Week in Review 
For the week 4/16/2007 - 4/20/2007
Brian Trumbore
President/Editor, StocksandNews.com

Wall Street?and China

No mystery why the Dow Jones hit one new all-time high after another, while the S&P 500 is within striking distance of its own record level. Earnings have been coming in better than expected and the March reading on core consumer prices (ex-food and energy) was tame and is now up just 2.5% year over year. So you can argue all you want that this isn't a true indication of the pricing picture, especially in as much as it ignores gasoline, beer and Cheetos, the things we really consume, but tough. From a market standpoint there is absolutely no way the Federal Reserve is hiking interest rates, as I've been saying for some time now, especially given the latest CPI data.

And while earnings are decelerating from years of double-digit growth, so far they aren't bad. Yes, I'm a cynic and it's easy to manipulate expectations, but sometimes you might want to forget earnings per share and just think of the fact a company like Google just earned $1 billion. Those of us who sometimes get down on America should be simply smiling at this. It's further proof that despite all our problems, somehow we keep coming up with ideas that the world is envious of.

Of course this doesn't mean that everyone is participating in the boom, around the world for that matter. But I thought I'd share some thoughts from my favorite economist, Robert Samuelson (Washington Post).

"(The) inequality debate is misleading. Up to a point, inequality is inevitable and desirable. The prospect of doing well encourages people to work hard, develop new skills and take risks. It anchors America's entrepreneurial spirit and economic success. Most of today's rich have earned - not inherited - their status. Among the top 1%, more than four-fifths of income comes from salaries and self-employment. In 1916, the top 1% relied far more heavily on income from dividends, interest and rent.

"The question of whether the rich pay their 'fair' share of taxes has triggered one of those debates in which both sides are half right. It's true, as liberals say, that the Bush administration pampered the rich. Tax cuts on capital gains (stock profits) and dividends weren't needed as incentives. Ending the estate tax would be similarly unwise. But it's also true, as conservatives say, that liberals popularize the fantasy that taxing the rich more will solve most budget problems.

"It won't. The richest 10% already pay half of all federal taxes, including the 25% paid by the top 1%. Just how much these taxes could be raised without dulling economic incentives and stimulating massive tax avoidance is unclear. But increasing the taxes on the top 1% by 25% wouldn't cover even today's budget deficit, let alone pay for new programs (universal health insurance, more school aid) or baby boomers' retirement costs.

"It would be healthier if the trend toward greater economic inequality reversed itself spontaneously. The poor aren't poor because the rich are richer. Their poverty reflects low skills, poor work habits or bad luck. But if the middle class thinks the rich are grabbing most of the gains from economic growth, they will feel resentful. The result could be a self-defeating debate over income redistribution, not growth. To paraphrase economist John Maynard Keynes: The rich are tolerable only so long as their gains can be held to bear some relation to roughly what they have contributed to society."

And don't you know they have problems of income inequality on an enormous scale in China these days. You know how you can be doing the same thing, over and over again, when suddenly something clicks and you have your "Ah ha!" moment? I've been to Asia five times since 2001, from Singapore to Seoul, and aside from the fact in about 40 days over those journeys I've seen the sun for all of five hours total (more on this in a moment), after my last trip I feel like I'm finally getting my arms around the story.

A lot of this has to do with an investment I'm involved in now in Fuzhou, China, one that I continue to buy into in drips and drabs (because there is virtually no volume in the darn thing), and part of the story is a large piece of land, 35 miles from the main plant, where far more capacity is to be built. [It's in the biodiesel business, you may recall.] In my trip there ten days ago it was impossible to check out the new site but management laid out the plans on the table for me, though it requires a leap of faith on my part. Will this company expand in 2008 as they've told investors? If they do, it's a home run. If they don't, I may have to sell my place in New Jersey and live in a hovel in Fuzhou because I won't be able to live here.

