, in briefing the Security Council, said Iran was less than three years from having the bomb, not the 5-10 so many claim. The key is centrifuges and the role they play in the enrichment process.

I've been meaning to point this out the past few weeks but on the centrifuge issue I wrote the following August 13 of last year.

"The mullahs ripped the seals off the vats, right in front of the eyes of the International Atomic Energy Agency, and, thumbing their noses at the rest of the world, restarted the uranium enrichment process at Isfahan. Iran called the Euro-3's proposal 'unacceptable' and then the IAEA adopted a resolution demanding immediate cessation of all nuclear weapons-related activity, but for now it failed to recommend going to the UN Security Council.

"An exiled dissident, who exposed the nuke activity in 2002 that Iran had been hiding for 20 years, now says Iran has manufactured 4,000 centrifuges the IAEA doesn't know of. The agency basically admitted as much this week in calling for more time to snoop around."

Two weeks later, 8/27/05, I quoted noted weapons expert Gary Milhollin from an op-ed in the New York Times.

"Consider this: American intelligence agencies completely missed Saddam Hussein's giant machines for processing uranium to weapons grade before the Persian Gulf War in 1991. Then, overreacting to that mistake, these agencies wrongly reported that there were weapons of mass destruction in Iraq before the 2003 invasion. Now, they appear to be overreacting to their last overreaction by underestimating the threat from Iran."

Milhollin's conclusion last summer was that Iran was within two years of having the bomb. I then wrote the following from my own observations.

"The explanation is too technical for this space but I've seen the Iranian government's own video of their nuclear program and on this promotional tape they actually show the 'cascading effect' (from the centrifuges) that is a necessary step in the process."

The past few weeks I've been trying to remember exactly where I saw this tape but it was during my overseas travels. The point being we keep hearing from some quarters that Iran is not far along on the centrifuge front and I'm here to tell you they are.

And yet here we are?seven months later and still far from a consensus. That's pitiful.

Equally pitiful have been Iraqi efforts to form a government and for now the key here is that the Bush administration does not want to see Ibrahim al-Jaafari remain as prime minister, while Jaafari is adamant he stay in telling the New York Times that Washington should stop interfering.

The issue here is the fact Jaafari has an alliance with Ayatollah Khomeini wannabe Moqtada al-Sadr and his Mahdi Army. Sadr's militia peoples the Iraqi police and security forces; not exactly the kind of relationship we wanted at the top of the political structure when we went nation building.

And when it comes to infiltrating the security forces, increasingly gunmen, wearing military uniforms, have been going into businesses, taking out the employees, and shooting them. The U.S. military's worst fear is another large-scale attack on American personnel, perpetrated by impostors.

There's another big problem looming on the horizon. Kurdish unrest in southeastern Turkey has been rapidly increasing and this past week at least three died in demonstrations surrounding funerals of PKK (Kurdish separatists) after Turkish troops killed at least 14.

Kurds in Turkey, Syria and Iran see how well their brethren are doing in Iraq in moving towards an independent state and they want to be part of a larger Kurdistan. Of course neither Turkey, nor the other two, is about to let that happen and any broader conflict here spells defeat for a united, however loosely, Iraq.

Lastly, I'm disturbed by the level of incidents being investigated concerning the conduct of U.S. operations, such as the attack from last November that killed 15 Iraqi civilians. It's a touchy subject and I think about it every week in writing this commentary. Our men and women, and those of the coalition, are fighting under conditions never before encountered on the battlefield and the military is also forced to rely on imperfect intelligence. Other aspects bother me but I need to keep those to myself.

Meanwhile, in Israel, the political party that Ariel Sharon founded, Kadima, didn't do nearly as well as expected in Tuesday's election; capturing just 28 of 120 seats in the Knesset. So just as in the case of Ukraine (see below) a messy coalition will be the result with acting Prime Minister Ehud Olmert forced to bring in partners such as Labor, ultra-Orthodox Shas, and the Pensioners, a new party representing the elderly that stunned political observers in capturing 7 seats in its first election.

Olmert will thus lead a centrist, center-left coalition committed to withdrawing from much of the West Bank and unilaterally redrawing the borders, the policy of "disengagement" from the Palestinians.

