Educate Yourself

Week in Review
For the week 4/3/2006 - 4/7/2006
Brian Trumbore
President/Editor, StocksandNews.com

Almost four months after the December vote for a permanent parliament that was to then form a new government, the full legislature has met for all of 30 minutes and the selection of a cabinet and prime minister is still in question. The United States and Britain continued to apply pressure on interim Prime Minister Jaafari to step down this week, but as of this writing he refuses to do so and now the ruling Shiites are increasingly upset at the U.S. for "interfering" in the political process.

"The realists say that Iraq can't transform itself because it lacks the right established institutions and traditions, and because Islam and democracy simply can't mix. But that analysis presupposes that the people of Iraq simply aren't ready or able or capable of governing themselves as we in the West do - the message of the (Condoleezza) Rice-(Jack) Straw trip is actually something entirely different.

"The problem in Iraq isn't that the masses want and need a strongman or a religious dictator to take charge of them, or that the masses want something other than democracy.

"They voted, at great personal risk, in overwhelming numbers on three separate occasions in 2005 - culminating in the December balloting in which an astounding 80 percent of those eligible took part, with even the Sunni Arabs turning out.

"The Iraqis voted in a slate of candidates to draft a constitution, then they voted to ratify that constitution - and then they voted for parliamentary candidates whose job it is to represent them.

"And what has come from it? The astounding dereliction of Iraq's elites, the supposed leaders and future leaders of the country."

"If Baghdad remains a killing zone, where Iraq's leaders can safely gather only under U.S. protection, then the prognosis for the Iraqi national identity, which has always had Baghdad at its center, is poor. Lasting political compromises will probably be impossible if the increasingly vicious sectarian strife in Baghdad and its environs intensifies. Within a year, at most two, Iraq could become Algeria?.

"We are now in the unenviable position of having to confront radicalized, murderous Shiite militias, who have gained broader Shiite support because of the Sunni-led violence and the lameness of U.S. counterinsurgency operations. The Bush administration would be wise not to postpone any longer what it should have already undertaken - securing Baghdad. This will be an enormously difficult task: Both Sunnis and Shiites will have to be confronted, but Sunni insurgents and brigands must be dealt with first to ensure America doesn't lose the Shiite majority and the government doesn't completely fall apart. Pacifying Baghdad will be politically convulsive and provide horrific film footage and skyrocketing body counts. But Iraq cannot heal itself so long as Baghdad remains a deadly place. And the U.S. media will never write many optimistic stories about Iraq if journalists fear going outside. To punt this undertaking down the road when the political dynamics might be better, and when the number of American soldiers in Iraq will surely be less, perhaps a lot less, is to invite disaster.

"The Iraqis and the Americans will either save or damn Iraq in the coming months. Quite contrary to the purblind charges of Michigan's Democratic Sen. Carl Levin, the Iraqis really are doing their part - better than what anyone historically could have expected. The real question is, will Gen. Abizaid and Defense Secretary Donald Rumsfeld do theirs?"

Speaking of Rumsfeld, a national embarrassment and a blot on President Bush's legacy, he made an incredible statement this week disputing Secretary of State Rice's statement in the UK that "thousands" of tactical errors had been made in conducting the Iraq war.

"The enemy watches what you do and then adjusts to that, so you have to constantly change your tactics."

The New York Times' Thomas Friedman commented on Rumsfeld's remark, Friday. [Friedman has the above quote a little different from what I obtained from another source.]

"Where does one even begin? First of all, Secretary Rice is wrong that the Bush team's mistakes in Iraq were purely tactical. Under Mr. Rumsfeld's direction, it made a monumental strategic error in not deploying enough troops to control Iraq's borders and fill the security vacuum we created by bringing down Saddam - a vacuum that has since been filled by looters and scores of head-chopping sectarian militias and gangs."

Appearing on "Meet the Press," Retired Gen. Anthony Zinni was incredulous Rumsfeld has yet to be fired. In discussing why Bush has failed to act, Zinni commented "integrity is more important than loyalty."