And so last Sunday, after describing to you my trip to Fuzhou, I hopped on the high-speed ferry from Hong Kong to Macau to check out a place I was last at three years ago. I wanted to see for myself the incredible development I've been reading about and let me tell you, it's happening. Aside from the fact Macau has surpassed Las Vegas as the gambling capital of the world, you just can't believe how quickly the projects are going up. Even more so than Shanghai, Macau is a microcosm of the incredible China boom. If Sheldon Adelson, Steve Wynn or Stanley Ho says a casino resort is going up by first quarter 2008, it will be completed by then. None of this screwing around, five years after 9/11, to figure out what to do down at the World Trade Center, for example. In China, and elsewhere in Asia, bureaucracies, government regulations, and town councils be damned. If you want to put a skyscraper on the corner, just do it. [Watch out for the little lady living in the last building you're about to bulldoze, however. No reason for a senseless loss of life. And be prepared to grease more than a few palms.]

I couldn't stand Macau, by the way, but adding up my experiences from 2004 and 2007, I decided to take the leap of faith back in Fuzhou. If they say the plant is going to get built, it will. After all, for starters, labor costs aren't a problem. I left some $40 tips with those who helped me there and I learned later I matched their weekly salaries.

So when I see 11% GDP growth, such as that announced for the first quarter by China this week, it's no longer a shock to me. It also shouldn't be a shock to hear that tax revenues are up 25%. [More for China's military?take note, Secretary Gates.]

But there are so many problems to talk about. Aside from the issue of rich and poor, something I now worry about more than ever because I wonder about the plant I'm investing in and labor relations as a subset of the potential for overall unrest in the country, the paramount risk is bird flu. I've been through the live poultry markets in Hong Kong, and others like them in Asia, but there was something about seeing the duck farms in Fuzhou that crystallized the risks from an economic standpoint. It's certainly not comforting to read this week that China has not shared samples of human bird flu cases with the World Health Organization in over a year, according to a WHO spokesman on Wednesday. I read from a piece in the South China Morning Post that "Telephones at Beijing's Health Ministry rang unanswered."

There is also the troublesome issue of the tainted pet food. It increasingly appears that two Chinese manufacturers intentionally added a chemical, melamine, to falsely boost the nutritional content. What should scare everyone is that so little of China's product is inspected, unlike here in the U.S. I think about all the steel plants that introduce metals into the food chain as but one danger.

On the industrial side, what an incredibly awful accident took place this week. 32 workers were killed when they were buried in white-hot molten steel at a factory in Northeast China. According to the London Times, "The mishap was triggered when a 30-ton-capacity steel ladle sheared off from the blast furnace, spilling liquid metal onto the factory floor three meters below. The molten steel engulfed an adjacent room where workers had gathered for a routine shift change." They say the liquid reached a temperature of 2,732 F., and the incident is further proof of the simply dreadful industrial safety record here.

Then there is this one from the South China Morning Post.

"About 450 people were hospitalized in southwest China after a fertilizer plant discharged a 'huge amount' of sulfur dioxide, state media said on Wednesday." Thankfully, all were said to be in stable condition.

Which brings me back to the issue of pollution. The International Energy Agency said by 2008, China will have surpassed the U.S. in terms of greenhouse gas emissions; a full 12 months earlier than a recent estimate. Per capita emissions may be small, but it's about the giant coal plants and an economy chugging along at 10% that is using up a ton of it.

Of course the world is going to see for itself just how bad things are during the Beijing Olympics next year. Or, hopefully, we'll get a sense of improvements. The government knows it has huge issues to deal with, but first and foremost it has to keep a restive population employed, so it's a wicked tradeoff?progress vs. clean air and water.

When I was in Hong Kong, the Chinese government released its first ever report on the health of the largest river, the Yangtze, and the diagnosis was "critical." Typical of the country on the water front, though, was the conclusion of the chief scientist on the project. "The impact on human activities of the Yangtze water ecology is largely irreversible." Of China's 660 largest rivers, about 275 are so contaminated the flows can't even be used for agriculture. [Which is related to the pet food story.]

It turns out that when I was writing my column from Hong Kong last Saturday, it was the worst day for air pollution there since March 22, 2001. "Environmentalists said the sources of yesterday's pollutants were largely local and provided strong proof that the government's Action Blue Sky program lacked substance."