Speaking of whom, Hamas formally took the reins of government and showed no signs of wanting peace; so, Hamas will continue to receive just a trickle of the aid it desperately needs as Israel, the European Union and the U.S. cut off the flow of funds except for the barest of humanitarian reasons.

Wall Street

Last week I noted some remarks of mine from last August (WIR 8/13/05) when I was musing whether or not we were "in a race against time," referring to the global economy. Would others step forward to pick up the ball from the U.S. and China if the two of us were to stumble? The economy in both today is just fine, but, yes, now Japan and Europe are rebounding as well.

Japan's unemployment rate is down to 4.1% and consumer prices rose for a fourth straight month. Deflation here is but a memory and the Tokyo Nikkei index is at a 5-year high, over 17000. While in Europe, business and consumer confidence is soaring, despite France's issues.

The World Bank weighed in with its forecast for growth in Asia, ex-Japan. Indonesia / Philippines / Malaysia / Thailand, up an est. 5.3% in 2006; China up 9.2% (the government is targeting 8.9%); Vietnam's GDP up 8%; Hong Kong 5.3% (slip from 7.3% in '05); South Korea 5%, Singapore 6% and Taiwan 4%.

Pretty solid prospects. And look at the early 2006 equity performance in some world markets through March 30 (Thursday).

Argentina +17%, Brazil +12%, India +20%, U.K., France and Germany +10 to +12%, Spain +12%.

The Dow Jones World index, ex-U.S., was +9.5%.

So what's not to like?

How about energy and interest rates?

Well, yours truly was one of those once saying '$40 oil will kill the economy.' Then it was '$50 oil will kill the economy.' Then it was $60. Sure, it hurt, especially for the developing world in East Asia and the airline industry. But damage has obviously been limited.

What about interest rates? Despite the recent moves up in yield, in the developed world they are still at historically low levels. Here in the U.S., if you asked Corporate America or a homebuyer 10 years ago if they'd like to see a 10-year Treasury with a yield of 4.85%, as it is today, they'd have said "Sign me up!"

But these days it's the trends that are disturbing and global interest rates are rising as inflation ticks up. Those increases in Japanese consumer prices, for example, spell the end of zero short-term interest rates for that nation, and the European Central Bank will keep raising its benchmark rate because euro-zone inflation is running above the ECB's 2% target.

And then there's the Federal Reserve. Chairman Ben Bernanke oversaw his first meeting and took the opportunity to raise the funds rate a 15th consecutive time, another ?-point to 4.75%.

But it was the accompanying statement everyone was looking for. Would the new chairman change the language used by his predecessor, ol' what's his name? [We have fleeting memories, you understand.]

"Some further policy firming may be needed to keep the risks to the attainment of both sustainable economic growth and price stability roughly in balance?.The run-up in the prices of energy and other commodities appears to have had only a modest effect on core inflation."

But the Fed also added:

"Possible increases in resource utilization, in combination with the elevated prices of energy and other commodities, have the potential to add to inflation pressures."

Put it all together and the market now expects yet another rate increase to 5% on May 10 and possibly one on top of that in late June. If you're a saver and/or investor in "cash," you enjoy seeing your money market fund yields continue to rise; as is the case with yours truly. Staying ultra short on the yield curve has been a good bet, in other words. But those investing in longer maturity paper are getting whacked.

So about now you might be thinking, hey, Mr. Editor, what about your long-held 'deflation' forecast? Looks pretty foolish, you moron. [It's a rough crowd I have to deal with.]

For now, yes, particularly as commodities rocket to either record or 20+ year highs as in the case of gold, silver and copper. I look pretty darn stupid.

But the higher we go, the harder the fall and when this economy flips, and it will, it will do so with a vengeance. Deflation will yet reenter the lexicon, of this I'm sure.

And for those of you playing the emerging markets game, I have two thoughts.

First, congratulations. Second, consider this item I read in the Santiago Times.

"The average Chilean owes 7 ? months pay in credit cards, a staggering financial toll for many." 42% are "unsure" whether they will ever be able to pay the debts, an equally staggering percentage. [In contrast, the average American has built up less than three months of credit card debt; though still way too high for comfort.]