On Friday, three suicide bombers blew themselves up at a Shiite mosque in Baghdad, killing over 70. Earlier Iraqi security forces had issued a warning that seven car bombings were planned, amidst fears that militias had infiltrated the Interior Ministry; which they have.

But when one focuses on this war and the carnage, I also tend to think about the brain drain. You've all seen the stories of how even the doctors are fleeing, as they themselves have become targets for kidnapping and assassination. Knowing the nation's best and brightest are needed to lead Iraq out of the morass if security is ever restored, who will be left, outside of a few corrupt officials who are eager to divvy up the oil revenues?

The Washington Post reported that the mullahs are prepared to unleash a reign of terror should the West launch a preemptive strike on suspected nuclear facilities, including the use of Hizbullah. Israeli military officials also believe that Iran has set up a sophisticated intelligence-gathering operation in Lebanon to identify targets in northern Israel. Senior Israeli commanders told the UK's Daily Telegraph that Hizbullah has established a network of control towers and monitoring stations along the border, many just 100 yards from Israeli army positions.

Meanwhile, Iran held war games and issued one announcement after another about new sophisticated weapons systems. U.S. and Israeli intelligence discounted most of their claims, but the report of a new torpedo does add credence to the belief that Iran could easily shut down the Strait of Hormuz, the most important chokepoint for the flow of oil in the world, by taking out a tanker or two, as well as a warship protecting same.

And then you had Iran's ambassador to the United Nations, Javad Zarif, state in an op-ed for the New York Times:

"The controversy over Iran's peaceful nuclear program has obscured one point in particular: There need not be a crisis. A solution to the situation is possible and eminently within reach.

"Lost amid the rhetoric is this: Iran has a strong interest in enhancing the integrity and authority of the Nuclear Nonproliferation Treaty. It has been in the forefront of efforts to ensure the treaty's universality. Iran's reliance on the nonproliferation regime is based on legal commitments, sober strategic calculations and spiritual and ideological doctrine?.

"We are party to all international agreements on the control of weapons of mass destruction. We want regional stability?.

"Pressure and threats do not resolve problems. Finding solutions requires political will and a readiness to engage in serious negotiations. Iran is ready. We hope the rest of the world will join us."

I cut the ambassador a break in how I edited his piece. This is nonetheless laughable.

"Newly-installed Palestinian Authority Foreign Minister Mahmoud Zahar on Sunday reiterated Hamas's desire to eliminate Israel and replace it with an Islamic state?.

"His statements (to Chinese news agency Xinhua) stand in sharp contrast with Hamas's attempt to project a conciliatory and pragmatic image following the movement's landslide victory in last January's parliamentary election."

But later in the week, Zahar hinted Hamas may be amenable to a two-state solution if that is what the Palestinian people desire, while he still refused to accept Israel's right to exist. Prime Minister Haniyeh also has yet to recognize Israel, a minimal first step Hamas must take before Israel would contemplate holding any kinds of talks, let alone cough up back duties owed it. Hamas also won't see any money from both the U.S. and European Union as they announced they will channel funds to UN aid agencies, not directly to the Palestinian government.

For years some have warned about the current account deficit, the broadest measure of trade. Personally, I've been more focused on issues like real estate, but it would appear the chickens may finally be coming home to roost when it comes to our debts.

"An economy the size of the United States cannot run large current account deficits indefinitely," he told an economics forum in London on Thursday. Eventually countries investing in the United States, such as China, Japan, developing East Asian nations and major oil exporters, "will reach their desired allocations of U.S. assets. They're going to want to invest in their own countries," though as always the timing of such a trend is hard to estimate. [Reuters]

Mohamed El-Erian, formerly of PIMCO and now head of Harvard's endowment as well as an expert on emerging markets and debt issues, told Bloomberg News that the accumulation of reserves by poorer countries and their decision to use much of the money to finance the U.S. budget deficit through the purchase of Treasury securities is "highly unusual." El-Erian calls it a "stable disequilibrium" which helps explain how long- term rates have remained so low even as the deficits grew.

"The poor countries are funding the rich country," El-Erian said. "At some point - and the big question is at what point - the disequilibrium will dominate the stability."

