Week in Review 
For the week 5/4/2007 - 5/11/2007
Brian Trumbore
President/Editor, StocksandNews.com

Wall Street

Republican political commentator Fred Barnes had an op-ed in the Wall Street Journal on Friday, discussing how President George W. Bush can recover his mojo (he can't), but there was a line that I got a kick out of because it sums up the confusion over the state of the economy.

"You might think the economy, robust as it is, would give Mr. Bush a boost. But it provides no help."

Well, suffice it to say, an economy that has had four straight quarters of 2.6%, 2.0%, 2.5% and, most recently, 1.3% growth is far from robust; 3% being commonly defined as "trend" economic activity.

But two items in particular can lead some to believe the U.S. economy is doing just fine; the state of the stock market and employment. Markets, in particular, run on psychology and stocks have been soaring to new highs, not just here but around the world, while employment in America remains strong, even if recent job growth seems to be non-existent.

So why then isn't the economy growing at a more rapid rate? Interest rates are still at historic lows, after all. And with investors' portfolios up a sizable amount thus far in '07 you'd think everyone would be dancing at the malls.

Of course they aren't because their #1 asset, their home (or 2 or 3 homes, as the case may be), is in most parts of the country taking on gas. In fact, some of you may be detecting a musty odor, especially if you've been trying to unload yours for six or more months, even after lowering the price time and again.

So there is a certain unease out there, even as the equity markets rally. Normally, it's healthy for stocks when investors climb the proverbial wall of worry, but this time it's a little different. When it comes to stocks, it's as if folks are thinking as they put in their 'buy' order, should I really be doing this? I'll tell you what I did this week in my own portfolio?I sold four issues and reinvested just a portion in my biodiesel play in an attempt to get closer to the 80% cash / 20% equities allocation I've been espousing in these pages for over a year now. I just don't feel real comfortable these days.

Back to real estate, those, including Warren Buffett, who don't think the subprime mortgage debacle is a big deal for the rest of the sector are flat out wrong. It has definitely impacted psychology across-the-board and led to a tightening in credit standards. Those looking to upgrade, in other words, have difficulty doing so because it's harder to sell what they own. Builder Robert Toll said it's simply a "lack of buyer confidence" and he sees no recovery in sight. Certainly the one big number that was published this week, home inventories, up 7% in April from March, doesn't help.

[I also see that in the May 21 issue of Business Week, there is a story about one of our favorite topics, homebuilders and the land they are on the hook for. There are huge liabilities out there, many hidden from the books.]

But this week was more about the consumer. April was dreadful when it came to the major retailers. The International Council of Shopping Centers, for example, said the majors saw a decline in April of 2.4%, the worst showing since the council started tracking this in 1970. And for Wal-Mart, April's decline of 3.5% was its worst single showing in 28 years. Rival Target's same- store sales were down 6%. So it would appear that what some of us have been saying for a while now is coming to fruition?.that being it takes time for consumers to recognize their chief asset's value is stagnating, at best. But when that reality hits, it's only natural to tighten the belt a bit on the spending front, and with consumer spending accounting for about 70% of economic activity, that isn't good, sports fans.

What is good, however, is the global economy, which is why the jobs picture in the U.S. hasn't deteriorated. The rest of the world is growing twice as fast as America, according to Goldman Sachs, and coupled with a weaker dollar that makes our goods cheaper overseas, non-U.S. sales by American corporations now account for 48.6% of the total revenues for companies in the S&P 500. So pray the rest of the globe doesn't catch the cold we appear to be developing, though of course it will because it is suffering from the same chief symptom we have?.a real estate bubble. Ours has popped. The rest are in the early stages of doing so; whether it's Britain, Ireland, out of control Moscow, Spain, or Australasia. And you can take that to the bank.

It also doesn't help when our own Federal Reserve at times appears to be dealing in a world with which we're not familiar. In holding the line on interest rates yet again this week, the Fed offered the same schtick?.that the "predominant policy concern remains the risk that inflation will fail to moderate as expected." It has moderated, guys and gals. The core producer price (wholesale) index for the past year is now just up 1.5%.

