Educate Yourself

Week in Review
For the week 4/23/2007 - 4/27/2007
Brian Trumbore
President/Editor, StocksandNews.com

I can't say I partied too much when the Dow Jones hit 13000 for the first time this week, seeing as I'm calling for returns that by yearend will basically be flat and we've now had a 10% advance off the lows of early March.

For a fourth straight week stocks advanced, even though the news was hardly good. Early on we learned that existing home sales in March suffered their biggest drop (down 8.4%) since 1989 and the median home price fell for an 8th consecutive month. New home sales, on the other hand, were up slightly, but they only account for 12-13% of the total between the two most months so I wouldn't get too giddy over that.

Of more importance was the word from homebuilders such as Pulte, Ryland, and Beazer that they were suspending earnings guidance for the balance of 2007. They haven't a clue how the sector is going to pan out. And a survey from Case-Shiller, increasingly important data these days, revealed home prices declined in 17 of 20 major markets in February over January. I'll never forget a conference I attended about ten years ago where the great Peter Lynch said home prices, nationwide, never go down in any one year. Sorry, Peter. Time to rewrite the script.

The Federal Reserve's survey of economic activity around the country noted that residential real estate "continued to weaken" and there is further data showing that the use of home equity loans is finally beginning to dry up, which obviously means reduced consumer spending down the road. Additionally, real estate taxes are rising, even as the value of your home is at best stagnating. Between home equity loans and this last item alone, you can see how housing, broadly defined, is having a negative impact on the overall economy.

This was borne out Friday with the release of first quarter GDP, up a paltry 1.3% and far below the consensus estimate, which means that the last four quarters we've now seen the following growth on an annualized basis:

Nothing to write home about, that's for sure, and it can now be said the United States is the weak puppy in the entire world when it comes to economic growth, except for Zimbabwe.

So why then is the Dow at 13000? Normally, slow growth plus low inflation is the perfect tonic for equities. It keeps the Fed at bay while allowing for growth in earnings, and thus share prices, over time.

Earnings have been coming in better than their beaten down expectations thus far in looking back at the first quarter, but when you see a GDP number like 1.3%, it doesn't give one a warm and fuzzy feeling about future reporting periods.

But why are earnings still hanging in there? It's the growth overseas, to a large extent, as U.S. multi-nationals sell more and more of their product to the rest of the world. More than a few big names, like IBM and GE, generate 50% or more of their revenues outside America these days and with a weak dollar that adds to further pennies per share when foreign sales are translated back into greenbacks.

The other day the Journal asked whether the stock market is providing reassurance or is it out of touch? I liked the two economists they picked to offer differing opinions.

Merrill Lynch's David Rosenberg thinks the market is too optimistic. He says there is a "disconnect" between it and the economy. After all, in 60 years we have never seen four straight quarters with below 3% growth without being followed by recession.

ISI Group's Ed Hyman, though, says the Fed has raised interest rates just enough to slow the economy and bring inflation under control, which thus obviates the need for further increases that may otherwise tip us into recession. As Hyman told the Journal's Greg Ip, the economy could weaken further but that would allow the Fed to lower rates and this should more than offset any drag from weaker growth and profits.

So who will be right? My guess is Rosenberg, but we may muddle through for a while longer, and he himself is not forecasting recession just yet. It just needs to be remembered that housing impacted the GDP negatively a full one percent last quarter and it's going to continue to have a similar effect the rest of the year.

Finally, gasoline futures finished the week at the $2.35 level, meaning the average nationwide price at the pump will hit $3.00 in short order if we stay at this mark another week or so. With demand still strong and maintenance issues at our rapidly aging refineries, inventories continue to tumble. Thankfully, the Saudis appear to have broken up a major terror network that had its sights set on Saudi oil facilities, as well as the attempted decapitation of the kingdom's leadership, it would appear. Had they succeeded we would have been talking $4.00 in the blink of an eye. [Facts are still coming in on this last important news item so I'll defer further comment for now.]