The situation has remained stable because it is "in the interest of the countries involved," El-Erian said. For the U.S., running a deficit enables it to consume, while the creditor nations are enabling the consumption that is fueling their exports.

Looked at another way, the U.S. is soaking up 2/3s of global savings in order to finance its consumption. [Spencer Jakab / Wall Street Journal] But on Friday we had a whiff of a sentiment change as there is growing consensus Japan is closer than initially thought to raising their interest rates and, coupled with the perception that wage pressures could mount in the U.S. as the economy continues to create jobs, the bond market tanked, with the 10-year Treasury finishing the week at 4.96%.

The battle has been joined. Global growth vs. rising interest rates. As noted over the past few months, for its part Europe is definitely on the rebound, too, further fueling demand for commodities, for example, as items like gold, silver and copper soar to new 20-year+ highs or all-time levels. Commodities are the staple of the emerging markets and have thus generated the huge cash flows addressed earlier, while the hedge fund community has been increasing its own direct exposure to the sector.

China has yet to slow down, either. GDP growth in Shanghai, for instance, was at a 12% annualized rate in just the first quarter.

And then there's the global bubble in real estate. Here in the U.S., the National Association of Realtors issued a report that lent further credence to the excessive speculation in our market, as a full 28% of homes purchased in 2005 were for investment purposes while an additional 12% were vacation homes. In other words 40% were second homes. It used to be two cars in every garage. Now you have room for four or five.

ISI's Andrew Laperriere did a piece in the Weekly Standard on real estate and talked of the price-to-income ratio being 8-1 today, double the average of the past 30 years, while the price-to- rent ratio is totally out of whack as well. For example, in some regions renting a condo is ? the cost of a standard monthly mortgage payment (all in and calculating for property taxes, the income tax deduction, condo fees, etc.); yet so many keep buying rather than renting.

So add it all up, throw in the "competition for the investment dollar" angle (the higher rates go, the better the comparison against stocks in looking at shorter-term paper and money market instruments), and it's increasingly hard to envision a soft landing.

And to follow up on my story last time about Chile and the average Chilean's exploding credit card debt, a new experience there, I have to make note of a headline I saw in the Star-Ledger here in New Jersey.

The meat of the article was actually about how an India-based bank was going to clean up on fees and such, but also noted "while the average Indian consumer once regarded debt as a shameful burden, today India's growing middle class perceives plastic as a 'status symbol.'"

Uh oh. Chile, India?soon China?all of whom help finance our debts but will increasingly have problems taking care of their own liabilities, thus leaving the U.S. out in the street, holding a sign:

Randall Forsyth wrote the following in the April 3 edition of Barron's, in discussing how the Bush administration appears hell-bent on shoving Treasury Secretary John Snow out the door because "he doesn't communicate forcefully enough the good news about the U.S. economy, for which the (administration) is Johnny on the spot to take credit." [As was again the case this past Friday following another solid report on employment.]

"Apparently what's needed, in the estimation of incoming White House Chief of Staff Joshua B. Bolten, is somebody who can really trumpet the message out there. A man or woman who can get up there and bang the pulpit: Hey, you, Mr. and Mrs. America, unemployment is under 5%, better than when Bill and Hill were in the White House. And, don't you know that inflation is only about 2%? Well, it is, the way the eco- cognoscenti count it: personal consumption expenditures, stripped of food and energy costs. Want to take advantage of lower prices? Go buy a flat-screen TV or a digital camera, not something frivolous like gasoline that's up 10% since you last filled the tank. Medical costs? Rising mortgage rates? Your job and pension might be disappearing? Stop whining. You never had it so good, but you just don't know it. Boo-yah!"

--It was a week where the three major averages were collectively as close to unchanged as you'll ever find. The Dow Jones was up 11 points to 11120, while the S&P 500 picked up a point and Nasdaq lost a fraction of one. Intra-day volatility, however, was a constant factor and the market took it on the chin Friday thanks to rising interest rates. The March employment report was solid, but there are still concerns wage pressures will gain steam if the jobs picture continues to improve. Thus inflation fears are trumping the positives of a good economy, at least for today. All manner of Fed speakers during the week, however, were once again sanguine on prices.