The point being Chile is the best overall economic story in Latin America in terms of both growth and stability, so imagine what's happening elsewhere, including in parts of Asia where the consumer is beginning to spend again. Believe it or not, credit cards are a pretty recent phenomenon in much of the world. In other words, there's a lot of future pain out there.

Plus there's this. China has now passed Japan in foreign currency reserves, some $850 billion worth thanks to its soaring exports. We don't want to tick them off too much on the trade front. As much as China might deserve it, those talking of protectionism and tariffs can't possibly be contemplating the consequences should Beijing decide to play hardball with their reserves, thus roiling both the dollar and our bond market.

No, this nirvana global environment of soaring equity markets and strong growth does have a downside. But the experience with $40, $50, and $60 oil should leave most experts scratching their heads as to what level of interest rates, or oil prices, will finally translate to real damage, not just here but abroad.

And here's where I attempt to come full circle. We know housing is stagnating, though any damage is thus far contained. We also know that those holding adjustable rate mortgages are going to be shocked at the increase in their monthly payments.

But Japan and Europe are beginning to pick up their share of the load and if they buy more of our products and help keep Americans employed, that certainly limits the damage from any serious decline in housing, even if Americans retrench in their own spending as a result of seeing their primary asset lose value.

In a nutshell, unless you're a pigeon in France, constantly getting bombarded by water cannons, it's not that bad a time, economically speaking. In fact it's pretty darn good for a lot of people. Just make sure your parachute has been packed correctly for when it's time to jump.

Street Bytes

--What a first quarter. It was the best since 1999 for the S&P 500, +3.7%, and the best since 2000 for Nasdaq. If you're an optimist, opt for the 1999 example because that means this rally has further to run. If you're a pessimist, recall that first quarter of 2000 was it.

But how about the Russell 2000, up a gigantic 13.7% to yet another all-time high. It was the small cap index's best opening performance since 1991.

So now that the quarter is over, what do we have to look forward to on the earnings front? Another double-digit gain, something in the order of 11%, which also happens to be the estimate for profit growth on the S&P for all of 2006. Or so they say.

--U.S. Treasury Yields

6-mo. 4.81% 2-yr. 4.82% 10-yr. 4.85% 30-yr. 4.89%

Yields soared over the prior week with the 10-year increasing 18 basis points. They would have been higher still had it not been for a so-so February number on consumer spending.

--The big business story on Friday was auto parts supplier Delphi's request of a bankruptcy court judge to void its labor agreements. While anticipated, it is still a harsh reminder of the new global environment for the American work force; the days of cushy contracts and benefits are history. Delphi receives half its revenues from GM and for its part GM is required to meet some of Delphi's pension obligations. The court, though, won't be ruling on Delphi's request until around May 10 and negotiations will continue in the interim. Any strikes on the part of Delphi workers, who face huge cuts in wages and benefits, could cripple GM with one expert estimating the automaker's losses at $130 million per day should they be unable to receive parts and have to shut down production.

--Russia's Gazprom wants to boost its share of the European natural gas market from 25 to 30 percent; just what Europe does not want. Gazprom, in an internal report, is seeking to accomplish this through acquisitions. More on this topic below.

--Migrant workers from Latin America and the Caribbean sent home $53.6 billion to families in 2005, up 17% from 2004.

--The Transportation Department issued only modest new fuel economy standards to be in place for 2011.

--The following is from a commentary in the Daily Star of Lebanon by Dr. Eckart Woertz, an economist in Dubai. I thought he had an excellent example of what is going on in the derivatives market, in this case gold.

"Apart from scrap supplies, the most important filling of the gap (between supply and demand) comes from the central banks, which sell and lease gold into the market. The latter activity is especially tricky and has led to a huge derivative short position in the gold market: Western central banks mainly lease gold to commercial banks, which sell it into the market, the central banks earn a lease rate and the commercial banks invest the proceeds of the sales in higher-yielding assets like bonds. Everybody could be happy, but there is one problem: the gold still exists as an asset on the books of the central banks and as a liability on the books of commercial banks or hedge funds, while the actual physical gold has left the vaults a long time ago and now hangs around the necks of the women of the world, who are the 'ultimate longs' in the market without even knowing it. It is inconceivable that this short position can be covered at current prices and the market seems to reckon that at some point the central banks won't be able to cover the supply gap because they will run out of gold or won't be willing to sell more of one of their most valuable assets. First signs in this direction are already discernible: An increasing number of central banks like Russia, China and Argentina are actually buyers of gold in order to diversify their currency reserves and Western central banks appear to be increasingly reluctant to enact further sales (e.g. Germany) or have sold or leased out most of their gold (e.g. England and Portugal)."