--For the week the Dow Jones picked up another 1.2% to 13120, the S&P 500 gained 0.7% and Nasdaq 1.2%. Earnings were once again generally above reduced expectations with companies such as Texas Instruments, Apple, AT&T, 3M, Amazon and even Ford beating the Street. It now appears first quarter results will come in somewhere between 7% and 9%, when closer to 4% was forecast. But the transport sector, including the likes of UPS and various trucking stocks, weakened on cloudy guidance for the balance of '07.

Once again little to say about the action in the bond pits. Rates were virtually unchanged as the economic data points to a Fed that will once again hold the line when it next meets.

--BlackRock CEO Larry Fink garnered a lot of press for an interview he did with the Financial Times. Fink is concerned about rising debt levels, falling risk premiums and loosening credit standards in leveraged buy-out vehicles in particular.

"If I was chairman of the Federal Reserve, I'd be paying more attention to that because, to me, this is going to be tomorrow's problem. Standards have deteriorated to levels that we never even dreamed we would see."

--Historically, it certainly has made sense to "sell in May and go away" until November; May through October being a poor stretch most years. Since 1945, for example, the S&P 500 is up only 1.6% May through October, but up 7.1% November through April.

--Euro-zone retail sales rose strongly in April and the unemployment rate in France fell to a 24-year low, 8.3%. In the euro region overall, the jobless rate is down to 7.3%, a solid achievement considering where it was just 18-24 months ago.

--In another sign of the slowing U.S. economy, remittances back home to Mexico are falling sharply thanks in no small part to the slide in housing. 1 in 5 Latino immigrants are (were) employed in the construction sector.

"U.S. homebuilders are in jeopardy of violating their lending agreements in coming months because of a drop in sales, according to Moody's Investors Service.

"More than half, or 11, of the 21 builders that Moody's rates failed to generate more cash than they spent in 2006, analyst Joseph Snider in New York said in a report today (Thursday). Homebuilders often have to promise banks that they will have twice as much operating revenue as interest expenses over a given time or the bank can demand immediate repayment of a loan, Snider said.

"The homebuilders' situation is especially dire because cash flows usually turn positive during a slump as they cut back on starts and sell existing inventory, according to the analyst. The housing market is so weak that homebuilders haven't been able to cut their inventories, leading many to ask their bankers for so- called covenant relief. Ratings may also be in jeopardy, he said. 'The next year or so for them is going to be pretty grim.'"

--Exxon Mobil reported net income of $9.28 billion, which once again has some folks up in arms, but revenue declined 2% and the company spent less on exploration and development as it is increasingly difficult to find new sources either because of regulations or, more importantly these days, political issues; the latter best represented by the likes of Venezuela and Russia. Bottom line, the world uses over 85 million barrels of oil per day and it's just tough to produce that much.

--China announced it will maintain only about 30 days of oil reserves by 2010, even though the International Energy Agency advises oil-consuming nations to keep 90 days of net imports. China is afraid that by announcing it will stockpile more, current prices could rise further. China's crude oil consumption is expected to grow by at least another 7% this year.

--One of China's more influential investors said the market there is "defying gravity." Gao Xiqing offered "It's got to come down at some point?The market is making me nervous." The benchmark Shanghai index, after all, is up another 40% thus far in 2007 after rising a stupendous 130% last year.

--China has become Japan's top trading partner for the first time since World War II, unseating the United States, even as the two have strained ties. Japanese companies continue to shift more production there. [The U.S., however, remains Japan's largest export destination.]

--Toyota Motor Corp. surpassed General Motors in quarterly sales for the first time, thus making it number one in the world. GM had occupied the top slot for more than 70 years. Toyota is expected to maintain the lead the balance of 2007. [Technically, GM is still first until it's beaten for a full calendar year.]

--Royal Bank of Scotland launched a nearly $100 billion hostile bid for Dutch banking giant ABN Amro, this after Barclay's had offered about $90 billion. Stuck in the middle is LaSalle Bank Corp., which ABN was set to sell to Bank of America as part of its deal with Barclays.