The other economic data for the week was actually mixed as the leading measure of the service sector, as well as a reading on construction were up, but retailers reported disappointing sales figures for March. Meanwhile, gold hit the $600 level at one point for the first time since 1981, thus helping to fan the inflation fears.

As for mortgages, the rate on a 30-year fixed is suddenly up to 6.43% and will be higher still unless bonds rally.

PIMCO's Bill Gross recently commented in his piece for pimco.com on the current environment.

"When one can buy a U.S. agency guaranteed FNMA mortgage at a higher yield than almost all emerging market debt, then there exists an irrational pricing of credit. In general, almost all risk and associated 'premia' are now trading at illogically low levels and as Alan Greenspan warned just months ago, history has not dealt kindly with the aftermath of protracted periods of low risk premiums. 'Periods of relative stability,' in fact, 'often engender unrealistic expectations of permanence and at times lead to financial excess and economic stress,' he said."

--As is their wont, the Federal Reserve just released transcripts of its deliberations from 2000 and it's clear they totally missed the tech bust.

For example, Federal Reserve Governor William Poole commented in October of that year after some leading companies in the sector began to warn of tougher times ahead. "Is there something there that those companies are seeing that we're not seeing?"

Then, according to the transcripts, Alan Greenspan offered, "There is nothing terribly significant going on in the economy excluding energy."

As Greg Ip of the Wall Street Journal points out, the Fed was reluctant to cut interest rates even as the slowdown became apparent, having last raised them that May. "They thought tight labor markets and high energy prices threatened to raise inflation."

Finally, in December 2000, Greenspan acknowledged that growth had "unambiguously moved down dramatically." The Fed cut rates shortly thereafter but it was already too late to stop the slide.

So the obvious question is will history repeat itself? Will the Fed again go too far? Of course it will; it always does.

--Venezuela continues to jerk foreign energy companies around, this week demanding France's Total and Italy's ENI renegotiate prior agreements to better the Chavez government's share of the profits.

--China's CNOOC began pumping natural gas from a disputed field in the East China Sea. Japan admits the well is in Chinese waters but the issue is China drawing from Japanese fields?

--The German government approved a $1 billion loan package for Russia's Gazprom while Gerhard Schroeder was still chancellor; four weeks before he left office and six weeks before he accepted a top position with them to oversee a North European gas pipeline project. Schroeder is under intense pressure to quit the job, while for his part he offers that the pipeline is in Germany's best interest, as most current members of the government would agree.

--Auto sales for domestic manufacturers were once again dismal in March; GM's fell a whopping 14% and Ford's 4.6%. DaimlerChrysler's rose slightly while Toyota's were up a solid 6.9% as it continues to take away market share from the Big Three.

But the Journal reports most hybrid models, except for the Toyota Prius and Honda Civic Hybrid, are not selling after an initial splash. Consumer Reports said "only two of six hybrids it studied recovered the price premium after five years and 75,000 miles."

--Delta pilots are scheduled to go on strike April 17, in what could be the final death-knell for the airline.

--Shares in Apple Computer went ballistic, rising $10 at one point on news the company was going to offer a software patch allowing Mac users to access Windows XP for the first time. According to early reviews the patch works like a dream and the move opens up Apple to potentially millions of new buyers.

Separately, in a long-running court case involving trademark infringement, according to a 2000 conversation with Neil Aspinall of Apple Corp., Apple Computer's Steve Jobs admitted he took the Apple name after the Beatles' music label.

--A jury found Merck liable in one of two Vioxx cases, ruling the drug was decisive in a heart attack suffered by a plaintiff. Merck will have to pay $4.5 million plus punitive damages, to be determined shortly, while harboring new doubts about its strategy of contesting hundreds, if not thousands, of other Vioxx cases.

--Bird flu continues to simmer with official word the H5N1 virus has spread to Britain, while it appears to be spreading in Germany.

--Interesting note on Hong Kong, related to the above story on Shanghai's continuing growth. Hong Kong is now worried about being marginalized due to mainland development. I can't say I've ever thought about this, but it's a distinct possibility.