There's a big debate in Hong Kong right now on the building of 12 new high-rises in a dense area (as if the whole city isn't). 12 buildings, 33 to 46 stories high, on an area 1/10th of a square kilometer. Those in the know say this creates a canyon effect, "under which air would be trapped and pollution would stay. The effect is seen in urban areas such as Hong Kong when the height of the buildings is twice the width of the streets." [I never knew this.] Of course you junior climatologists out there probably know that all these skyscrapers lead to well above normal temps at night since the areas just don't cool. [Good if you like it warm. Bad for further straining utilities.]

Well, I know I'm rambling, but sometimes I need to clear the deck on a few issues and this is one of them. What I'm leading up to is not necessarily the global warming story, but pollution control.

Friends, like I said in all my time in Asia I've never really seen blue sky. I remember long stretches growing up in New Jersey when the pollution was awful, let alone the stories that our California friends could tell us. These days we have a ton of gloriously sunny skies of blue where I live. But this Sunday, Earth Day, just take two seconds (if you can stomach it) to thank Richard Nixon, because whether you hated the guy or not (I liked him, at least then), he was responsible for the Clean Air and Water Act of 1970. He did it for political expediency, no doubt, but today he deserves the credit. We've gone through some real peaks and valleys with the environmental movement since then, but we had to start somewhere and, personally, clean air and water is indeed our birthright. Today, though, how do we convince the developing world it must be a focus of theirs too?

If you don't believe in the whole global warming issue, so be it. But you can not deny for a moment that we must do all we can to protect the skies and water. And that spells opportunity.

CNBC had United Technologies CEO George David on the other morning and alternative energy projects are taking off like gangbusters at his global operation. Going green is officially irreversible. Sometimes I feel like I myself needed to be hit in the head with a brick to understand this, but on the other hand the investment returns haven't necessarily been there. Today, they are emerging, and so I have investments in two solar companies, one big, one small, the biodiesel operation in China, and my small holding (once large) in the carbon fiber operator (think wind power).

You still have many detractors out there, no doubt. Last Sunday's New York Times had an article on how solar is simply uneconomical. But the economics will change and, coupled with government subsidies, at least initially, the survivors will thrive. [Ethanol, however, is a totally different topic on a number of levels.]

But to attempt to complete the circle, and going back across the Pacific, yes, China is overheating, in more ways than one. They must face their critical environmental issues immediately. In some areas the land is literally dying, including in critical regions where the water table is dropping at unbelievable levels.

China's attempts to go green thus far have been virtually nonexistent, and when they've tried to do the right thing, more often than not they fail. Such as in one area of the North Plains, where desertification is rushing in. About six million fir tree saplings were planted and guess how many survived? Zero. Beetles immediately ate them.

So in light of all the above, why then would I invest so heavily here? I guess I'm like all the Chinese gamblers I saw packed into the Sands Macau casino. It's a crapshoot, in some respects. I see a window of opportunity from an investment standpoint, albeit perhaps a narrow one. If it hits, I hope to be smart enough to get out before the day of reckoning, which is coming. Friday afternoon I caught Larry Kudlow's program on CNBC and in a panel discussion on China, not one of five guests mentioned China's environmental issues. What a mistake.

Street Bytes

--It's pretty hard not to go up when the likes of Coca-Cola, Johnson & Johnson, Eli Lilly, Schering Plough, United Technologies, JP Morgan, Honeywell and Caterpillar report solid earnings. Throw in confirmation of a $25 billion merger, such as that of Sallie Mae, and a respectable retail sales figure for March, plus the aforementioned tame inflation reading, and you have the makings of a rally. The weak dollar is also aiding U.S. exporters (while hurting our European brethren shipping their goods over here), and markets worldwide have been soaring; sloughing off another hiccup in China.

The Dow Jones now sits at 12961, while the S&P 500, at 1484, is just 43 points shy of its all-time mark set back in 2000. Even Nasdaq is back to 2526.

--On the housing front, some critical data is coming out over the coming week but for now the news still isn't good, nor will we be able to describe it as such for quarters to come. If you're a bull, you first need to start hearing the term 'stability' month after month. Homebuilder D.R. Horton's CEO Donald Tomnitz said "I don't see stabilization in very many markets," adding "It will get more challenging, certainly, in the next six to 12 months."