--Apple Inc.'s earnings continued to soar with revenues up another 21%. But the news was overshadowed a bit by the filing of civil charges against Apple's former general counsel, Nancy Heinen, for her involvement in the backdating of options, while former CFO Fred Anderson, who settled with the SEC by agreeing to pay $3.5 million for his role in same, said CEO Steve Jobs was warned back in 2001 about the accounting implications. Nonetheless, the SEC said it would not take any action against Apple and it would appear Jobs himself is in the clear. It's good to be king.

--Unless you were HealthSouth Corp. founder Richard Scrushy, that is, who settled with the SEC for $81 million to resolve claims surrounding the massive accounting fraud at his company. Scrushy received credit for $71.5 million he has already paid or forfeited in related cases. A jury had acquitted him on all 36 criminal counts but the SEC pursued civil charges. Scrushy's attorney claims his client has incurred more than $30 million in legal fees. The attorney said this from his Gulfstream IV, no doubt.

--The Bank of Montreal reported on Friday that it lost $404 million from natural gas trading. Those responsible have been fed to grizzlies near Banff.

--Federated Department Stores' CEO Terry Lundgren gets 40% off any merchandise he buys at his stores such as Macy's and Bloomingdale's, or twice the rate offered to most of the 188,000 in the work force. Considering Mr. Lundgren received compensation of $16 million last year, this is rather absurd.

--Vonage won a request to continue business as usual while it appeals its patent-infringement suit with Verizon, thus allowing it to sign up new customers after a trial judge had banned it from doing so. But, ridiculously, the shares rallied to $4.43 on Tuesday before wiser heads prevailed and took them back down to $3.11 by week's end.

--Amazon's revenues rose a sterling 32% in the quarter and the stock soared 20% on the news. Good for them. Jeff Bezos is having the last (hearty) laugh.

--Microsoft manipulated its earnings announcement, as it does all the time - dampening expectations so it looks better when they are actually released - but its outlook for the coming fiscal year, which begins July 1, is for earnings of $1.70 and the stock is trading at $30. Is there much room for upside? Is Vista going to do better than most now believe because regardless of your opinion on the new operating system it's being rammed down your throat?

--In a highly significant move, an Indonesian court acquitted a Newmont Mining executive of charges his company dumped dangerous levels of toxins into a bay. Richard Ness faced 10 years in prison. It would have been too easy for the court to just follow the whims of the people, but it's a positive sign for Indonesia and its developing democracy.

--No surprise here?headline in Wednesday's Wall Street Journal: "Fears Spread as Spanish Real Estate Stocks Plunge".

According to the story, one I first touched on over a year ago, "Spain's central bank calculates that housing prices?are overvalued by around 30%." 95% of mortgages here are variable-rate, in an environment where the European Central Bank has been raising them.

--In a much talked about survey by Institutional Investor, as reported by the New York Times, we now know that the top 25 hedge fund managers earned at least $240 million each last year; topped off by James Simons' $1.7 billion haul. Back in 2001 and 2002, you needed 'just' $30 million to make the list. Combined, the top 25 hedge fund operators earned $14 billion.

J. Bradford DeLong, an economist at Cal-Berkeley, said "There is some question as to what the hell they are doing that is worth" that kind of money. "The answer is damned mysterious."

A friend of mine from high school and I were talking about one of our teachers back then, a great man, now retired, who influenced many a life for the better and someone I see quite a bit of these days because of some research I'm doing. My friend, who is on Wall Street himself, correctly observed, "Who is of more value to society, Art or a hedge fund operator?" It's no contest. [I asked Art what his starting salary at Summit High School (N.J.) was in 1964; $5,100.]

--According to a study, women earn only 69% of what men earn 10 years after college.

--AT&T CEO Edward Whitacre, 65, will upon retirement in June take home parting gifts of $158 million in cash and prizes. These numbers are simply numbing these days.

--The three largest ports in the world in terms of shipping volume: 1. Singapore 2. Shanghai 3. Hong Kong. [Shenzen will surpass Hong Kong in 2008]

--My portfolio: I will not be talking about my biodiesel play in China unless I decide to get out of the position. At least for now, I'm viewing it as an 18-24 month hold.