Dr. Woertz conclusion is that we are at the beginning of a secular price rise rather than near the end.

I offer the above not as an endorsement of this thesis, since I don't offer specific investment advice, but rather to ask the question, "Did the above confuse some of you?" In some respects does it look like a giant Ponzi scheme? Do you think all these players really know what's going on and who owns what? Of course not. Just another accident waiting to happen in derivatives land.

--The European Union warned Microsoft over incorporating too many prepackaged features in new Vista software. The U.S. government told the E.U., 'Leave Mr. Softie alone.'

--Yes, Virginia, I concede there is inflation. Not only did my beer go up 11% the other week, but my paper at Staples just rose 10%. If I had my own consumer price index, the core rate would have to be ex-beer and paper.

--United Airlines, having emerged from bankruptcy, is looking to hire up to 4,000 workers. Good news, for a change.

--According to a Federal Reserve study and the New York Times, for all the talk about the amount of money baby boomers will be inheriting from their parents, the median inheritance in 2004 was just $29,000. In other words, sports fans, keep working.

[Of course when you're talking "median" that still leaves a ton for the top 10% in particular, where the average estate is $244,000+.]

Then again, looking at the amount of money migrant workers are sending home, you could adopt a migrant as your kid, move to Mexico, and collect checks.

--From the London Times and reporter Michael Sheridan:

"One by one, hundreds of Chinese workers are starting to die of an incurable lung disease contracted in appalling conditions inside factories supplying the international jewelry trade.

"The epidemic of silicosis, caused by inhaling fine dust, has turned into a scandal that the jewelry industry fears may cause more damage to its reputation than the outcry over 'conflict diamonds.' ?

"The victims of silicosis tell of laboring in factories where the windows were sealed, a few fans substituted for air-conditioning and workers had no face masks to protect them from a fog of lethal particles."

--I wrote a while back that one of the least likeable men on the planet was former Disney CEO Michael Eisner. Well I guess I'm not the only one with that attitude. According to the Drudge Report, Eisner's ratings for his new interview show on CNBC were zero?as in 95,000 households.

--As if France didn't have enough problems, its share of the global wine market has declined to 19 percent from 25 percent in 1999.

--The "Today" show had a segment on how difficult it is to cash in frequent flyer miles, let alone how much it takes to get a reward. Here's a personal example for you. Five years ago I went to Micronesia, a rather long trip, and used my miles on Continental to fly business class the entire route. It was 80,000. I'm headed back in about three weeks and it is taking 240,000 to travel in style without dying of deep-vein thrombosis.

Foreign Affairs

Ukraine: Well, my pre-election analysis was darn good, if I may say so myself, and the final vote tally for the key parliamentary election here last Sunday showed that Viktor Yanukovich's pro- Russian Regions Party finished first with 32%, while President Viktor Yushchenko's Orange Party ended up a dismal 3rd (14%) behind rival Yulia Tymoshenko (22%). Tymoshenko is claiming she should be prime minister (a position with greatly increased powers under recent amendments to the constitution) and Yushchenko is being coy as to whether or not he will join forces with the woman he fired as prime minister last year, or, align himself with Yanukovych, the ex-con (two stints in prison for hard crimes) who was responsible for the Orange Revolution in the first place by rigging a 2004 vote when he was running for president, as then prime minister.

It's a mess, and as in the case of Iraq and Israel, two others with recent elections, forming a viable coalition won't be easy. However, the vote was free and fair and there's a lot to be said for that.

Former Czech Republic president Vaclav Havel, the man I've long touted to replace Kofi Annan as Secretary General of the United Nations, had the following in an op-ed for the Daily Star.