--ExxonMobil is now #1 in revenues, according to the latest Fortune 500 list which ranks U.S. companies on sales; $350 billion in 2005 to Wal-Mart's $315 billion. Since 1954, only Exxon, Wal-Mart and General Motors have held the top slot.

--Speaking of GM, it sold a 51% interest in its financing arm, GMAC, for $14 billion but the deal is already getting panned because the buyer, private equity kingpin Cerberus Capital (whose vice chairman is Dan Quayle), has the opportunity to pull the plug if GM debt continues to get downgraded.

--Employees of the State Bank of India, which serves 30 percent of the country's bank customers, went on strike Monday demanding higher pensions; so now tens of millions can't access their accounts.

--Dan L. sent me a note the other day, musing how an old friend of ours, Harry Bingham, must be smiling up in heaven. I've mentioned this before but back when I was with PIMCO (where Dan also worked), Harry was manager of our precious metals fund and as national sales manager I was its leading proponent. But as soon as I left, PIMCO shut it down due to lack of assets as gold was out of favor. Oh, how the wholesalers must wish they had it in their quiver these days.

--According to the Employee Benefit Research Institute's annual retirement confidence survey, 68 percent of American workers are confident about having adequate funds for a comfortable retirement. At the same time, however, more than half of all workers say they've saved less than $25,000 toward retirement. Even among workers 55 and older, four in 10 have retirement savings under $25,000. [Eileen Alt Powell / AP]

--It's kind of amazing, but the 1991 "60 Minutes" piece extolling the health benefits of drinking moderate amounts of wine is still credited with having a big impact on wine sales in the U.S., according to vintners. Incidentally, two out of every three bottles sold in the U.S., including foreign producers, comes from California.

--My portfolio: I'm sticking with my roughly 80% cash / 20% equity split. While the S&P 500 was up 3.7% for the first quarter, I calculated the 80/20 allocation yielded about 1.4%; using the S&P for the equity portion and an average rate on the cash position based on a Merrill Lynch money market fund, as listed weekly in Barron's. I'll be keeping track of this throughout the year.

India: Congress began hearings on the agreement between the United States and India regarding the transfer of nuclear technology. It would appear there is cause for optimism that Congress will approve of the deal after all, a good thing as I've tried to spell out the past few weeks.

Democratic Senator Joseph Biden said, "It comes down to a simple bet we're making. It's a bet that India appreciates, as much as we do, that the two nations have the potential to be the anchors for stability and security in the world going into the 21st century."

Republican Senator Richard Lugar, while expressing concerns about the expansion of India's nuclear stockpile, praised the plan for allowing more inspections of India's facilities (though not the ones responsible for weapons production). The central question, according to Lugar, chairman of the Senate Foreign Relations Committee, is "How important is India?" Very. Secretary of State Rice told the Senate that India "could be a pillar of stability in a rapidly changing Asia."

Former Clinton-era Defense Secretary William Cohen had the following in an op-ed for the Wall Street Journal:

"Some argue that carving out an exception (to the Nuclear Nonproliferation Treaty) for India in the civilian nuclear sphere sets a bad precedent by rewarding India for developing its own nuclear weapons. Critics would liken India's behavior to Iran's or North Korea's and suggest that this agreement will encourage bad behavior by others.

"The moral equivalency argument fails a crucial reality test. Iran signed the NPT and then covertly used loopholes in the treaty to pursue its goal of developing nuclear weapons. North Korea, having cheated on its past agreements, has now completely withdrawn from the NPT. Moreover, both Iran and North Korea are known proliferators. India, by contrast, developed its nuclear program outside of the NPT. Importantly, it has not shared or distributed its nuclear material or technology to other nations or rogue groups?.

"(While the agreement is not perfect), fundamentally upgrading the U.S.-India relationship represents one of the most important strategic innovations in American foreign policy since the end of the Cold War. Congress should recognize and consider carefully this reality during its deliberations on the civilian nuclear agreement. It is time for two great countries to set aside historical misunderstandings, resolve differences, and move forward with a mutual commitment in promoting democracy, and establishing free and open markets."

Of course left unsaid from most of the comments this week was the real key?blocking China.