--And we note the passing of Harold Max Mayer, former chairman of Oscar Mayer and Company and grandson of the company's namesake. Mayer, 90, was a victim of pork extenders.

I love how the far-right is seemingly incapable of hearing any voices but their own. At this point in the war in Iraq, for example, how can anyone take President George W. Bush's comment "Politicians shouldn't be telling generals how to do their job" seriously? For a president who supposedly reads up on his history and our nation's great leaders, how can he not understand that to a large extent the generals have failed him? How can he not remember the ultimate example, the pathetic General McClellan of Civil War infamy, who loved to parade his troops and drill them but was reluctant to fight? How can Bush not remember that an exasperated Lincoln finally said:

"If Gen. McClellan does not want to use the Army, I would like to borrow it for a time, provided I could see how it could be made to do something." --March 11, 1862

I will say, however, that at least the current commander in Iraq, Gen. David Petraeus, seems to get it. It's his predecessors who needed to be told how to conduct their job, and who failed to give the president the truth.

But in dissent these days, Congress has failed those who seek an end to the war. Our brave men and women of the armed forces have suffered enough under dismal leadership only to have Democrats compound matters with comments such as that of Senate Majority Leader Harry Reid that "the war is lost."

Both the House and Senate worked out their differences on earlier measures and approved funding for the troops but called for a timetable for withdrawal, starting in October and wrapped up by April 2008. The vote in the House was 218-208 and in the Senate 51-46, so President Bush's threatened veto can not be overridden.

But I have little respect for the debate that has been taking place because it is not addressing the paramount issue. It's not about setting timetables for troop withdrawals, it's about getting the Iraqi government and the various factions to come together and sign items like the oil revenue-sharing bill, or there is literally no sense in us being there, period. I know I'm a broken record on this but you can't advance to second base until this one single act is accomplished.

Believe me, I understand when Senator Joseph Lieberman says the "battle of Baghdad is increasingly a battle against al-Qaeda" as al-Qaeda attempts to reignite the sectarian violence.

"Al-Qaeda, after all, isn't carrying out mass murder against civilians in the streets of Baghdad because it wants a more equitable distribution of oil revenue. Its aim in Iraq isn't to get a seat at the political table; it wants to blow up the table - along with everyone seated at it."

Lieberman goes on to say, "To me, there is only one choice that protects America's security - and that is to stand, and fight, and win."

But, senator, there still must be some political progress or it is insane to continue as is. If, as is clear, Prime Minister Nouri al- Maliki isn't up to the task, replace him. I do agree with the comment of Senator Chuck Hagel when he writes, also in the Post:

"(The) administration and Congress must untangle themselves from the debate over funding our continued involvement in Iraq. The Iraqis must be jolted into understanding that America's continued commitment of troops and money is not open-ended. Significantly, American leaders in Iraq told me that they believed the debate on this issue in Congress had actually helped them get Iraqi leaders to grasp this point.

"I do not like restricting our war policy with conditions or timelines. They are blunt instruments in an area of policy that requires flexibility. But they are some of the few levers Congress has when the majority of Congress and the American people have lost confidence in the president's policy?.

"I came home from my fifth trip to Iraq with one enduring impression. The Iraqi government must make the tough choices now to produce political reconciliation. If there is no such reconciliation in Iraq, there will be no progress - no matter how many American lives we lose and how much American money we give. We will have squandered our resources and efforts, undermined our interests in the Middle East and, however unintentionally, produced a more dangerous world."

But back to the U.S. military, I can't help but discuss the way the death of Pat Tillman was handled and needless to say his brother Kevin's testimony this week was both riveting and gut- wrenching.

"Within hours of Pat Tillman's death, the Army went into information-lockdown mode, cutting off phone and Internet connections at a base in Afghanistan, posing guards on a wounded platoon mate, and ordering a sergeant to burn Tillman's uniform.

"New investigative documents reviewed by the Associated Press describe how the military sealed off information about Tillman's death from all but a small ring of soldiers. Officers quietly passed their suspicion of friendly fire up the chain to the highest ranks of the military, but the truth did not reach Tillman's family for five weeks."