"All revolutions, in the end, turn from euphoria to disillusion. In a revolutionary atmosphere of solidarity and self-sacrifice, people tend to think that when their victory is complete, paradise on Earth is inevitable. Of course, paradise never comes, and - naturally - disappointment follows. That seems to have been the case in Ukraine, where President Viktor Yushchenko, who best embodied the so-called Orange Revolution last year, suffered a serious defeat at the hands of his political rivals?

"Post-revolutionary disillusion, especially after the revolutions against communism - and in Ukraine's case revolution against post-communism - is rooted in psychology. New circumstances imposed new challenges for most people. Formerly, the state decided everything, and many people, particularly in the middle and older generations, began to see freedom as a burden, because it entailed continuous decision-making.

"I have sometimes compared this psychological ennui to my own post-prison situation: for years I yearned for freedom, but, when finally released, I had to make decisions all the time. Confronted suddenly with many options every day, one starts to feel a headache, and sometimes unconsciously wants to return to prison.

"The depression is probably inevitable. But, on a societal scale, it is eventually overcome, as new generations grow up. Indeed, 15 years after the disintegration of the Soviet Union, a new catharsis seems under way, and Ukraine's Orange Revolution was part of that."

[Part II of Havel's comments next week.]

India: Defense News reports that India was training Iran's navy as part of a three-year agreement, but the U.S. is willing to look the other way on this (as would I), saying Washington's beef with Iran is not about oil and India's deal with Iran and training is about India ensuring its supply of energy.

Of course the much bigger issue concerns the recent nuclear agreement between the U.S. and India and there was more talk this week that Congress is ready to scuttle the deal unless changes are made.

Defense News editorialized:

"Among the goals of the Pentagon's recently issued Quadrennial Defense Review is to influence other countries at 'strategic crossroads.' The names of these countries are left unstated, but their identities can be deduced. China is one; India is another."

But Defense News, in commenting on the "ground-breaking nuclear agreement" between Washington and New Delhi, opines (and by way of background for those not familiar with it):

"In an apparent upending of logic, the deal puts 14 of India's civilian, power-generating reactors under the scrutiny of the International Atomic Energy Agency, and exempts eight military facilities from inspection. The deal even allows India to install additional fast-breeder reactors, which can make weapons-grade plutonium, at these inspector-free military facilities.

"All this for a country that refuses to sign the Nuclear Nonproliferation Treaty (NPT).

"In return, the United States gets, well, nothing that particularly advances the administration's self-proclaimed effort to counter nuclear proliferation. If India gets the same rewards as NPT signatories - nuclear fuel and technology - without submitting to the pact's restrictions, what incentive have the rest of the world's countries to adhere to their promises?"

The U.S. gets weapons sales, but more importantly it is seeking warmer relations with the largest democracy on earth and an emerging economic juggernaut that also happens to border China, another economic powerhouse with a not so free government. You know where I stand. The United States must have India in its corner.

At the same time, I can understand why some, including former senator Sam Nunn and former president Jimmy Carter, are expressing misgivings. Last week I wrote of Nunn's angst, this week Carter weighed in.

"It must be remembered that there are no detectable efforts being made to seek confirmed reductions of almost 30,000 nuclear weapons worldwide, of which the United States possesses about 12,000, Russia 16,000, China 400, France 350, Israel 200, Britain 185, India and Pakistan 40 each - and North Korea has sufficient enriched nuclear fuel for a half-dozen. A global holocaust is just as possible now, through our mistakes or misjudgments, as it was during the depths of the Cold War."

No argument here. Carter adds:

"The five original nuclear powers (U.S., Russia, China, France and Britain) have all stopped producing fissile material for weapons, and India should make the same pledge to cap its stockpile of nuclear bomb ingredients. Instead, the proposal for India would allow enough fissile material for as many as 50 weapons a year, far exceeding what is believed to be its current capacity."

Of course the argument Carter and others of his ilk make is that the U.S.-India deal will only encourage proliferation and soon we'll have a world where Japan, Brazil and South Africa, to cite a few examples, let alone Iran, Syria, and Saudi Arabia, will be part of a new arms race. Carter writes, "Why should they adhere to self-restraint if India rejects the same terms?"