The Fed also said "economic growth slowed" since their last meeting, and that the adjustment in housing is "ongoing." No kidding, Sherlock. But wait, there's more. The Fed said "the economy seems likely to expand at a moderate pace over the coming months." Well if you define moderate as "trend," or 3%, you can forget that. In other words, the Fed is kind of like America's military leadership, as I'll detail below; not able to deal with the reality on the ground.

About now, though, some of you may be thinking to yourself, 'But editor, the Fed can't lower rates because the U.S. dollar would get killed further.' You'd have a point. This week the Bank of England raised its key lending rate to 5.50%, in an attempt to slow their housing sector (as well as to fight inflation). Home prices have more than tripled in the UK over the past 15 years, while, as the Journal reported, household debt in Britain as a percentage of disposable income is higher than in the U.S.

At the same time the European Central Bank, while holding the line on rates, strongly hinted it will also raise them anew come June. So investors have been dumping dollars to seek higher returns elsewhere.

But I'll leave you with a short-term item to focus on?very short- term?like on Monday. I can't remember when the last time was that we didn't have a blockbuster deal announced over the weekend or Monday morning. The mergers and acquisition boom has been a prime driver of stock prices and M&A activity is 63% higher than for the first four months of last year. April was the busiest month ever on this score. No deal announcement on Monday would be a poor sign.

Street Bytes

--The Dow Jones extended its winning streak to six straight weeks, up 0.5% to 13326, but the Nasdaq fell 0.4% to 2561 and the S&P 500 was unchanged. After plunging over 140 points on Thursday, the market rallied on Friday's punk PPI data, and retail sales figure, to conclude the Fed may be lowering rates sooner than later after all.

--U.S. Treasury Yields

6-mo. 4.90% 2-yr. 4.71% 10-yr. 4.68% 30-yr. 4.85%

Treasuries have been basically unchanged since last October, which is why I long stopped saying much about the sector. But some corporate and mortgage spreads have been widening rapidly in the derivatives/swaps market as experts such as Bank of America CEO Ken Lewis predict "We are close to a time when we'll look back and say we did some stupid things." The irrational liquidity bubble is about to pop. A few months back, as Josh P. passed along, Wells Fargo & Co. CEO Richard Kovacevich said "I am not a forecaster of the future; I'm a historian. And history says this will blow up. It always has. And there will be some blood on the street."

--It's all about China in so many ways these days. This week the benchmark Shanghai Composite soared above 4000, or up another 50% this year alone after a 130% gain in 2006. Asia's gambling culture is at work, no doubt, as trading volume hits one record after another. And, according to Xinhua news agency, in the first quarter of this year, 4.78 million stock accounts were opened and in April, alone, a further 4.5 million new accounts were set up.

China's trade surplus also screamed higher yet again, $17 billion in April, as exports rose 27% vs. an increase of 21% on imports, thereby further exacerbating trade tensions with the U.S.

But when, and how, does the bubble burst? Speculators (there are few real investors in the Shanghai market) just keep ignoring all the dire warnings, including from government officials, though I'm here to tell you I've figured it out. The game ends when there is a major run on one of China's largest banks, these institutions being poorly regulated with shoddy books and excessive loan portfolios. At least that's my prediction and I'm sticking to it.

--In the latest ranking on competitiveness, as published by Swiss- based IMD business school, the United States retained its top ranking. Project director Stephane Garelli said the U.S. position was cemented by the dynamism of its financial markets and was the easiest place to secure venture capital for business development, as well as surpassing all other economies in key technology criteria such as computers in use and hi-tech exports. In turn, the U.S. is hurt by its trade deficit and national debt levels that meant it was relinquishing its grip on monetary policy.

"It's very good to be the leader, but the problem is that the U.S. model has been copied by everyone else," said Garelli. "The U.S. constantly needs to reinvent itself because everyone else steals its recipe." [South China Morning Post]

Top Ten

1. U.S.
2. Singapore
3. Hong Kong
4. Luxembourg
5. Denmark
6. Switzerland
7. Iceland
8. Netherlands
9. Sweden
10. Canada

--Warren Buffett reiterated his warning on derivatives, "financial weapons of mass destruction," at his annual shareholder meeting.