"Some may say that by helping India, America is sending dangerous signals to China. But the burden of strategic clarity lies equally with China, which has been sending threatening messages to India with its nuclear and missile proliferation, opaque ties with Indian neighbors and a refusal to discuss nuclear matters with New Delhi.

"India's nuclear weapon status, endorsed by the United States, is therefore likely to encourage moderate elements in Beijing's leadership to move toward transparency and accommodation. Equal access to nuclear power is also likely to abate the rising prospects of Sino-Indian resource tussles?.

"A strong and unshackled India, with its economic, military and, cultural influence in regions of Sino-Indian interest, gives China a choice between moderation and overextension of its geopolitical power. This will be an invaluable asset to the United States. But India and the United States, unlike China, share a commitment to democracy, free enterprise and counterterrorism, which means that the Indo-U.S. relationship is unlikely to turn antagonistic if and when the threat from China abates."

Russia: Appearing on "Meet the Press" Sunday, Senator John McCain fulfilled my wishes from last WIR to continue to stand tough on Russia in light of President Bush's own ongoing support of Russian President Vladimir Putin. The U.S. should "probably boycott" the G-8 in St. Petersburg, McCain said, noting that Putin seeks the "restoration of the Russian Empire" and that "Putin is an autocrat seeking consolidation of power with his old buddies in the KGB."

On the energy front, Putin and his KGB cronies running Gazprom are tripling the rates charged Belarus, cashing in on their support of President Lukashenko in his recent campaign, but it's all really about the fact 20 percent of Russia's gas exports and 50 percent of its oil transits through Belarus. Gazprom has long been seeking control of Belarussian pipeline monopoly Beltransgaz and it will be interesting to watch developments here over the coming year or so.

Finally, Russian Foreign Minister Sergei Lavrov responded to growing criticism of the Kremlin's policies toward human rights groups and its use of the oil card as a political weapon.

"We often hear from some countries that Russia is becoming strong and unpredictable. But this is not the case. In the 1990s, when the Commonwealth of Independent states was disintegrating and there were fears of Russia breaking up too, some people in the West said they wanted a strong and united Russia. Now we are here. They should be grateful." [International Herald Tribune]

China / Taiwan: Chinese President Hu Jintao is going to be in the U.S. from April 18-22. Aside from his time in D.C., Hu will be visiting Boeing and having dinner with Microsoft's Bill Gates. Mr. Gates will bring up the issue of piracy and Hu will undoubtedly offer to purchase more Windows operating systems. Additionally, representatives from over 100 Chinese companies are said to be lining up deals with counterparts in 13 U.S. states, including in the areas of agriculture, autos, and electrical products aside from the aforementioned aerospace and software. But while this is good short-term, it does little to ameliorate longer-term concerns on the trade front.

And then there's Taiwan. Taiwan's President Chen Shui-bian once again addressed the growing missile count across the Taiwan Strait.

"The number of ballistic missiles targeting Taiwan has topped 787 from 200 in the year 2000?.Is this goodwill or part of its preparations for invading Taiwan?

"They have come up with a three-stage timeframe of using force against Taiwan. They plan to beef up their emergency warfare capabilities by next year, and large-scale warfare capabilities against Taiwan by 2010 and capabilities to have a military showdown with Taiwan by 2015, according to the information we have collected."

I don't know what information Chen is referring to, but he has to know China could decapitate the Taipei government at a moment's notice.

Ukraine: Little has happened since the March 26 parliamentary vote and the structuring of a governing coalition has yet to come to fruition. President Viktor Yushchenko, whose Our Ukraine party finished a dismal third, now wants to reform the Orange Revolution team with the woman he canned as prime minister just last year, Yulia Tymoshenko. Tymoshenko won't agree to this, however, unless she is renamed prime minister.

But I just want to finish last week's piece concerning the opinion of former Czech President Vaclav Havel.

"As Ukraine so clearly showed, the process of self-liberation from communism was by definition associated with a gigantic privatization program. Naturally, members of the old establishment, with their inside knowledge and connections, gained much of the privatized property. This 'inevitable' process poisoned political life and the media, which led to a strange state of limited freedom and a mafia-like environment. The shadings differed from country to country in the post-communist world, but the new generations rising in these societies now seem fed up with it.