It's all very logical?but it simply doesn't address the facts of today's world. China and Pakistan, in particular, are going to slave away making one bomb after another regardless of this deal and, in the case of China, any prior commitments. You think they'd stop, just because India one day woke up and said, "OK?40 is enough"? Heck no. And remember, one bullet to President Musharraf's head and India better hope it's kept up. You don't have to like it, but this is reality.

As Kaushik Kapisthalam, a defense analyst, wrote in an op-ed for Defense News, "Indian leaders were shocked to see recent reports of a Chinese effort to supply nuclear reactors and missiles to Bangladesh," for crying out loud.

"It is in this context that the Indo-U.S. nuclear accord may be viewed as a hedge against China. First, the NPT of 1970 allows China to possess and expand its nuclear arsenal as a recognized weapons state. This means that despite several egregious violations of the treaty, China is still able to expand its arsenal and buy civilian nuclear reactors and uranium in the open market with perfunctory safeguards?.

"India, on the other hand, failed to test a weapon before the NPT cutoff date and had a choice of either joining the treaty as a second-class citizen or be an outlier. It chose the latter.

"However, India never tried to undermine the NPT and exhibited exemplary proliferation behavior, even in the face of repeated provocation in the form of Chinese nuclear transfers to Pakistan. Meanwhile, even in isolation, Indian nuclear scientists were able to master the nuclear fuel cycle, reprocessing and fast-reactor technology.

"After India tested nuclear weapons in 1998, its leaders believed that China would sit down and talk mutual restraints with New Delhi. That did not happen. China refused to extend its 'no- first-use' nuclear doctrine to India and stepped up its nuclear and missile proliferation to Pakistan."

[I will have more from Mr. Kapisthalam next week.]

The White House and India are going to have to make some concessions to get the agreement through the U.S. Congress and it's going to take an intense diplomatic effort. To yours truly, it is absolutely critical it succeed.

Afghanistan: Abdul Rahman, the fellow who converted to Christianity and was threatened with death for it, was declared mentally unfit and in an underrated gesture of support for the U.S. and the coalition, Italy took him in since Rahman's remaining in Afghanistan would have spelled death within 24 hours. The consequences for President Hamid Karzai, though, are far from over. Too many people wanted Rahman dead and they won't forgive Karzai for pressuring the clerics to accept a watered down ruling.

Belarus: The government has arrested about 1,000 protesters, according to best estimates, including #2 opposition leader Alexander Kozulin who now faces up to six years in prison. In his case, though, it probably wasn't a smart thing to say at a rally, "Let (President) Lukashenko leave the last bullet for himself." Nope, not exactly prudent. Separately, the former Polish ambassador here was also arrested and allegedly beaten, while Canada is demanding the release of a journalist covering events in Minsk. The main opposition leader, Alexander Milinkevich, is calling for a large protest in late April.

But on the gas front, Russia's Gazprom now wants to hike the price charged Belarus by five times in order to bring it in line with the rest of Europe. Talk about gratitude. Here Lukashenko rigs the election to do Vladimir Putin's bidding and this is what he receives in return?

Belarus, of course, has had heavily subsidized gas for being such a loyal Kremlin boy, though now it's all about Russia gaining control of the entire natural gas apparatus. What Gazprom really wants is control of the pipelines coursing Belarus which then feed parts of Western Europe.

Lebanon: Talk about another mess?it only gets worse here in terms of a totally dysfunctional government and a country with divided allegiances.

On Thursday, Hizbullah chief Nasrallah vowed his party will not disarm and that the resistance "will cut the hand and head of those who attempt to disarm it by force and rip their souls out; however, we are ready to discuss the issue on the table."

Bring your gun.

Japan: In another significant move away from the nation's pacifist constitution, the ruling Liberal Democratic Party is proposing legislation that would allow for the militarization of space, self-defense only.

Bulgaria: An "ally of the week" candidate for announcing it will allow the United States to use its bases for operations in the region. Look at a map. It's quicker to get from southern Bulgaria to Damascus, for example, than to get there from Dubai.