"The introduction of derivatives has totally made any regulation of margin requirements a joke," referring to rules limiting the amount of borrowed money an investor can apply to each trade. "I believe we may not know where exactly the danger begins and at what point it becomes a super danger. We don't know when it will precisely, but?at some point some very unpleasant things will happen in the markets." [Wall Street Journal]

--A Hong Kong couple was accused by the SEC of trading on inside information concerning News Corporation's bid for Dow Jones, earning $8 million in the process. One possible contact was Dow Jones director David Li, who happens to be a friend of the couple. Mr. Li denies this.

--The chairman and chief executive of HBO, Chris Albrecht, was forced to resign after he was arrested and charged with assaulting his girlfriend in Las Vegas. The timing couldn't be worse as "The Sopranos" wraps up its run and the network looks to new programming to fill the void.

--Former New York Stock Exchange CEO Dick Grasso won a significant battle in his pay dispute when an appeals court ruled 3-2 that then New York Attorney General Eliot Spitzer didn't have the authority to bring key parts of the case disputing Grasso's $187 million pay package.

The suit sought to force Grasso to give back a large portion of his compensation, ostensibly because Spitzer said it was unreasonably high under the state's rules governing not-for-profit companies.

Two of the six elements of the case remain and with Spitzer no longer attorney general, it remains to be seen whether his successor, Andrew Cuomo, will even want to pursue the case further. Grasso still has to deal with a separate decision last fall by a New York State justice that he should be forced to give back some compensation for breaching his fiduciary duty.

--Significantly, Democrats and the administration reached agreement on labor rights for trade deals that could help passage of pending ones with the likes of Panama and Peru. [The fate of trade deals with Colombia and South Korea are less certain.]

--Purdue Pharma, makers of the painkiller OxyContin, was fined $600 million, one of the largest amounts ever paid by a drug company, for misleading regulators and doctors about Oxy's addiction properties. Three executives, including the president, also pleaded guilty as individuals and collectively agreed to pay another $34.5 million in fines.

Purdue Pharma marketed OxyContin as if it posed no threat of abuse and addiction, yet users soon discovered that when misused it produced a high as powerful as heroin. Rural areas, in particular, began to see high rates of addiction and crime related to the drug. OxyContin is pure oxycodone, a narcotic, found in much smaller amounts in painkillers such as Percocet.

--It's been a while since I updated you on the condition of Alcatel-Lucent's lawn at its North American headquarters building, located a few blocks from my home. Thanks to copious amounts of rain this spring, the lawn has never looked better, as I suspect they also may have spread some fertilizer around, aside from that left by the hundreds of Canada geese that call it home.

And so one shouldn't be surprised that ALU then reported on Friday that it saw a solid 10% gain in revenues for the current quarter, which would represent a turnaround of sorts, and the shares rose on the news. We'll take another look at the grass in July.

--With the latest wildfires in California, that verged on catastrophic, I guess it's no surprise that Allstate Corp. is going to stop writing homeowner policies in the state beginning in July. The move is being made to help the insurer control its exposure to fires and earthquakes and is in keeping with Allstate's prior actions to trim its exposure to hurricanes in states such as Florida.

--Fire ants cause $6 billion in agricultural damage annually, but now researchers may have pinpointed a naturally occurring virus that kills the ants. The U.S. Department of Agriculture is seeking commercial partners to develop the virus into a pesticide. I'll pass.

--Where have I been? I never knew that sometimes when you pay for five gallons of gas, you aren't actually getting that much. As noted in the Los Angeles Times, "Fuel expands when temperatures rise. And because gasoline station nozzles don't adjust for the change, motorists and truckers end up with less of the energy that keeps engines humming." In California, this is costing drivers $480 million annually. It's a particularly big issue for truckers. Congressman Dennis Kucinich is set to hold hearings on "hot fuel."

As reporter Elizabeth Douglas notes, "At 60 degrees, a gallon is 231 cubic inches. But when fuel is warmer than 60 degrees, the liquid expands. When it's colder, the fuel contracts?.Wholesale facilities are equipped with devices that adjust volumes to bring the gallon tally in line with the 60-degree standard."

--Here are the top three most expensive homes on the market in America these days.