Foreclosures, nationwide, are up 47% from year ago levels, with the biggest damage continuing to be in California, Florida, Texas, Michigan and Ohio. When it comes to those entering the foreclosure process, in California the figure is up?now get this?800% from a year earlier. [Take a moment to clean up the coffee you just spit up.] But when it comes to the subprime market, Washington Mutual is emblematic of the ongoing problems, as it cut lending to the sector by 51%. However, the big guns such as Freddie Mac and Fannie Mae, as well as WaMu, are exploring ways to help out those in dire need by reworking some of their mortgages.

--U.S. Treasury Yields

6-mo. 5.04% 2-yr. 4.65% 10-yr. 4.67% 30-yr. 4.85%

Rates rallied across the board on the better inflation news and weren't impacted by a continued slide in the dollar.

--A study of Iraq's potential oil reserves reveals they could be double what had been thought, with much of it in the western desert of Anbar; obviously where some of the worst violence has been in the war. But of Iraq's 78 oilfields identified as commercial by the government, only 27 are currently producing, according to the Financial Times.

--My friends at Strategic Energy Research passed on a note from China National Petroleum Corp. that the country's reliance on oil imports will rise 60% by 2020, far higher than earlier estimates.

--Thank god the British pound hit $2 for the first time since 1992, thus making currency translation far easier as some of us read British publications. [Of course I'm being rather selfish. If you travel overseas these days, it's just further confirmation of how grossly expensive that cup of coffee or pint of ale is.] The inflation rate in the U.K. has been running hotter than expected, thus the fear the Bank of England will continue to raise its interest rates.

Meanwhile, the stronger pound has been super news for visitors to the U.S., where the Brits are coming over with empty suitcases and returning with new cars and such. The downside, aside from the prospect for higher rates in the U.K., is in potentially weaker exports as British goods become more expensive.

--Blackberry users suffered from a blackout on Wednesday due to maker Research in Motion's failure to test some new software before installation. Now I'm not a Blackberry kind of guy, but I get a kick out of how indispensable these devices have become to many of us. If they are so great, and make everyone so productive, then why are we about to report our fourth straight quarter of below normal growth in the U.S. economy? [Just kidding????or is he?]

--In the battle of the search engines, Google continues to wipe Yahoo's face all over the monitor as Google reported yet another spectacular quarter, while Yahoo fell short of expectations. Google is now handling 48% of all U.S. search queries (according to ComScore Inc.) vs. Yahoo's 28% and Microsoft's 11%, and that translates into advertising dollars, sports fans.

--Yahoo faces troubles of a different kind, too, as a Chinese political prisoner sued it in U.S. court (well, his wife did?hubby being in jail and all), accusing the company of abetting torture by helping Chinese authorities identify political dissidents who were later beaten and imprisoned. This is an old charge against Yahoo, and an important debate, but as a spokesman said, "Companies doing business in China are forced to comply with Chinese law (and when the company is presented with a request for information about a Yahoo user), Yahoo China will now know whether the demand for information is for a legitimate criminal investigation or is going to be used to prosecute political dissidents." [Miguel Helft / International Herald Tribune]

--EBay's revenues increased 27%, thanks in no small part to the weaker dollar as the online auctioneer saw international revenues climb 38%.

--In keeping with my earlier comments on alternative energy, New York Gov. Eliot Spitzer announced a significant campaign to cut the state's electrical consumption 15% from current forecasted levels for 2015. As Tom Fredrickson wrote for Crain's New York Business, "The state's '15 by 15' plan is more aggressive than any other state's plan to reduce global warming."

One item Spitzer is highlighting, aside from potentially greater use of solar and wind power, is more efficient appliances; from residential furnaces and boilers to freezers.

--Spitzer is one of many who recognize the realities of today's world. According to a new poll by the Washington Post, ABC News and Stanford University, a third of Americans now say global warming ranks as the world's single largest environmental problem, double the number of just last year. Seven in 10 want more federal action, and half believe the government should do "much more" than it is doing now. [Washington Post]

Also in the same poll, more than half say weather has become more unstable where they live. I couldn't agree more with that conclusion. Here in New Jersey, some state officials are saying we just had a 500-year storm?not 100?500. With all the other news of the week, one of the more underreported stories is the severe flooding we witnessed out of an 8-inch rainfall on Sunday. [Far more in some communities.] Damage is estimated in the $100s of millions. My own observation is that it's simply the increased intensity of the storms we've seen over the past few years that is amazing, and obviously in other parts of the country, and the world, it's the intensity of the droughts.