France: According to an Ipsos poll, when asked "What does globalization mean to you?" 48 percent of people between the ages of 20 and 25 responded, "Fear."

"Fear of what?" the Washington Post's Molly Moore asks. "Just about everything, according to Christophe Lambert, author of another examination of contemporary France, 'The Fearful Society.' The country, he writes, is paralyzed by 'fear of the future, fear of losing, fear of others, fear of taking a risk, fear of solitude, fear of growing old.'"

Brian Duffy of U.S. News & World Report writes of the current controversy over Prime Minister de Villepin's labor proposal.

"The issue, of course, is jobs, and with nearly 1 in 5 young people unable to find work in France, it's hard not to be sympathetic. And yet for all the alleged erudition they have acquired at elite places of learning like the Sorbonne, it's also hard to fathom their inability to grasp the profundity of the problems afflicting France and its antiquarian economic underpinnings. They call themselves 'the Kleenex generation,' used and tossed aside. One understands the sentiment. But one must also understand that the 35-hour workweek, the six weeks of paid annual leave, the jobs for life are as endangered a species as the dodo bird. None of the kids outside Napoleon's tomb want to hear it, of course, but change happens. Just ask the folks at GM."

[On Friday, President Jacques Chirac said he would sign the controversial labor law, though with provisions in an attempt to defuse tensions. It won't work.]

Italy: Prime Minister Silvio Berlusconi, in the midst of a heated campaign, said on state-run radio, "We don't want Italy to become a multiethnic, multicultural country. We are proud of our traditions." You know one thing I couldn't get in Ukraine? Veal parmigian. "Week in Review" continues?????.

Germany: There are growing concerns here about the security risk posed by far-right, neo-Nazi groups in conjunction with the holding of the World Cup which starts June 9. German officials fear the Nazis will use it to increase their profile. Iran qualified and this poses unsettling concerns.

Australia: The Aussies have had some problems recently with Chinese fishing vessels, seizing two in an incident this past week. One vessel from a previous operation had 600 tons of fish, caught without a license. Unfortunately, the law is such that it is virtually impossible to do anything to the individuals involved but Australian officials fear a confrontation is looming between foreign poachers and angry Aussie fishermen.

"Things are going to explode up here," fisheries spokesman Doug Rogers told (the South China Morning Post). "What are our rights as Australians to defend ourselves in Australian waters against people we believe are basically pirates?"

What's different these days is where in the past Australia's problem was with boats from Indonesia, the latest incidents involve ships formally registered to the People's Republic of China; ergo, it's as if it's government sanctioned poaching.

And so you shouldn't be surprised I use this as yet another example of my proposed U.S., U.K., Australia, India and Japan alliance; the Fab Five.

In fact, wouldn't you know that Prime Minister Tony Blair was in Australia this week, warning again of the "madness" of anti- Americanism in Europe.

"We need them involved. We want them engaged. The reality is that none of the problems that press in on us can be resolved or even contemplated without them."

But, as the London Times reported, "The centerpiece of Mr. Blair's speech was a call for a new global alliance representing universal values. The alliance did not end with America but began with her, and it required an active foreign policy of engagement, not isolationism.

" 'If we want to secure our way of life, there is no alternative but to fight for it. That means standing up for our values, not just in our own country but the world over,' he said.

"Mr. Blair made plain that he wanted Australia on board."

Yes, the alliance is taking shape. Unfortunately, as I noted last time, while the leaders of the Fab Five are currently in synch, the odds of this always being so when they leave office are not so good.

---

Pray for the men and women of our armed forces.

God bless America.

---

Gold closed at $583
Oil, $66.32

Returns for the week 3/27-3/31

Dow Jones -1.5% [11109]
S&P 500 -0.6% [1294]
S&P MidCap +0.7%
Russell 2000 +1.5%
Nasdaq +1.2% [2339]

Returns for the period 1/1/06-3/31/06

Dow Jones +3.7%
S&P 500 +3.7%
S&P MidCap +7.3%
Russell 2000 +13.7%
Nasdaq +6.1%

Bulls 46.7
Bears 28.3 [Source: Chartcraft / Investors Intelligence]

Have a great week. I appreciate your support.

Brian Trumbore

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