$155 million - The Pinnacle at Yellowstone Club, Big Sky, Montana

$135 million - Hala Ranch, Aspen, Colorado

$125 million - Trump Estate, Palm Beach, Florida

A new magazine featuring such spreads, "Ultimate Homes," is hitting newsstands this week, in case you're in the market for one yourself. The Pinnacle abode is 32,000 square feet and situated on 160 acres with 360 degree views of the Rockies. But? you run the danger of being mauled by grizzlies.

--It's all about clean energy, these days. General Motors became the first U.S. automaker to join a coalition of companies, including General Electric, calling for mandatory nationwide caps on global-warming pollution. But GM doesn't support tightening of fuel-economy standards, so it's nothing more than a PR stunt.

That said, Corporate America is clambering aboard the green train at light-speed. Citigroup announced a $50 billion initiative to support investments in "clean" technologies, as well as improving the carbon footprint on its own facilities.

Meanwhile, the total value of new buildings seeking the U.S. green building rating rose 50%. As reported in the Financial Times, in New York, every one of the more than 50 projects valued above $25 million now being developed in Lower Manhattan is being built along environmental guidelines.

And Wal-Mart wants to be known as the green retailer, installing solar panels in 22 stores in California and Hawaii. Kohl's previously announced it will convert 64 of its 80 California stores to solar.

Lastly, I know one reader, Chris C., who will be pleased to learn hedge fund king Paul Tudor Jones is backing a project involving underwater turbines (tide power) in New York Harbor that capture the current and turn it into electricity.

So the march to alternative energy is now unstoppable and this is a good thing. There will be big winners, as well as countless losers, though, so hedge your bets, just as I'm attempting to do with my own investments in solar, biodiesel, and wind power. But for those of you promoting ethanol, check out my latest "Wall Street History" piece for further enlightenment. We're starving the poor on this one.

--Speaking of the above, I have to add some comments I just received from my friend Ken S. in Omaha as I was wrapping up this column. Ken writes on ethanol:

"There are plants being built or planned about every 20 to 30 miles in central Nebraska. I predict corn will be $2.00 to $2.50 a bushel, 2/3 of these plants will be out of business and four times the ethanol will be produced from cellulose materials in 8 to 10 years. Everybody is going nuts around here, thinking they are all going to be rich. They are taking out mortgages on their farms to buy into the plants and you know this can only lead to trouble."

Foreign Affairs

Iraq: President Bush and Democratic congressional leaders continue to do their little dance on funding for the war, each hoping to be the female spider that then devours the male. But more than a handful of Republicans, including yours truly, are increasingly impatient with the surge, though it would appear the compromise developing is that Congress will give the president until September, and Commanding General David Petraeus' report, to prove it is working before the next true showdown. Thus far, as one U.S. officer told the Washington Post, the "number of attacks has stayed relatively constant" in Baghdad since the surge began.

President Bush also appears to be ignoring the advice of advisor Karl Rove and Vice President Cheney in recognizing that benchmarks must be in play.

And I assume a few of you noticed what happened this past week concerning an issue I brought up last time; "Wait until the American people see that the Iraqi parliament is about to take a two-month recess!"

The administration finally got the message, but not until Senator John McCain on Monday pronounced himself livid at the thought the Iraqis would do this, and then the vice president delivered the message in person in Baghdad while Secretary of Defense Robert Gates expressed his own vehement disapproval of the legislators' plans. As I go to post, however, there is still doubt as to what is actually going to occur, though in reading some editorials from the region, more than a few Iraqis feel it infringes on their sovereignty to have the United States tell them how their lawmakers are to act. Unbelievable. The White House should give Maliki two weeks to get his house in order or remove him.

But on another of my pet peeves since 2003, the state of our military leaders, retired Army officer, and fellow neocon, Ralph Peters had some of the following for his column in the New York Post.

"Frankly, this surge is a desperate measure after four years of blunders and dithering. It may prove too small and too late. But the stakes are so high that, despite the inevitable cost in American blood, this last gambit is worth the effort.

"And it is the last gambit. If the troop surge fails, we'll start striking the tents. Gen. Petraeus is well aware of all this. If any four-star general in active duty can make it work, it's him.