Kevin Tillman said the government's use of his brother's death for public relations purposes and as a recruiting tool made a mockery of his brother's patriotic decision to enlist in the military and forsake $millions in the NFL.

The fairy tale "inspired countless Americans, as intended," said Tillman, also a former Ranger. "There was one small problem with this narrative, however: It was utter fiction?.Revealing that Pat's death was a fratricide would have been yet another political disaster in a month of political disasters, so the truth needed to be suppressed."

As Tillman's mother, Mary, added, she believed former Secretary of Defense Donald Rumsfeld had to have known the details. As yet Rumsfeld hasn't commented. All of us deserve better, none more so than the soldiers and their families.

Iran: Back on 3/10/07 in this space I told you to watch the latter part of May, because it is then the Iranian government will be hiking the price of fuel.

"Look for major protests, possibly bloody ones, if the government follows through. The U.S. can benefit; but if you knew this wouldn't you be talking to the opposition today, as I've advocated?"

"Every conversation in (Tehran) last week seemed to revolve around the imposition of petrol rationing on May 21. Subsidized petrol will rise from 800 riyals to 1,000 riyals per litre. Far worse in this sprawling traffic-choked city, only three litres a day will be available at that price?.

" 'It is one of the most sensitive decisions ever taken in the history of the Islamic Republic of Iran,' said Saeed Laylaz, an Iranian economist. 'There will be dissatisfaction, unrest and more inflation. At worst, there will be an explosion in the social structure.'"

Russia: What a pain in the butt Vladimir Putin is. In his annual (and possibly last) state of the union message to both houses of parliament, Putin announced he was suspending a critical Soviet- era arms treaty with NATO. To thunderous applause, Putin asked legislators to back a moratorium on Russia's participation in the Treaty of Conventional Armed Forces in Europe and consider withdrawing altogether if NATO members refuse to ratify an updated version.

But here's the deal. The treaty regulated the deployment of non- nuclear weapons around Europe, but NATO insists Russia make good on a pledge to withdraw its troops from Georgia and Moldova, two hot spots, though this demand was made eight years ago. No one, including the United States, will ratify the revised document until Russia complies with its commitments.

Putin also blasted U.S. plans to deploy components of a missile defense shield in Czech Republic and Poland. "For the first time, elements of U.S. strategic weaponry could appear in Europe. It is evident that such U.S. plans?are not a problem in U.S.- Russian relations only."

The next day Putin went further, saying, "The threat of causing mutual damage and even destruction increases many times. This is not just a defense system, this is part of the U.S. nuclear weapons system," he reportedly told Czech President Vaclav Klaus.

I haven't spelled out before just why on this issue Putin is a crock of borscht, but I'll let Secretary of State Condoleezza Rice do the honors.

"Let's be real and realistic about this. The idea that somehow 10 interceptors and a few radars in Eastern Europe are going to threaten the Soviet strategic deterrent is purely ludicrous and everybody knows it."

Yes, she accidentally said "Soviet," for which she caught some grief in the Russian press. But of course Washington is right on this one. The deployment is aimed against the likes of North Korea and Iran down the road. You also have to understand how this works technically. If Russia fired a missile along its border, I don't believe the interceptors would even have enough time to react. The debate is absurd.

But Putin wasn't finished. On Thursday he also warned that foreign financing of nongovernmental organizations was meddling in the country's internal affairs.

"There is a growth in the flow of money from abroad to interfere directly in our internal affairs. Skillfully using pseudo- democratic rhetoric, there are those who would like to return to the recent past - some to loot the country's national riches and to rob the people and the state, others to strip us of economic and political independence."

Without actually saying it, Putin was blaming the U.S. I also have to note again that if Sergei Ivanov, one of two in line to replace Putin, is indeed the handpicked successor, watch out. He would be worse than Vladimir, sports fans.

But this was a week when we bid farewell to Boris Yeltsin, a titanic figure of the 20th century. Despite his mixed legacy, it needs to be noted his funeral took place in a church. Before Boris, that wouldn't have been possible.