I have been saying for months now that the real Ground Zero for climate change is Australia and this week Prime Minister John Howard said the nation's key growing regions have all of six more weeks to receive substantial rains or basically all is lost, not just for this year, but well into the future?the damage done is that great. And the water tables, like in China, are declining precipitously.

--One of the true dirtballs of the Enron era, Joseph P. Nacchio, former CEO of Qwest Communications, was found guilty on 19 counts of insider trading, dating back to his actions in 2001 when he sold $100 million worth of stock before the company reported disappointing earnings news, this after Nacchio fraudulently hyped the company's financial condition.

--Russia is the most dangerous place to fly, according to the International Air Transport Association, with an accident rate 13 times the global average.

--Casino revenues in Macau surged 45% in the first quarter to another record haul, about $2.32 billion if I have my currency translation right; thus consolidating Macau's hold at number one. Macau is up to 25 major properties. If you want a good little synopsis of the business here, check out my "Wall Street History" link.

--Inflation Watch: Brad K., president of International Swimming Pools, your neighborhood steel pool maker for over 350 years, said prices for his product have doubled in the last 12 months. Brad notes that those of you looking for high-end steel grills should expect huge price increases as well. [Brad also concedes the housing slump will impact his business. I still expect some premium beer for the free plug, however.]

--Speaking of which?and now?the beer report?an irregular feature of "Week in Review."

Dutch brewers Heineken and Grolsch have been fined a collective 250 million euros by European regulators for price fixing. Bavaria beer, not a favorite of yours truly, was also clipped. But the ruling means individual consumers can seek compensation! Road trip???

And Anheuser-Busch Cos.' bid to register its Budweiser trademark throughout Europe was rejected. Of course Budweiser has always had problems with Czech brewer Budejovicky Budvar, which was there first, as we say in the beer biz. You might recall this was an issue at the World Cup last year.

--Intel announced its upcoming Penryn processors will boost computer speeds by 40%...which means faster pirating! Is this a great world or what?!

Iran / Iraq

I like Defense Secretary Robert Gates, though it's clear some on the right, including in Israel, are concerned he's not hawkish enough when it comes to Iran. Gates was in Israel this week and stressed diplomacy on the issue of Tehran and its bomb works, offering no sign the administration is prepared to launch a military strike.

Just how far along is Iran's program? The International Atomic Energy Agency's inspectors at Natanz (which may or may not be the only facility attempting to produce weapons grade material) concluded that Iran had only about 1,300 centrifuges up and running, not the 3,000 President Ahmadinejad and his associates spoke of the other week. IF this is indeed the only operation it is significant since it's unlikely without larger cascades Iran would have enough enriched uranium for a bomb for at least a year.

What it does prove, once and for all, is Iran's total defiance of the UN Security Council. But nothing will be accomplished on the diplomatic front without Russia and China's full cooperation and that simply isn't forthcoming.

At a military parade, Ahmadinejad reminded us all where his heart was when he said the Iranian Army will "cut off the hands of any invader." He added, Iran won't oppress another country, but also won't tolerate being oppressed. Then he signed off on an order for more weapons for Iraq and Afghanistan.

We're running out of things to say on this topic. Actually we did long ago. Despite possibly being further behind on the technical front, thanks in no small part to U.S. and Israeli schemes to inject faulty equipment into the process, Iran inches ever closer to changing the region forever.

Sec. Gates eventually wound his way to Baghdad, where he reiterated what I've been saying for a year now; Iraqis need to push through legislation on sharing oil revenues, as well as political reconciliation.

"It's not that these laws are going to change the situation immediately, but I think?the ability to get them done communicates a willingness to work together?

"It is very important they make every effort to get this done as soon as possible."