"Unfortunately, that's faint praise. The Army hasn't fielded a four-star with the breadth of vision to wage war at the strategic level and the killer instinct to win on the battlefield since Gen. Barry McCaffrey retired a dozen years ago.

"As the generals who led infantry platoons and companies in Vietnam fade from the ranks, we face an incongruous situation in which our lieutenants, captains and majors are combat veterans, while the generals above them never fought in a direct-fire engagement or led daily patrols through Indian country.

"Junior officers now have a better grasp of what war means than Army generals do. Platoon leaders want to win. The generals want to make people happy.

"For two generations, we've trained military leaders to be statesmen in uniform, downplaying pugnacity and guts. We send promising officers for Ivy League doctorates, stressed political assignments, and inducted them into the Washington-insider cult of Salvation Through Negotiations.

"Now we have bobble-head generals who nod along with the diplomats who want to hold their Versailles Conference before winning the war.

"It's past time for our senior leaders to jettison the political correctness and fight to win. But they honestly don't know how anymore. They've been so thoroughly drugged with failed academic theories about counterinsurgency-with-lollipops that they're more concerned with avoiding embarrassments than with killing the enemy?.

"We should all pray that this last-ditch effort succeeds. But we're paying for a decade-and-a-half of gutting our armed forces and sacrificing troop strength to pour money into the pockets of unscrupulous - and well-connected - defense contractors. Now soldiers die in sewage-flooded alleys while the billion-dollar bombers sit and rot?.

"Whatever happens in Iraq, the core lesson isn't that such conflicts can't be won - that's nonsense - but that you can't win if you're more concerned about placating your critics than about defeating the enemy.

"Our troops know how to fight. Their leaders don't."

Iran: Vice President Cheney warned Tehran not to think about blocking the sea lanes. He also reiterated the United States will not let Iran acquire nuclear weapons, but right now it's all just talk. What will be interesting to follow over the coming weeks is the reaction to the two kidnappings of Americans in Iran, as well as the Iranian public's reaction to the gasoline price hikes about to be imposed.

Afghanistan: In yet another serious incident, NATO confirmed that a battle between U.S. forces and Taliban militants caused civilian casualties. A U.S. Special Forces unit was ambushed and forced to call in airstrikes.

Earlier, a U.S. army spokesman said "I stand before you today, deeply, deeply ashamed and terribly sorry that Americans have killed and wounded innocent Afghan people. The deaths and wounding of innocent Afghans at the hands of Americans is a stain on our honor and on the memory of the many Americans who have died defending Afghanistan and the Afghan people."

Sadly, we're losing the battle for the hearts and minds.

France: Nicolas Sarkozy won the runoff with Segolene Royal 53- 47, while turnout matched the first round's 84%....rather staggering. Rioting in some of France's poorer areas accompanied Sarkozy's election, even though he has done more for minorities (read immigrants) over the years than any of his rivals.

Sarkozy has given himself 100 days to gain passage of his first wave of economic reforms, including loosening of the 35-hour workweek as well as tax cuts. "I will not act fast, I will act very fast," he said as he prepares to take over May 16.

But while he is definitely seen as more pro-American than Jacques Chirac, Sarkozy is unpredictable and the Bush administration should be prepared for anything. He may turn out to be our greatest friend one day, and a belligerent rebel the next.

"(To our) American friends," he said in his acceptance speech, "I want to tell them that France will always be by their side when they need her, but that friendship is also accepting the fact that friends can think differently."

One of Sarkozy's chief priorities is climate change and he has already sharply criticized the White House on this. Nor has he been too supportive of the effort in Afghanistan.

Britain: Prime Minister Tony Blair confirmed he is stepping down June 27, thus ending the longest run for a Labour Party prime minister, over 10 years. His legacy, unfortunately, is tied heavily to Iraq despite the fact Britain is in the midst of its longest stretch of prosperity in 200 years, Scotland and Wales gained their own identities and parliaments, and Catholics and Protestants came together in Northern Ireland. 54% of the British people believe Blair has been a disappointment.

But regarding the new power-sharing agreement in Northern Ireland, it was startling to see the likes of Ian Paisley and Gerry Adams laughing together.