"Ukraine's Orange Revolution and Georgia's Rose Revolution confirm this. While revolutions in the late 1980s and early 1990s were directed against totalitarian communist regimes, nowadays they aim to get rid of this mafia-type post-communism?.

"Some of Russian President Vladimir Putin's statements seem to recall the Soviet era with nostalgia. Indeed, he recently called the disintegration of the Soviet Union a tragic mistake. But Soviet nostalgia has far more to do with Russia's traditional great power ambitions than with communism. Russia, I believe, should clearly say - and the international community should clearly say to Russia - that it has defined borders that will not be questioned, because disputed borders lie at the core of most conflicts.

"The promise of Western integration is one reason that conflict seems impossible, for it is a question of geography as much as shared values and culture. Ukraine belongs to a united European political entity; the values that Ukraine endorses and that are embedded in its history are European to the core. The Czech experience shows that implementing all of the European Union's norms so as to be ready to qualify for membership takes some time. But in principle, Ukraine can succeed as well."

Thailand: What a bizarre and rather unsettling situation here. Prime Minister Thaksin won his snap election with 57 percent, but after conferring with the revered king, Thaksin opted to step aside because of the large protest vote and the fact the leading opposition parties boycotted the election.

However, the billionaire businessman turned politico also said he would stay in parliament and continue to lead his party which has a solid majority. So has anything really changed?

"Mr. Thaksin is no uniformed strongman or crude kleptocrat, and contemporary Thailand is a world away from the Southeast Asian dictators ousted in the late 20th century. His fall is a murky affair, fraught with troubling ironies and risky precedents?.

"Thais know perfectly well what is said about Mr. Thaksin but they voted for him anyway. A massively popular leader called an election; a minority opposition first boycotted it, then drove him from power.

"Their tools were twofold: street protests led by an urban elite; and the intervention of an unelected monarch. How can such actions be justified in a democracy? The worst answer came from Chamlong Sriumuang, leader of the anti-Thaksin mob. 'They don't have enough information,' he says of the Prime Minister's supporters. 'Otherwise they'd act the same way as we do.'"

Australia: First, Australia announced it had signed a series of agreements to supply China with uranium, Australia having 40% of global reserves. So to some this was a bit disturbing. But then a few days later, Taiwan confirmed it had signed contracts with Aussie uranium producers as well.

Philip Bowring of the International Herald Tribune weighed in on the bigger issue for now.

"(How) far can Australia go with its China relationship without upsetting the United States and Japan? In all the euphoria over deals with China, it is sometimes forgotten here that Japan is still by far Australia's largest export market, with America second. And despite the minerals boom, Australia has a trade deficit with China. With the China-Japan relationship shaping up as the most dangerous medium- to long-term threat in East Asia, Australia may at some stage be forced to choose between its old ally, the Japan-aligned United States, or attempt a neutrality that could be dangerous for a nation with many resources, including uranium and natural gas, but few people - and no nuclear weapons?.

"So though it may be nice for Australia to be visible on the global stage for reasons other than sports, it might have been more comfortable remaining a prosperous, medium-sized nation that the world was happy to ignore. Resources can be a curse as well as a blessing."

France: With each video of protesters in the streets of Paris, this time over the "first job contract" labor law just signed by President Jacques Chirac, though with modifications to be worked out, you've got to believe another tour group is rerouting away from the place.

Italy: Prime Minister Silvio Berlusconi is in the fight for his political life, slashing and burning on the campaign trail and calling left-wing voters?heck, I can't even use the term. Voting begins Sunday.

Kuwait: Women voted in council elections for the first time here and in 2007 they will cast ballots in full legislative elections; solid progress.

Dow Jones +0.1% [11120]
S&P 500 +0.1% [1295]
S&P MidCap -0.0%
Russell 2000 -1.2%
Nasdaq -0.0 [2339]

*For the record, last week I listed the Dow Jones World index, ex-U.S., performance thru 3/30. For the full quarter it was up 8.8%.

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