So give them a deadline. I don't blame Gates, of course, having been thrust into an impossible situation, but he has to convince Bush to go to Baghdad, get in Prime Minister Maliki's face one more time and say "Get it done!"

[If Senate Majority Leader Harry Reid had half a brain, he would take this approach instead of his incredibly dumb remark "the war is lost."]

Meanwhile, Moqtada al-Sadr wants the Iraqi government to set a deadline for U.S. troop withdrawal and he pulled his six cabinet ministers. I liked this take from a New York Post editorial.

"Much of the media is treating as disastrous the news that Cabinet ministers loyal to Moqtada al-Sadr quit Iraq's burgeoning government.

"The Associated Press said the development 'highlighted growing demands among Iraqi politicians and voters that a timetable be set for a U.S. troop withdrawal - the reason al-Sadr gave for the resignations.'

"Less cynical observers might note that Sadr pulled out his ministers because he was incapable of strong-arming Prime Minister Nouri al-Maliki into forcing a withdrawal of U.S. troops - the very people providing the necessary security for this young government.

"In other words, Sadr is abandoning the democratic path because he was unable to use it to sabotage democracy itself. For those favoring a peaceful, secular state in the heart of the Middle East, this might be considered good news.

"Sadr owes his life to U.S. forces' equanimity; even as he kills them in scores, their leaders embraced the (absurd) belief that the Shiite strongman would eventually accept Iraq's democratic status.

"Instead, Sadr on Monday unambiguously pronounced his opposition to any form of constitutional, representative government. Where Sadr used his political position to obscure his role in fomenting massive violence, he has now dropped any pretense of being just another political player.

"So now that he's openly opposed to the Coalition's objectives, and Iraqi democracy itself, there's little pretending that he's not the enemy. U.S. and Iraqi troops should treat him accordingly."

For his part, Maliki said Iraq will be able to take over security in all 18 provinces by year end (they just gained control of a fourth this week). Fat chance of that.

But I need to touch on a highly important tangential issue, that being Turkey and the Kurds. A longtime reader questioned my comparing Kurdish terrorists to al-Qaeda in Afghanistan following 9/11, and thus Turkey's right to go after them in Iraq just as the U.S. went after al-Qaeda. He has a point.

However, it's important to quickly review the situation. In the April 9 issue of Defense News, Edip Baser, a retired general in Turkey's Army and now special envoy for countering terrorism, told the publication "Iraq's future is the largest issue in our relationship with the United States."

Turkey is concerned over Iraqi Kurds' designs on independence. An independent Kurdish state could prompt restive populations in Turkey to secede. The United States is urging Turkey to reconcile with the Kurdistan Regional Government, a semi- autonomous part of Iraq.

But the Kurdistan Workers Party (PKK) is a terrorist group, recognized as such not just by Turkey, but by the European Union and United States as well, and the PKK has been launching attacks inside Turkey from safe havens in Iraq. Over the last year, PKK attacks have taken 600 lives, many of them Turkish soldiers. No nation would stand by while that happens.

Edip Baser told Defense News, "If the United States sends its military to places more than 10,000 kilometers away from its soil to protect its national security interests, we also have rights?. We don't want the PKK threat to continue to hover over us like the sword of Damocles. We want the problem of the PKK's presence in northern Iraq to be resolved once and for all."

Instead, the White House runs around saying "I can't hear youuuuu." Of course when it comes to Turkey we're still paying the price for not being able to launch a force into the north of Iraq from Turkey at the start of the war. But this is a crisis, and coupled with a non-binding resolution still pending in the U.S. House calling for official recognition of World War I-era killings of Armenians in the Turkish Ottoman Empire as genocide, one that serves absolutely no purpose whatsoever in today's world except to win a few votes in selected congressional districts, you have a situation where Turkey is about to shut off use of the vital Incirlik air base; from which the U.S. has been basing much of the force used against both Iraq and Afghanistan.

But there's another mess of a situation in Turkey, internally, as Islamist Prime Minister Erdogan has yet to indicate (he has just a few more days) whether he will run for president. There have been massive protests (200,000 strong) with marchers chanting "We don't want an imam." The current president, Sezer, a pro- secularist, said the threat Islamic fundamentalism posed to his country has never been higher; as if we don't already have enough problems.