Firebrand Paisley said, "I believe we're starting on a road which will bring us back to peace and to prosperity. And I would challenge the people of Northern Ireland to rise to the challenge today and be determined that come what may, we'll make this a country where all men and women will be equal under the law and equally subject to the law."

Sinn Fein leader Adams said, "I think what today proves is that dialogue and perseverance and tenacity and persistence can bring about results."

Back to Blair, his successor will be Gordon Brown, who doesn't face any party opposition and technically doesn't have to call an election until May 2010.

And looking at Europe, overall, in just about one year we will have had a complete turnover of the continent's three top leaders; Sarkozy for Chirac, Brown for Blair, and Merkel for Schroeder. When it comes to France, it's why I wasn't into the French bashing as much as other conservatives because I'd like to think I was looking ahead?.and indeed wrote as much.

Russia: The Kremlin has cut exports of fuel oil, diesel and gasoline to Estonia by 30% as a result of the spat over the removal of a World War II memorial in Tallinn.

And then President Vladimir Putin, in a statement at a Victory Day parade on Red Square, inferred the United States was becoming a threat on the level of Hitler, as without actually naming the U.S. he noted that the world faces threats to peace and "disrespect for human life, claims to global exclusiveness and dictate, just as it was in the time of the Third Reich."

To beat a dead horse, you think Putin is bad, wait until Sergei Ivanov is in charge.

Turkey: Foreign Minister Abdullah Gul withdrew his bid for the presidency when a second vote in parliament failed to achieve the required quorum. But, when new elections for parliament are held in July, Gul could reemerge as a candidate again. Meanwhile, the government is increasingly incensed at the Kurdish militants, who are now employing enhanced IEDs, having learned how to use them on the Iraq battlefield.

Lebanon: UN Secretary-General Ban warned of ongoing arms trafficking from Syria into Lebanon. "Any form of illegal transfer of arms not only stands in contradiction to Resolution 1701 (reached following last summer's war with Israel), it also inherently undermines the authority of the state and its monopoly on the legitimate use of force?.I am deeply concerned, however, that the existing public and media discourse - whether based on evidence or speculative - may in fact accelerate, if not prompt, a domestic arms race in Lebanon, with unforeseeable consequences."

Colombia: What a distressing time for President Alvaro Uribe, as he came to Washington to meet with congressional Democrats, seeking their support, and got an earful instead.

Editorial / Washington Post

"Colombian President Alvaro Uribe may be the most popular democratic leader in the world. Last week, as he visited Washington, a poll showed his approval rating at 80.4% - extraordinary for a politician who has been in office nearly five years. Colombians can easily explain this: Since his first election in 2002, Mr. Uribe has rescued their country from near-failed- state status, doubling the size of the army and extending the government's control to large areas that for decades were ruled by guerrillas and drug traffickers. The murder rate has dropped by nearly half and kidnappings by 75%. For the first time thugs guilty of massacres and other human rights crimes are being brought to justice, and the political system is being purged of their allies. With more secure conditions for investment, the free-market economy is booming.

"In a region where populist demagogues are on the offensive, Mr. Uribe stands out as a defender of liberal democracy, not to mention a staunch ally of the United States. So it was remarkable to see the treatment that the Colombian president received in Washington. After a meeting with the Democratic congressional leadership, Mr. Uribe was publicly scolded by House Speaker Nancy Pelosi, whose statement made no mention of the 'friendship' she recently offered Syrian dictator Bashar al- Assad. Human Rights Watch, which has joined the Democratic campaign against Mr. Uribe, claimed that 'today Colombia presents the worst human rights and humanitarian crisis in the Western hemisphere' - never mind Venezuela or Cuba or Haiti. Former vice president Al Gore, who has advocated direct U.S. negotiations with the regimes of Kim Jong Il and Mahmoud Ahmadinejad, recently canceled a meeting with Mr. Uribe because, Mr. Gore said, he found the Colombian's record 'deeply troubling.'"

Democrats are concerned about the reach of right-wing paramilitary groups, as noted in this column many times, but as the Post opines, "this has been well-known for years; what's new is that investigations by Colombia's Supreme Court and attorney general have resulted in the jailing and prosecution of politicians and security officials?.But the president himself has not been charged with wrongdoing." Instead, Uribe has been doing all the right things in paving the way for the current investigations.