We'll always remember Yeltsin on the tank, ending 70 years of communist rule in Aug. 1991 as he rallied the people against an attempt to overthrow Mikhail Gorbachev over the latter's policy of glasnost and perestroika. But then there was Chechnya and the mass privatizations that led to the oligarchs, and of course his now ill-fated decision to elevate Putin. Today, though, we remember the positive.

"He gave Russia freedom. He gave millions of Russians including myself the chance to realize themselves. He destroyed censorship. He created political competition and he allowed regional federalism to develop. He liberated Russia.

"His successor has cynically destroyed all that he did. Instead of freedom we have censorship. Instead of political competition there is the monopoly of the Kremlin. Instead of federalism there is the abolition of elections for governors."

"I think history will judge Boris Yeltsin very positively. He was instrumental in the most important and positive transformation of our lifetime, which consists of the end of the Cold War, the end of the Soviet Union and the beginning of Russia's integration into the west.

"He was a man of great complexity but also of huge courage? One of his driving passions was to drive a stake through the heart of the Soviet-era Communist party and make sure it did not come back from the dead.

"It is a great irony on the day of his death that in speaking of Yeltsin's legacy we also have to look at Mr. Putin. That too is part of Mr. Yeltsin's legacy. But I am convinced that in picking him, Mr. Yeltsin did not think he was putting Russia on a course back."

"It was because of Yeltsin's passion for freedom that he fell out of favor with the Party in the late 1980s, climbed up on a tank during the putsch of 1991 and didn't cancel elections or shut down television stations.

"Comparisons make everything clear. Yeltsin was accused of corruption, but the worst that history can get him for was the dubious appointment of his daughter and son-in-law to head Aeroflot. Billionaires Mikhail Fridman (sic), Mikhail Khodorkovsky and Vladimir Potanin amassed their enormous fortunes without Yeltsin's patronage.

"This is in direct contrast to today, when all of President Vladimir Putin's former colleagues from his security services and Ozero-Moscow dacha co-op days have taken major roles in the country's gas, oil, uranium and armaments industries.

"The media ruthlessly criticized Yeltsin for the war in Chechnya and for drunkenly conducting oom-pah music in Germany. But no journalists were gunned down for this and not a single television station owner was jailed.

"How different from today's Russia, where nobody dares criticize Putin publicly." [The Moscow Times, BBC News]

China: Last week I stated it would be a "mistake" to ignore the nation's "critical environmental issues" and two days later there was all manner of talk on just this topic. A top official at the National Development and Reform Commission, in addressing the economy's stupendous growth, said:

"If industrial production continues to expand, it will not only accelerate economic growth, lead to over-consumption of resources and energy, and increase emissions of pollutants, but also make it more difficult to adjust economic structures, put pressure on economic stability and therefore possibly lead to big swings in the economy." [South China Morning Post]

Power consumption of the six industries that consume the most energy - steel, nonferrous metals, chemicals, power, petroleum processing and coking and construction materials - increased 18% in the first quarter. The same official added "cutting emissions remains a grim challenge."

A report out of the National Climate Change Assessment, years in the making, concluded on Monday that "Climatic warming may have serious consequences for our environment and survival as China's economic sectors, such as agriculture and coastal regions, suffer grave negative effects."

"If we prematurely assume responsibility for mandatory greenhouse-gas emissions reductions, the direct consequence will be to constrain China's current energy and manufacturing industries, and weaken the competitiveness of Chinese products in international and even domestic markets."

Coincidentally, the Ministry of Land and Resources also noted on Monday that 10% of China's arable land is "contaminated by pollution and the situation is getting worse?Contaminated land suffered from polluted water, excessive fertilizer, heavy metals and solid wastes." [China Daily] The ministry concluded metals alone had contaminated 12 million tons of grain.

And the Yangtze River Fisheries Research Institute said decreasing river levels and pollution have taken their toll on fish stocks, with the number of sturgeon migrating to the river each year down 75% in the last two decades.