More Foreign Affairs

North Korea: North and South Korea held talks on food aid and other issues, but when South Korea pressed the North to shut down the Yongbyon nuclear program per the international agreement, the North's chief delegate stormed out of the room. Kim Jong-il wants an unconditional commitment of 400,000 tons of rice aid, while the North still hasn't been able to access the $25 million tied up in the Macau bank, though the U.S. says it should be available. North Korea says that once it receives the money, it will allow UN inspectors in. I'm taking bets. [I also totally forgot to look for the bank when I was there.]

Russia: Should President Vladimir Putin opt not to change the constitution and stay in power for a third term, as Henry Meyer of Bloomberg News reports there are signs Putin may give Russians a choice between First Deputy Prime Ministers Dmitry Medvedev and Sergei Ivanov, in an attempt to present "the appearance of democracy while guaranteeing a loyalist will succeed him."

This would be interesting, as Medvedev is liked by foreign investors and is the banker type, while I'm long on record as saying Ivanov, a career KGB spy before latching onto Putin's coattails, is a flat out dangerous man. But, as we've seen in Putin's soaring approval numbers, many Russians want a thug in power. That's Russian history, after all.

Nonetheless, this past week witnessed anti-government protests in Moscow and St. Petersburg, with opposition figure Garry Kasparov briefly detained after leading a march in the former. [Kasparov was later questioned separately by the KGB on Friday for some comments he made on radio. Picture the FBI picking up Harry Reid or Nancy Pelosi for questioning?..no jokes.]

It's all about the divide between rich and poor in Russia, just as it increasingly is around the world. Said one protester, "Putin and his team are sitting on sacks of gold, at the same time the country is breaking apart in all spheres." But, again, Putin has an 80% approval rating.

One interesting sidebar is the Kremlin's admission that the riot police may have "overreacted" in pummeling demonstrators.

Separately, Russia's deputy foreign minister was in Lebanon and he expressed reservations about establishing an international tribunal under Chapter 7 of the UN Charter for the purpose of investigating the assassination of Rafik Hariri. This is so typical of the situation we face today, as in Iran, where Russia and China continues to block the West's tough diplomatic efforts on various fronts. Chapter 7 allows the tribunal to go ahead without the Lebanese parliament's approval and the Russian foreign minister is saying it's up to Lebanon's legislative body to establish it. Of course he knows the parliament is in turmoil these days and there's no way they can establish a tribunal. Needless to say, the White House has been worthless.

Back to Sergei Ivanov, he told a NATO conference that Russia was not interested in working with the U.S. on the proposed anti- missile shield slated for Central Europe. "I honestly see no grounds to talk about potential cooperation on strategic missile defense," Interfax quoted him as saying. Earlier, Ivanov told the Financial Times in an interview, "Since there aren't and won't be [Iranian] ICBMs, then against whom, against whom, is this system directed? Only against us?"

What a piece of work he would be to deal with should he replace Putin. The Dow Jones would fall 5% the day he's elected, if people fully understood the dangers.

Ivanov and Medvedev are "First" Deputy Prime Ministers, and right below are some "Deputy" Prime Ministers, one of whom is Alexander Zhukov. His son, 24, faces life in prison if convicted of beating a man in London. Both Pyotr Zhukov and the victim are investment bankers and the victim was trying to crash a party.

But as the Moscow Times reports, this isn't that rare. The eldest son of Sergei Ivanov struck and killed a pedestrian while driving in Moscow in 2005.

"Prosecutors found no grounds for charging Alexander Ivanov, maintaining that he had been driving under the speed limit. Witnesses said Ivanov was clearly speeding."

Lastly, this weekend neo-Nazis celebrate Hitler's birthday, so foreign university students have been urged to stay in their dormitories at some Moscow schools over fears of violence. You want to know what Russia is really like these days? 22 have been killed and 130 injured in hate crimes in Moscow just this year. In 2006 the numbers were 53 and 460, according to a human rights group.