"Perhaps Mr. Uribe is being punished by Democrats?because he has remained an ally of George W. Bush even as his neighbor, Venezuela's Hugo Chavez, portrays the U.S. president as 'the devil.' Whatever the reasons, the Democratic campaign is badly misguided. If the Democrats succeed in wounding Mr. Uribe or thwarting his attempt to consolidate a democracy that builds its economy through free trade, the United States may have to live without any Latin American allies."

Robert Novak / Washington Post

"(Uribe's) three day to Capitol Hill?was described by one American supporter as 'catastrophic.' Colombian sources said Uribe was stunned by the ferocity of his Democratic opponents, and Vice President Francisco Santos publicly talked about cutting U.S.-Colombian ties.

"Uribe got nothing from his meeting with House Speaker Nancy Pelosi and other Democratic leaders. Military aid remains stalled, overall assistance is reduced, and the vital U.S.- Colombian trade bill looks dead. Uribe is the first Colombian president to crack down on his country's corrupt army officer hierarchy and to assault both right-wing paramilitaries and left- wing guerrillas, but last week he confronted Democrats wedded to outdated claims of civil rights abuses and rigidly protectionist dogma?.

"Santos, a University of Texas graduate?said that failure to ratify the free-trade agreement would 'send a message to the external enemies of the United States' (meaning Venezuela's Chavez) that 'this is how America treats its allies.' He added that Colombia might 'have to reevaluate its relationship with the United States.'?.

"President Bush at least paid lip service to Uribe last week, but his concentration is on Iraq as the U.S. position in its own back yard deteriorates. Passivity is the best description of the administration's posture, while Democrats follow human rights activists, environmentalists and labor leaders on the road to losing an important ally."

I would add for six years the White House's policy towards Latin America has been pitiful, and only now, in small snippets, does the administration seem to get it. But it needs to bring Pelosi and Co. into the Oval Office and have the president tell her "Cut the crap" when it comes to this issue.

Thailand: In the worst attack against government forces in recent memory, seven Thai soldiers were killed by a roadside bomb as the Muslim insurgency in the south continues to inflict a heavy cost. 2,000 have died since early 2004.

I know one place I wouldn't be vacationing these days and that's Phuket, which is in the south of the country and a leading destination for Europeans. You're taking a risk in going there.

China: I heard from my friend Sister Joanne on the island of Yap in Micronesia where I have a church and they are working on plans for a Catholic High School, Yap being 83% Catholic. The only reason why I mention this is the Chinese Government has offered to build it since they have done similar projects on other islands in Micronesia. It's not a certainty they will, but this is a topic I've written on before when I'm in the region. As the United States abandons Micronesia, and the flow of subsidies dries up, China is moving in to fill the void. And it makes perfect sense, geopolitically. Remember, the U.S. is building up its base on the island of Guam in a big way and Yap is but an hour away by air. Beijing thinks long-term, of course, far more than the average American does with their one hour attention span, if that, so remember, China is bound and determined to have a blue-water Navy that competes with America's. Who knows?ten years from now my church might have Chinese characters on the door.

Zimbabwe: As the nation continues to implode and descend into the netherworld, the government announced 20-hour daily electricity cuts for households as supplies are shifted to irrigate the winter wheat crop amid dire food shortages. Up to $2 billion is needed to install new equipment and expand production of its crumbling power plants. They won't see dollar one.

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Pray for the men and women of our armed forces.

God bless America.

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Gold closed at $672
Oil, $62.37

Returns for the week 5/7-5/11

Dow Jones +0.5% [13326]
S&P 500 +0.02% [1505]
S&P MidCap +0.2%
Russell 2000 -0.4%
Nasdaq -0.4% [2561]

Returns for the period 1/1/07-5/11/07

Dow Jones +6.9%
S&P 500 +6.2%
S&P MidCap +11.2%
Russell 2000 +5.3%
Nasdaq +6.1%

Bulls 53.3
Bears 20.0?big drop, and lowest since Aug. '05 [Source: Chartcraft / Investors Intelligence]

Have a great week. I appreciate your support.

Brian Trumbore

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