I noted last week that the government was concerned about the tainted pet food scare and the damage it could do to the reputation of China's food industry worldwide. In the last few days, Beijing first allowed the U.S. Food and Drug Administration to help in its own investigation into whether the chemical melamine had been introduced into the food supply, and then by week's end Chinese authorities acknowledged that melamine was indeed employed in the pet food production process at the two companies in question. But it wasn't ready to say melamine was the actual cause of death for dozens (if not hundreds) of pets.

Meanwhile, nine Chinese oil workers were among 74 killed in Ethiopia in an attack on an oil exploration site. A separatist group that had previously told foreign oil companies to leave the area claimed responsibility.

And then there is the issue of the Olympic torch. Beijing claims Taiwan and the mainland agreed on a plan, but Taiwan wants to make sure the torch passes through "under the principle that Taiwan is treated equally as a sovereign and dignified nation," as the vice-chairman of Taiwan's Mainland Affairs Council put it. The International Olympic Committee lists Taiwan as an independent sports entity under the name "Chinese Taipei," instead of "China Taipei" as Beijing has called it in an attempt to place the island under the mainland's control. On Thursday, China labeled the Taiwan leg of the flame relay as a "domestic route."

You have to picture that legislative elections are being held on Taiwan this December and then next March is the presidential vote. The ruling pro-independence party has insisted the torch must not enter or leave the island via the mainland, Hong Kong or Macau, because that would mislead others into thinking Taiwan was part of the mainland. The government wants it to first pass through a third country.

Israel: Not for nothing but the government here is a mess. The finance minister was forced to step down amidst the latest corruption scandal, this one involving allegations of fraud when he headed a workers' union, leaving Prime Minister Ehud Olmert to act as finance minister along with his other duties. Next week a report is released on the government's handling of last summer's war with Hizbullah.

Turkey: Prime Minister Erdogan opted not to run for president and instead, the foreign minister, Abdullah Gul, is expected to be confirmed by parliament over the coming week or so. [He missed by ten votes on the first ballot, Friday, though the opposition is attempting to challenge the selection of Gul in the courts.]

While Gul is liked by Western governments, he is part of the ruling Islamist party machinery and his wife wears a head scarf. For secular Turks this doesn't sit well. Assuming Gul is eventually confirmed, his party would then occupy the seats of president, prime minister and parliament speaker.

But now there is late word the military is restless. Turkey has witnessed five coups in the last 50 years.

France: As expected, Nicolas Sarkozy and Segolene Royal now square off on May 6 after last Sunday's first round of balloting. Incredibly, 85% of the French people turned out as Sarkozy garnered 31% to Royal's 25%. [Bayrou 18%; Le Pen, in his swan song, 11%.] Sarkozy will take it, but it's going to be very close. This week he threatened to tax Chinese companies if China doesn't cap its emissions, blamed Washington for not signing the Kyoto Treaty, and threatened to pull France's remaining troops out of Afghanistan. But, in reality, he would be a friend of the U.S., compared to Chirac.

Britain: No surprise, necessarily, but the head of Scotland Yard's counter-terrorism command said al-Qaeda remains a "deadly" and "enduring" threat in Britain despite the nation's best efforts to dismantle it.

Canada: The House of Commons defeated a measure that would have forced the withdrawal of Canada's 2,500 soldiers from Afghanistan by a 150-134 margin. The bill was the result of the rising Canadian death toll, now 54. Opinion polls vary. One showed that 52% continued to support the military role in Afghanistan, while another found 61% believing the price has become too high.

North Korea: One of the top generals and its highest-ranking official to visit the United States is said to be dying. The Vice Marshal's death could bring about a realignment of those closest to Kim Jong-il. On the nuclear weapons front, Japanese Prime Minister Shinzo Abe and President Bush, at a summit meeting this week at Camp David, reaffirmed there will be fresh sanctions against Pyongyang unless the commies abandon their program. As with Iran, this game grows old.

Dow Jones +1.2% [13120]
S&P 500 +0.7% [1494]
S&P MidCap +0.7%
Russell 2000 +0.1%
Nasdaq +1.2% [2557]

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