Israel: Syrian President Bashar Assad told an Arabic newspaper, "We always prepare ourselves (when it comes to Israel). Israel is a fierce enemy. We have seen nothing from it but harm. We do not know whether war will take place, but we should not disregard the possibility." [Jerusalem Post] War is not imminent, but there is little doubt Syria is preparing its defenses.

Nigeria: Last weekend's state elections were chaotic and this weekend's presidential vote promises to be even more so. Thus far the cycle of violence has gone like this. A radical Muslim cleric was assassinated, Islamic militants then stormed a police station and killed 13, and then Nigerian government forces killed 25 of the Islamists. Now I'm not great at solving word problems, but following this progression, at what point would the nation reduce its population to zero?

[As I write, word is 60 million paper ballots are late in being distributed. And Nigeria was supposed to be a model for the continent.]

Zimbabwe: It appears my prediction that President Robert Mugabe would be ousted by end of April will not come to fruition, much to the dismay of the people there. But whereas Britain and the United States are the only two countries who appear to be putting any pressure on the government in Sudan, here the two say little as Mugabe celebrated his 27th year in power by proclaiming, "Our message remains clear: that we will never hesitate to deal firmly with those elements who are bent on fomenting anarchy and criminal activities."

What a nightmare, and all so totally preventable. Now Mugabe's goons are going after aid groups, which means any badly needed food from outside won't get in.

And nice job, South Africa. Along with Russia and China, it is blocking passage of stricter sanctions on Sudan and in the case of Zimbabwe, its neighbor, it's spineless. I wouldn't invest a penny in South Africa, nor will I visit there. [I'd get trampled by an elephant, anyway.]

Somalia: This will be in the news this coming week. Over 130 have been killed in fighting and the nation faces another humanitarian crisis.

France: Round one is Sunday in the presidential vote. It seems clear Nicolas Sarkozy (the official StocksandNews candidate) and Segolene Royal will emerge to then face off on May 6. I'm interested to see how strongly right-wing extremist Jean-Marie Le Pen polls. He's at just 13% today, but pollsters here often get things very wrong.

Morocco: Police in Casablanca must be pretty good because they have confronted five suicide bombers in the past two weeks, bomb belts strapped on, who then blew themselves up, taking only two innocent lives in the process that I'm aware of, while a sixth was shot by police before he could activate his belt. This week, two of the bombers were caught near the U.S. consulate.

Spain: I've written over the years about the real estate boom here, particularly in the second-home market with buyers from the likes of Ireland and Britain, so I had to make note of a piece by Sharon Smyth of Bloomberg News.

Spanish law lets local governments claim land for projects such as schools and low-cost housing that benefit the community. But as real estate prices have soared, the rule is being used to free land for resorts and golf courses. You thought eminent domain was bad in the U.S.? The land claims are hurting Spain's reputation, to say the least, and the process is rife with fraud as town councils "have concocted urban development plans less because of their real requirements related to population growth and tourism, and more because of what often appears as their greed and avarice," according to the European Parliament's Committee on Petitions, which issued a laundry list of concerns.

Basically, if local officials mandate it, a homeowner is required to give up 10% of their land and then help the developer pay for infrastructure in cash or property, which can amount to more than half the property. It's absurd, and devastating for unsuspecting homebuyers.

The overbuilding along Spain's coast is also scandalous in terms of its impact on the environment. Foreign investment is beginning to plummet and the average selling time for new properties is a staggering 35 months.

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Pray for the men and women of our armed forces, as well as the victims of the Virginia Tech massacre.

God bless America.

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Gold closed at $692
Oil, $63.38?OPEC's productions cuts have been sticking for the most part as inventories continue to slide?and watch Nigeria.

Returns for the week 4/16-4/20

Dow Jones +2.8% [12961]
S&P 500 +2.2% [1484]
S&P MidCap +1.4%
Russell 2000 +1.2%
Nasdaq +1.4% [2526]

Returns for the period 1/1/07-4/20/07

Dow Jones +4.0%
S&P 500 +4.7%
S&P MidCap +9.4%
Russell 2000 +5.2%
Nasdaq +4.6%

Bulls 52.7
Bears 25.3 [Source: Chartcraft / Investors Intelligence]

Have a great week. I appreciate your support.

Brian Trumbore

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